<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1998
REGISTRATION NO. 333-40073
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PHYSICIAN HEALTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8099 58-2199947
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
PHYSICIAN HEALTH CORPORATION
ONE LAKESIDE COMMONS
990 HAMMOND DRIVE, SUITE 300
ATLANTA, GEORGIA 30328
(770) 673-1964
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SARAH C. GARVIN
ONE LAKESIDE COMMONS
990 HAMMOND DRIVE, SUITE 300
ATLANTA, GEORGIA 30328
(770) 673-1964
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
JAMES S. RYAN, III J. VAUGHAN CURTIS
JACKSON WALKER L.L.P. DOUGLAS B. CHAPPELL
901 MAIN STREET ALSTON & BIRD LLP
SUITE 6000 ONE ATLANTIC CENTER
DALLAS, TEXAS 75287 1201 WEST PEACHTREE
(214) 953-6000 STREET ATLANTA, GEORGIA
30309
(404) 881-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 7, 1998
PHC
PHYSICIAN HEALTH CORPORATION
3,000,000 SHARES
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Physician
Health Corporation (the "Company" or "PHC"). Prior to this offering (the
"Offering"), there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price will be between
$14.00 and $16.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied to have the Common Stock approved for quotation on the Nasdaq
National Market under the symbol "PHCO."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............. $ $ $
- --------------------------------------------------------------------------------
Total(2)............... $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) Before deducting expenses payable by the Company estimated at $2,500,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock, solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ , and $ , respectively.
-----------
The Common Stock is offered by the Underwriters, as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
A.G. EDWARDS & SONS, INC.
THE ROBINSON-HUMPHREY COMPANY
The date of this Prospectus is , 1998
<PAGE>
[MAP AND EXPLANATORY LEGEND SHOWING LOCATIONS OF PHC PRACTICES AND PAYOR
CONTRACTING ACTIVITIES,
AND NUMBERS OF PHYSICIANS, CONTRACTS AND COVERED LIVES]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY,
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Unaudited Pro Forma Combined Financial Statements........................ 21
Selected Consolidated Financial Data..................................... 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 31
Business................................................................. 39
Management............................................................... 56
Certain Transactions..................................................... 64
Description of Capital Stock............................................. 67
Principal Stockholders................................................... 71
Shares Eligible for Future Sale.......................................... 73
Underwriting............................................................. 75
Legal Matters............................................................ 76
Experts.................................................................. 76
Additional Information................................................... 77
Index to Financial Statements............................................ F-1
Appendix A............................................................... A-1
</TABLE>
----------------
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements examined by its
independent public accountants. The Company also intends to furnish such other
reports as it may determine or as may be required by applicable law.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. See "Risk Factors" for information that should be
carefully considered by prospective investors. Unless otherwise indicated, all
information in this Prospectus assumes: (i) a 0.314-for-1 stock split with
respect to the Common Stock and Non-Voting Common Stock (the "Reverse Stock
Split") prior to consummation of the Offering, (ii) no exercise of the
Underwriter's over-allotment option and (iii) conversion of all of the issued
and outstanding shares of the Company's Class A Stock (Series 1 and Series 2),
Series B Redeemable Convertible Preferred Stock, Series B Non-Voting Redeemable
Convertible Preferred Stock and Prime Common Stock into 3,685,889 shares of
Common Stock and 288,193 shares of Non-Voting Common Stock upon consummation of
the Offering.
THE COMPANY
Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of December 31, 1997, the Company provided payor contract
administration and related services to 25 physician networks, one of which is
owned by the Company, one of which is a nonprofit corporation of which the
Company is the sole member (together, the "PHC Networks") and the remainder of
which are independent entities that receive services from the Company (the
"Affiliated Networks"). The PHC Networks and Affiliated Networks included
approximately 3,300 physicians and 2.3 million covered lives under 29 managed
care contracts including specialty capitated and global risk contracts. As of
December 31, 1997, the Company provided practice management services to 34
physician practices ("PHC Practices") including 171 physicians ("PHC
Physicians"). The Company was a party to practice management agreements with 26
of the PHC Practices that employed 113 PHC Physicians. The Company directly
owned and operated the remaining eight PHC Practices through which it directly
employed 58 PHC Physicians.
The Company's objective is to continue building comprehensive and integrated
networks of physicians in selected regional markets in order to: (i) establish
a significant market presence enabling it to negotiate favorable payor
contracts and (ii) provide a broad range of physicians and ancillary health
care services to payors and patients. To achieve these objectives, the Company
seeks to: (a) leverage contracting expertise to enhance its strategic position
in its markets; (b) selectively acquire key practices to strengthen market
presence; (c) provide management expertise and capital for development of
ancillary health care services; (d) negotiate and administer beneficial payor
contracts; and (e) utilize information technology to improve practice
performance and meet payor requirements and patient needs. The Company believes
that the expertise of its management team in network development, payor
contracting and ancillary health care services, as well as PHC's flexible
approach to entering new markets and structuring its operations, differentiate
PHC from traditional physician practice management companies ("PPMs") and
enhance its ability to attract physicians and to negotiate favorable payor
contracts. PHC's acquisition of key practices is a part of its overall strategy
of strengthening its networks and market presence and enhancing the Company's
ability to contract with managed care payors and providers.
The Company commenced operations in 1994 as a wholly-owned subsidiary (the
"Predecessor") of Surgical Health Corporation. PHC was incorporated in Delaware
in August 1995 and acquired the Predecessor in November 1995. Prior to the
acquisition of the first PHC Practice in November 1996, the Company principally
engaged in network development and administration, payor contracting, practice
administration, and development activities related to potential acquisitions.
The Company's current regional markets are centered in Atlanta, Georgia;
Cincinnati, Ohio; Dallas/Ft. Worth, Texas; Memphis, Tennessee; Orlando,
Florida; and St. Louis, Missouri. The Company will continue to evaluate
expansion into additional regional markets. The principal executive offices of
the Company are located at One Lakeside Commons, Suite 300, 990 Hammond Drive,
Atlanta, Georgia 30328 and its telephone number is (770) 673-1964.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered hereby........................ 3,000,000 shares
Common Stock to be outstanding after the Offering.. 10,381,433 shares(1)
Use of proceeds.................................... To repay certain
indebtedness and for
working capital and
general corporate
purposes, including future
acquisitions of physician
practices, acquisitions
and development of
ancillary health care
services, and development
of physician networks and
payor contracts. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. PHCO
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------
PERIOD FROM
JANUARY 1,
YEAR ENDED 1995 TO
DECEMBER 31, OCTOBER 31,
<CAPTION> 1994 1995(2)
------------ ----------- SUCCESSOR
--------------------------------------------------------------
PERIOD FROM
INCEPTION YEAR ENDED
(AUGUST 29, DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
1995) TO ------------------- ---------------------------------
DECEMBER 31, PRO FORMA PRO FORMA
1995(2) 1996 1996(3)(4) 1996 1997 1997(3)(4)
------------ -------- ---------- -------- --------- ----------
<S> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenue................. $812 $1,949
Operating expenses:
Salaries and benefits...... 531 1,533
Contract and professional
services.................. 38 125
Provision for bad debts.... -- --
General and
administrative............ 225 463
Depreciation and
amortization.............. 58 106
Write down of assets(5).... -- --
Purchased research and
development(6)............ -- --
---- ------
Total operating expenses... 851 2,227
---- ------
Income (loss) from opera-
tions...................... (39) (278)
Interest expense, net....... 24 86
---- ------
Income (loss) before
minority interest and
income taxes............... (63) (364)
Minority interest........... -- --
---- ------
Income (loss) before income
taxes...................... (63) (364)
Income tax expense.......... -- --
---- ------
Net income (loss)........... $(63) $ (364)
==== ======
Net income (loss) per
share...................... N/A N/A
==== ======
Weighted average outstanding
shares..................... N/A N/A
- --------------------------------------------------
==== ======
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenue................. $ 456 $ 4,036 $83,815 $ 2,720 $ 15,991 $71,341
Operating expenses:
Salaries and benefits...... 362 2,915 36,015 2,123 4,880 27,889
Contract and professional
services.................. 70 194 2,777 370 746 2,715
Provision for bad debts.... 40 660 1,486 104 938 1,296
General and
administrative............ 131 2,748 33,341 1,242 11,876 33,234
Depreciation and
amortization.............. 14 161 4,025 81 732 3,144
Write down of assets(5).... -- 195 -- -- 715 --
Purchased research and
development(6)............ -- -- -- -- 13,252 --
------------ -------- ---------- -------- --------- ----------
Total operating expenses... 617 6,873 77,644 3,920 33,139 68,278
------------ -------- ---------- -------- --------- ----------
Income (loss) from opera-
tions...................... (161) (2,837) 6,171 (1,200) (17,148) 3,063
Interest expense, net....... 7 30 2,384 9 1,767 2,666
------------ -------- ---------- -------- --------- ----------
Income (loss) before
minority interest and
income taxes............... (168) (2,867) 3,787 (1,209) (18,915) 397
Minority interest........... (1) -- -- -- (2,081) 569
------------ -------- ---------- -------- --------- ----------
Income (loss) before income
taxes...................... (167) (2,867) 3,787 (1,209) (16,834) (172)
Income tax expense.......... -- 17 1,515 -- 14 (69)
------------ -------- ---------- -------- --------- ----------
Net income (loss)........... (167) $(2,884) $ 2,272 $(1,209) $(16,848) $ (103)
============ ======== ========== ======== ========= ==========
Net income (loss) per
share...................... $(0.18) $ (1.34) $ 0.20 $ (0.56) $ (5.82) $ (0.01)
============ ======== ========== ======== ========= ==========
Weighted average outstanding
shares..................... 941 2,156 11,535 2,143 2,894 11,535
- --------------------------------------------------
============ ======== ========== ======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $(5,226) $ 1,613 $19,913
Total assets.............................. 41,733 104,502 122,802
Long-term debt............................ 14,435 29,289 8,289
Total stockholders' equity (deficit)...... (9,344) 49,800 89,100
</TABLE>
See Notes to Summary Consolidated Financial Data.
5
<PAGE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
(1) Includes 288,193 shares of Non-Voting Common that will be immediately
convertible into Common Stock. Excludes: (i) an aggregate of 1,076,571
shares of Common Stock issuable upon exercise of warrants outstanding at a
weighted average exercise price of $3.10 per share; (ii) an aggregate of
1,623,442 shares of Common Stock issuable upon exercise of options
outstanding at a weighted average exercise price of $13.73 per share under
the Company's Amended and Restated 1995 Stock Option Plan (the "1995 Stock
Option Plan"); and (iii) 1,980,517 shares of Common Stock reserved for
issuance under the 1995 Stock Option Plan following consummation of the
Offering. See "Management--1995 Stock Option Plan."
(2) The Company commenced operations in 1994 as a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August
1995 and acquired the Predecessor in November 1995.
(3) The pro forma Statements of Operations Data give effect to the asset
acquisitions as if they had occurred as of January 1, 1996. The pro forma
Balance Sheet Data give effect to the asset acquisitions as if each had
occurred on September 30, 1997. See "Unaudited Pro Forma Combined Financial
Statements."
(4) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(5) The $195,000 charge in 1996 is related to the write off of operating assets
related to certain contracts that were entered into by the Predecessor and
did not conform to the Company's business plan. The $715,000 charge in 1997
is related to the write off of deferred financing fees related to a credit
arrangement with NationsCredit Commercial Corporation ("NationsCredit")
that was terminated and the write off of operating assets related to
contracts that were entered into by the Predecessor and did not conform to
the Company's business plan.
(6) The $13.3 million charge in 1997 is related to the write off of certain
purchased research and development in association with the Arlington Cancer
Center acquisition.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing any of the shares of the Common Stock offered
hereby. This Prospectus contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from those discussed
in the forward-looking statements as a result of certain factors, including
those set forth below and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; LOSSES
The Company's predecessor commenced operations in 1994 and the Company
acquired its first physician practice in November 1996. To date, the Company
has not achieved profitability. For the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1997, the Company incurred net losses
of approximately $531,000, $2.9 million and $16.8 million, respectively. There
can be no assurance that the Company will be able to generate sufficient
revenue to achieve profitability on a quarterly or annual basis or to sustain
or increase its revenue growth or profitability in future periods. See
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS RELATED TO GROWTH STRATEGY; INTEGRATION AND MANAGEMENT OF OPERATIONS
The Company intends to pursue growth primarily through the acquisition of
physician practices, growth of PHC Practices, the acquisition and development
of ancillary health care services, and the development of physician networks
and managed care contracts. As of December 31, 1997, the Company had acquired
34 physician practices, 26 of which are managed practices and eight of which
are owned practices, had interests in two businesses delivering ancillary
health care services and was providing services to 23 Affiliated Networks and
two PHC Networks. There can be no assurance that the Company will be able to:
(i) identify appropriate acquisition candidates; (ii) acquire and profitably
provide management services to additional practices; (iii) integrate such
practices successfully; (iv) develop or acquire, and operate profitably,
ancillary health care services; (v) affiliate with or develop physician
networks; and (vi) negotiate and administer additional managed care contracts.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview" and "Business--Strategy."
A significant part of the Company's growth has been and continues to be
generated by practice acquisitions. PHC's physician practice and ancillary
health care services acquisitions have all occurred since November 1996. The
Company's acquisition strategy focuses on increasing the Company's presence in
selected regional markets, thereby enhancing the Company's ability to
integrate practice management, ancillary health care services, network
development and administration, and payor contracting in its markets. Prior to
their acquisition by the Company, two practices in Orlando, Florida, Internal
Medicine Specialists, Inc. ("IMS") and Primary Care Specialists, Inc. ("PCS"),
one practice in St. Louis, Missouri, Metropolitan Plastic and Reconstructive
Surgery, Ltd. ("Metropolitan Plastic"), and an ambulatory surgery center in
Orlando, Florida were managed by persons affiliated with the Company. The
remaining practices and sleep center acquired by the Company were, at the time
of the acquisitions, managed by persons unaffiliated with the Company. The
principal benefits that PHC hopes to derive from its acquisitions are
increased revenues and profitability as well as network stability. If PHC is
to realize the anticipated benefits of its acquisitions, the operations of the
acquired practices must be efficiently integrated and, where appropriate,
combined. The process of integrating management services, administrative
organizations, facilities, management information systems and other aspects of
operations, while managing a larger and geographically expanded entity,
presents a significant management challenge. In particular, the Company must
implement an integrated financial management system that includes financial
controls and the ability to coordinate disparate financial systems. In
addition, the Company must coordinate geographically separated organizations
and integrate personnel with dissimilar business backgrounds. The dedication
of management resources to such integration efforts may detract management
attention from
7
<PAGE>
acquisition and development efforts or from the day-to-day operations of the
Company. The Company first began integrating practice operations immediately
following its first practice acquisition in November 1996 and has continued to
focus on integrating practice operations as additional practices were acquired
during 1997. There can be no assurance that the integration process will be
successful, that there will not be substantial costs associated with such
activities or that such integration efforts will not have a material adverse
effect on the Company's business, financial condition or results of
operations.
DEPENDENCE ON THE PHC PRACTICES AND PRACTICE MANAGEMENT AGREEMENTS
The Company's revenues are dependent on its affiliation with, and the
success of, PHC Practices and PHC Physicians, and on PHC's long-term
management contracts (the "Practice Management Agreements") with the PHC
Practices. A substantial portion of the Company's total revenues are derived
from management fees payable to the Company under the Practice Management
Agreements and patient service revenues generated by PHC Practices owned by
the Company. The management fees generally consist of combinations of the
following: (i) percentages of the earnings of the PHC Practices; (ii)
operating and non-operating expenses of the PHC Practices paid by the Company
pursuant to the Practice Management Agreements; and (iii) certain negotiated
performance and other adjustments. In Florida and Missouri the Company owns
certain PHC Practices and employs physicians under long-term employment
agreements. PHC's management fees and patient services revenue are dependent
on the productivity of the PHC Physicians. Some of the PHC Practices derive a
significant portion of their revenues from a limited number of physicians.
Although the Practice Management Agreements are generally for terms of 40
years and generally may be terminated only for cause, and the employment
agreements pursuant to which the Company directly employs physicians in states
in which it is permitted to do so (the "Direct Employment Agreements") also
may be terminated by the PHC Physicians under limited circumstances, any
termination or significant deterioration of the Company's relationship with
any of the PHC Practices or PHC Physicians could have a material adverse
effect upon the Company's business, financial condition or results of
operations. There can be no assurance that the Company or the PHC Practices
will maintain cooperative relationships with key physicians. In addition, such
physicians could retire, become disabled or otherwise become unable or
unwilling to continue generating revenues at their current level or practicing
medicine with such PHC Practice. The loss by a PHC Practice of one or more key
physicians could have a material adverse effect on the revenue of such PHC
Practice and on the Company. Additionally, although each PHC Practice and PHC
Physician is subject to a noncompete agreement, there can be no assurance that
the noncompete agreements can be enforced. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Contractual Agreements with PHC Practices."
CONCENTRATION OF REVENUE
On a pro forma basis for the year ended December 31, 1996 and for the nine-
month period ended September 30, 1997, 24% and 13%, respectively, of the
Company's net revenues were derived from Metroplex Hematology/Oncology
Associates, L.L.P. (the "Arlington Cancer Center") in Dallas/Fort Worth,
Texas, and 54% and 39%, respectively, of the Company's net revenues were
derived from a total of six PHC Practices including the Arlington Cancer
Center. In addition, most of the PHC Practices operate within a limited
geographic area, and a deterioration of economic or other conditions within
such area could have a material adverse effect on the PHC Practice and, in
turn, the Company and its business, financial condition or results of
operations.
In connection with a practice management agreement with the Arlington Cancer
Center, the Company is entitled to a management fee equal to 12% of the
practice's net revenues, plus 55% of the practice's net income after physician
compensation. Pursuant to a management services agreement with Southern
Dependacare, Inc. and its affiliates ("Southern Dependacare"), the Company is
entitled to a fee equal to the sum of: (i) 20% of the practice's income from
its Mississippi operations before physician compensation; (ii) 20% of the
practice's income from its Virginia operations before physician compensation;
and (iii) a flat fee related to its Illinois operations, which currently is
$1.6 million per year. In connection with employment agreements between 12
physicians and IMS, a practice owned by the Company, the Company is entitled
to fees during the first
8
<PAGE>
five years aggregating $595,000 a year plus 15% of the income attributable to
each physician in excess of a calculated amount, and during the remainder of
each agreement a fee equal to 15% of the income attributable to each
physician. Pursuant to three management services agreements assumed by the
Company in connection with its acquisition of MidSouth Practice Management,
Inc. ("MidSouth"), a physician practice management company, the Company is
entitled to management fees equal to 12% of the income from three practices.
Pursuant to a management services agreement with P.S.A. Medical Group, Inc., a
corporation formed by the former shareholders of Parkcrest Surgical
Associates, Inc. ("Parkcrest"), the Company is entitled to a management fee
equal to a percentage of physician income attributed to each of the 14
physicians affiliated with the practice. In connection with a management
services agreement with GCGA Physicians, Inc., a corporation formed by the
former shareholders of Greater Cincinnati Gastroenterology Associates, Inc.
("Greater Cincinnati Gastro"), the Company is entitled to: (i) a management
fee equal to 20% of the practice's income before physician compensation up to
a predetermined cap; (ii) a practice development fee equal to the product of
20% of the amount by which adjusted net income exceeds a predetermined amount
multiplied by five; and (iii) a managed care development fee equal to 0.5% of
the collected revenue of the practice generated from contracts with new
managed care payors. The Company's management fee also generally includes all
direct operating expenses incurred in connection with the management of each
practice not owned by the Company.
DIRECT CAPITATION AND OTHER RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS
Under some managed care contracts, Affiliated Networks receive a
predetermined payment per covered member per month in exchange for providing a
potentially unlimited quantity of specified services to covered members. Such
contracts transfer much of the economic risk of providing care from the payor
to the providers, who are compensated out of a finite pool of available funds.
To the extent that covered members require more frequent or extensive care
than is anticipated, increased claims by providers for such funds may result
in reduced reimbursement to network providers. Reductions in reimbursement to
providers could adversely affect on the providers' willingness to provide
services to the Affiliated Networks or the Affiliated Networks' relationships
with contracted payors. For the nine months ending September 30, 1997, the
Company received 23% on a historical basis, and 5% on a pro forma basis, of
its revenues from the administration of managed care agreements for Affiliated
Networks. Physician dissatisfaction or defection from the Affiliated Networks,
whether due to reduced reimbursement or otherwise, or payor contract
termination could have a material adverse effect on the Company's business,
financial condition or results of operations.
In some cases, the Company enters into capitated or financial risk-sharing
managed care contracts directly with a payor. In these cases, the Company
receives the managed care payments and retains financial risk for the
provision of medical care, including responsibility for paying contracted
providers for medical services. For the nine months ending September 30, 1997,
the Company received 10% on a historical basis, and 2% on a pro forma basis,
of its total revenues from direct capitated contracts with managed care
payors. If the Company underestimates the amount of services that will be
required, it would experience reduced profitability or operating losses, which
may not be recoverable through reductions in reimbursements to providers.
Certain PHC Practices have also directly entered into capitated or financial
risk-sharing managed care contracts with payors. In the case of owned PHC
practices, the Company is directly at risk for excess utilization of medical
services. In the case of managed PHC Practices, to the extent that management
fees are calculated as a percentage of practice income, excess utilization
would result in reduced management fees.
As an increasing percentage of individuals participate in managed care
plans, the Company believes that its success will be, in part, dependent on
its ability to obtain, retain and successfully manage favorable capitated or
financial risk-sharing contracts with HMOs, employer groups, other private
third-party payors and Medicare and Medicaid. There can be no assurance that
the Company will be able to establish or maintain satisfactory relationships
with third-party payors on terms acceptable to the Company and contracted
providers. Many payors already have existing provider structures in place and
may not desire the services of the Company or the PHC Networks, and payors may
also elect to contract directly with providers on a fee-for-service, capitated
or other basis. In addition, many managed care contracts are terminable upon
short notice.
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INTENSE COMPETITION
The Company, PHC Physicians, PHC Networks and Affiliated Networks face
intense competition in all aspects of their businesses. The Company believes
that changes in governmental and private reimbursement policies, among other
factors, have resulted in increased competition among providers of medical
services and among networks for payor contracts. The Company itself faces
intense competition to acquire or provide management services to physician
practices; to acquire or develop and operate ancillary health care services;
and to provide management services, including payor contracting services, to
physician networks. A number of hospitals, clinics, health care companies,
HMOs, insurance companies and physician practice management companies, both
publicly and privately held, some of which have established operating
histories and greater resources than the Company, engage in activities similar
to those of the Company. There can be no assurance that the Company will be
able to compete effectively with its competitors, that additional competitors
will not enter its markets, or that the Company will be able to acquire or
manage physician practices, acquire or develop ancillary health care services,
affiliate with or develop networks, or negotiate payor contracts on terms
beneficial to the Company. Any such failure could have a material adverse
effect on the Company's business, financial condition or results of
operations.
INSURANCE COVERAGE; PROFESSIONAL LIABILITY CLAIMS
All of the PHC Physicians, PHC Practices, PHC Networks, Affiliated Networks
and the Company are involved in the delivery of health care services and,
therefore, are exposed to the risk of professional or other liability claims.
Claims of this nature, if successful, could result in substantial damage
awards which may exceed the limits of any applicable insurance coverage.
Insurance against losses related to claims of this type can be expensive and
varies widely in costs and coverage. Liability claims successfully asserted
against a PHC Physician, PHC Practice, PHC Network, Affiliated Network or the
Company could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business--Corporate
Liability and Insurance."
NEED FOR ADDITIONAL FINANCINGS
The Company's plans to acquire and expand practices and to acquire and
develop ancillary health care services require substantial capital resources.
The Company expects that its capital needs over the next several years will
exceed capital generated from operations. In the past, the Company has funded
acquisitions of physician practices through the issuance of debt and equity
securities to sellers, the sale of equity to venture capital and other
investors and the incurrence of indebtedness. Management believes that the
Company will incur indebtedness and issue, from time to time, additional debt
or equity securities in connection with its future acquisition and development
activities, including acquisitions of physician practices, and to raise
working capital. There can be no assurance that sufficient financing will be
available on terms satisfactory to the Company. The inability to obtain
additional financing could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
INTEGRATION OF MANAGEMENT INFORMATION SYSTEMS; RELIANCE ON THIRD-PARTY VENDOR
The Company's success is dependent in part on its access to sophisticated
information systems and its ability to integrate these systems into the
existing operational, financial and clinical information systems of the PHC
Practices, PHC Networks and Affiliated Networks. Management information
systems are critical to negotiating, pricing and managing payor contracts.
These systems help PHC and the PHC Practices, PHC Networks and Affiliated
Networks realize operating efficiencies and enable them to capture, maintain,
monitor and analyze cost, quality and utilization data. In addition, PHC
Practices utilize different billing and collection systems requiring the
Company to collect manually and assimilate financial and operating data. The
Company will need to continue to invest in and administer sophisticated
management information systems to support these activities. The Company may
experience unanticipated delays, complications and expenses in implementing,
integrating and operating such systems. Furthermore, such systems may require
modifications, improvements or
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replacements as the Company expands or if new technologies become available.
Such modifications, improvements or replacements may require substantial
expenditures and may require interruptions in operations during
implementation. The failure to implement successfully and maintain
operational, financial and clinical information systems could have a material
adverse effect on the Company's business, financial condition or results of
operations.
PHC's current clinical information system requires software and support from
one third-party vendor to process submitted claims. Termination by such vendor
of its relationship with PHC, or a default in the performance of such vendor's
contractual obligations to PHC, could have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that such vendor's systems or support could be replaced by the
Company in a reasonable time or at a reasonable cost.
RISK RELATED TO INTANGIBLE ASSETS
As a result of the Company's various acquisition transactions, the Company
has recorded approximately $63.6 million in intangible assets, net of
accumulated amortization, on a pro forma basis as of September 30, 1997.
Substantially all of such intangible assets are being amortized over 25-year
periods. The Company expects the amount allocable to intangible assets on its
balance sheet to increase in the future in connection with additional
acquisition transactions, which will increase the Company's amortization
expense. In the event of any sale or liquidation of the Company or a portion
of its assets, there can be no assurance that the value of the Company's
intangible assets will be realized. In addition, the Company regularly
evaluates whether events and circumstances have occurred indicating that any
portion of the remaining balance of amounts allocable to the Company's
intangible assets may not be recoverable. When factors indicate that the
carrying value of the Company's intangible assets may be impaired, the Company
may be required to reduce the carrying value of such assets. Any future
determination requiring the write-off of a significant portion of unamortized
intangible assets could have a material adverse effect on the Company's
business, financial condition and results of operations. See Note 1 of Notes
to Consolidated Financial Statements.
GOVERNMENT REGULATION
General; Federal and State Regulation
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The Company believes that health care regulations
will continue to change. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment
changes. While the Company believes it will be able to structure its
agreements and operations in accordance with applicable law, there can be no
assurance that its business or such agreements or operations will not be
successfully challenged.
Every state imposes licensing requirements on individual physicians and on
facilities and services operated by physicians. In addition, federal and state
laws regulate HMOs and other managed care organizations ("MCOs") with which
the Company, PHC Physicians, PHC Practices, PHC Networks and Affiliated
Networks may have contracts. Many states require regulatory approval,
including certificates of need, before establishing or expanding certain types
of health care facilities, offering certain services or making expenditures in
excess of statutory thresholds for health care equipment, facilities or
programs. In connection with the expansion of existing operations and the
entry into new markets, the Company, PHC Physicians, PHC Practices, PHC
Networks and Affiliated Networks may become subject to compliance with
additional regulation.
The United States Congress and many state legislatures routinely consider
proposals to reform or modify the health care system, including measures that
would control health care spending, convert all or a portion of government
reimbursement programs to managed care arrangements, and balance the federal
budget by reducing spending for Medicare and state health programs. These
measures can affect a health care company's cost of doing business and
contractual relationships. For example, recent developments that affect the
Company's
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activities include: (i) federal legislation requiring a health plan to
continue coverage for individuals who are no longer eligible for group health
benefits and prohibiting the use of "pre-existing condition" exclusions that
limit the scope of coverage; (ii) a Health Care Financing Administration
("HCFA") policy prohibiting restrictions in Medicare HMOs or physicians
recommending to patients other health plans and treatment options; and
(iii) regulations imposing restrictions on physician incentive provisions in
physician provider agreements. There can be no assurance that such
legislation, programs and other regulatory changes will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
The ability of the Company to operate profitably will depend in part upon
the ability of the Company, PHC Physicians, PHC Practices, PHC Networks and
Affiliated Networks to obtain and maintain all necessary licenses,
certificates of need and other approvals and to operate in compliance with
applicable health care regulations.
Fee-Splitting; Corporate Practice of Medicine
The laws of many states prohibit physicians from splitting fees with non-
physicians (or other physicians) and prohibit non-physician entities from
practicing medicine. These laws vary from state to state and are enforced by
the courts and by regulatory authorities with broad discretion. The Company's
business operations have not been the subject of judicial or regulatory
interpretation; thus, there can be no assurance that review of the Company's
business by courts or regulatory authorities will not result in determinations
that could adversely affect the operations of the Company or that the health
care regulatory environment will not change so as to restrict the Company's
existing operations or their expansion. In addition, the regulatory framework
of certain jurisdictions may limit the Company's expansion into such
jurisdictions if the Company is unable to modify its operational structure to
conform with such regulatory framework.
In particular, at least one Texas court has held that control by a
management company over certain medical related business aspects of a medical
practice effectively is the prohibited corporate practice of medicine by the
management company. PHC has structured the management services agreement
related to the PHC Practice managed by PHC in Texas to comply with Texas law,
although no assurance can be given that a party could not successfully assert
that such management services agreement violates Texas law. Illinois courts
have indicated that employment of physicians by for-profit corporations that
are not hospitals violates Illinois law related to the corporate practice of
medicine and that management fees based on a percentage of revenue or income
violate Illinois' prohibitions on fee-splitting. Accordingly, in Illinois PHC
does not employ physicians and the management fee charged under its Practice
Management Agreement is a flat fee. The Florida Board of Medicine recently
entered a final order in a case titled In Re: The Petition For Declaratory
Statement of Magan L. Bakarania, M.D. stating that a management fee based on a
specified percentage of net income without direct relation to the services
provided violates Florida law related to fee-splitting. That case has been
stayed pending appeal. The Company cannot predict the ultimate outcome of this
case. If the Florida Board of Medicine order is affirmed by a Florida court,
the Company will seek to restructure certain of the practice management
agreements to which it is a party in Florida, although there can be no
assurance that the Company will be successful in doing so. Three of the four
agreements that the Company may seek to restructure in Florida require the
parties to negotiate in good faith to reform the agreements to comply with
applicable law and for the matter to be referred to arbitration in the event
that agreement with respect to restructured terms cannot be reached.
Except as indicated in this Prospectus, the Company is not aware of
significant litigation related to the corporate practice of medicine or state
laws prohibiting or limiting fee-splitting that the Company anticipates will
materially affect its business. A determination in any state that the Company
is engaged in the corporate practice of medicine or any unlawful fee-splitting
arrangement could render any Practice Management Agreement between the Company
and a PHC Practice located in such state unenforceable or subject to
modification, which could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that regulatory authorities or other parties will not assert that
the Company or a PHC Practice is engaged in the corporate practice of medicine
in such states or that the management fees paid to the Company by the
Practices constitute unlawful fee-splitting or the corporate practice
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of medicine. If such a claim were asserted successfully, the Company could be
subject to civil and criminal penalties and the Company or the PHC Practices
could be required to restructure their contractual arrangements. Such results
or the inability of the Company or the Practices to restructure their
relationships to comply with such prohibitions could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Government Regulation."
Changes in Payment for Medical Services
The Company believes that trends in cost containment in the health care
industry will continue to result in a reduction from historical levels in per-
patient revenue for PHC Practices. The federal government has implemented,
through the Medicare program, the resource-based relative value scale
("RBRVS") payment methodology for physician services. The RBRVS is a fee
schedule that, except for certain geographical and other adjustments, pays
similarly situated physicians the same amount for the same services. The RBRVS
is adjusted each year and is subject to increases or decreases at the
discretion of Congress. To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically performed by PHC
Physicians. There can be no assurance that any reduced operating margins could
be recouped by the Company through cost reductions, increased volume,
introduction of additional procedures or otherwise.
Rates paid by nongovernmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician,
ambulatory surgery center and hospital charges, and are generally higher than
Medicare payment rates. A change in the makeup of the patient mix of the
medical practices under Company management that results in a decrease in
patients covered by private insurance or a shift by private payors to RBRVS or
similar payment structures could adversely affect the Company's business,
financial condition or results of operations.
Medicare and Medicaid Fraud and Abuse
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce: (i) the referral of
a person; (ii) the furnishing or arranging for the furnishing of items or
services reimbursable under Medicare or Medicaid programs; or (iii) the
purchase, lease or order or arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under Medicare or Medicaid (the
"Anti-Kickback Law"). Pursuant to the Anti-Kickback Law, the federal
government has announced a policy of increased scrutiny of joint ventures and
other transactions among health care providers in an effort to reduce
potential fraud and abuse relating to Medicare costs. The applicability of
these provisions to many business transactions in the health care industry has
not yet been subject to judicial and regulatory interpretation. Noncompliance
with the Anti-Kickback Law can result in exclusion from Medicare and Medicaid
programs and civil and criminal penalties. The PHC Practices collectively
derived approximately 30% of their revenues on a pro forma basis for the nine
months ended September 30, 1997 from Medicare or Medicaid payments.
Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by substantially
enlarging the field of physician-owned or physician-interested entities to
which the referral prohibitions apply. Stark II prohibits a physician from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment
interest, or with which the physician has entered into a compensation
arrangement. The designated health services include, for example, prosthetic
devices, clinical laboratory services, radiology (such as ultrasound, MRI and
CT), home health, physical and occupational therapy, prescription drugs and
inpatient and outpatient hospital services. The penalties for violating Stark
II include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each referral violation and $100,000 for
participation in a "circumvention scheme." To the extent that the Company or
any PHC Practice is deemed to be subject to the prohibitions contained in
Stark II, the Company believes its activities fall within the permissible
activities defined in Stark II, including, but not limited to, the provision
of in-office ancillary services.
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The Company believes that although it will receive service fees under its
agreements for management and administrative services, it is not generally in
a position to make or receive referrals of patients for services reimbursed
under the Medicare or Medicaid programs. Such service fees are intended by the
Company to be consistent with fair market value in arm's-length transactions
for the nature and amount of management services rendered and, therefore,
would not constitute unlawful remuneration under Anti-Kickback Law and
regulations. For these reasons, the Company does not believe that fees payable
to it would be viewed as remuneration for referring or influencing referrals
of patients or services covered by such programs as prohibited by statute. If
the Company is deemed to be in a position to make, influence or receive
referrals from or to physicians, the operations of the Company could be
subject to scrutiny under federal and state anti-kickback and anti-referral
laws.
In certain jurisdictions that do not prohibit the corporate practice of
medicine, the Company owns practices and employs physicians. Thus, with
respect to such practices, the Company is a provider of services and would be
capable of receiving referrals from other physicians affiliated with PHC in
those markets. In these circumstances, PHC Practices either will not accept
referrals involving designated health services from other physicians
affiliated with PHC or will form group practices comprised of PHC Practices in
that market.
In addition, the Company also believes that the methods used to acquire the
assets of existing practices do not violate anti-kickback and anti-referral
laws and regulations. Specifically, the Company believes the consideration
paid by the Company to physicians to acquire assets in their practices is
consistent with fair market value in arm's-length transactions and not
intended to induce the referral of patients. Should this or any other Company
practice be deemed to constitute an arrangement designed to induce the
referral of Medicare or Medicaid patients, then such could be viewed as
possibly violating anti-kickback and anti-referral laws and regulations. A
determination of liability under any such laws could have a material adverse
effect on the Company's business, financial condition or results of
operations.
Antitrust Issues
Federal and state antitrust statutes prohibit conduct such as price fixing,
market allocation and other anti-competitive activities by groups of
competitors. The federal and state antitrust enforcement agencies have not
hesitated to bring civil and criminal enforcement actions against the joint
activities of physician organizations that violate the antitrust laws.
Collaboration regarding the pricing of services, market allocation and certain
other types of joint action, however, may be permissible in the context of an
integrated joint venture if those activities are ancillary to otherwise
legitimate purposes of the joint venture. The federal antitrust agencies, the
Federal Trade Commission and the United States Department of Justice, have
established "antitrust safety zones" for physician networks that meet certain
criteria. The antitrust safety zones are for networks in which providers share
substantial financial risk (e.g., capitation or substantial withholding) or
are engaged in designing or implementing clinical pathways with a view to
improving medical outcomes, and in which the providers constitute less than
specified percentages (20% for exclusive networks and 30% for non-exclusive
networks) of total providers in a specialty or subspecialty in the market.
Conduct outside the safety zones is not necessarily unlawful, but antitrust
regulatory authorities will give greater scrutiny to the potential impact on
overall competition. State antitrust agencies may or may not rely on antitrust
analysis similar to that of the federal agencies.
The two PHC Networks are non-exclusive networks that operate in the greater
Atlanta and greater Orlando metropolitan areas, respectively. Except for one
fee-for-service contract in Orlando, all of their contracts are capitated or
global risk contracts in which the providers share substantial financial risk.
The Atlanta PHC Network is comprised of primary care physicians constituting
less than 30% of the market practitioners of family/general, internal and
pediatric medicine. The Company believes that the Atlanta PHC Network is
within the antitrust safety zone for non-exclusive networks. The Orlando PHC
Network is a multi-specialty network including physicians of many specialties.
The Company believes that physician representation in the Orlando PHC Network
may exceed the non-exclusive safety zone in several non-primary care
specialties. The antitrust agencies emphasize, however, that even if a
physician network does not come within a safety zone, it is not necessarily
unlawful under the antitrust laws. For the following reasons, the Company
believes that its activities
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in the greater Orlando metropolitan area are pro-competitive and have the
potential to benefit purchasers of the physician services offered by its
providers. First, physician participation in the network is non-exclusive, and
physician members do in fact contract with other networks and health plans.
Second, physician members share inherent substantial financial risk by
providing services for global risk contracts and have the incentive to provide
high quality, cost-effective care in an environment of increasing managed care
penetration. Third, there are competing physician networks in the greater
Orlando area. Fourth, the specialties in which the Orlando PHC Network may
exceed the safety zone are generally ones characterized by a limited number of
practices and physicians within the market.
Insurance Regulatory Risks
An important element of the Company's business and strategy includes acting
as an agent for PHC Physicians, PHC Networks and Affiliated Networks to
negotiate with insurance companies, HMOs, employer self-funded plans, health
plans and other MCOs for the provision of health care services to the
subscribers or beneficiaries of the health plans operated by such parties.
Under some of these contracts, the Company receives capitated payments on
behalf of a network and reimburses participating physicians on a fee-for-
service basis. Under the laws of some states, this contracting arrangement
could be determined to involve an insurance risk. Therefore, to the extent the
Company is deemed to be in the business of insurance in a particular state,
the Company, PHC Physicians and PHC Networks could be subject to insurance
regulatory scrutiny; regulators could require restructuring of a specific
arrangement; and the Company's operations could be restricted, its expansion
limited, or certain of its operations prohibited.
Medicare Developments
The recently adopted Balanced Budget Act of 1997 ("BBA") enacted a Medicare
Plus/Medicare Choice Program for Medicare enrollees. The program would broaden
the coverage options available to Medicare recipients, would authorize broader
use of medical savings accounts, and would allow physicians and patients to
contract for health care services at rates beyond what is paid by Medicare.
Such changes potentially could increase the services utilized by Medicare
recipients. In addition, the BBA allows provider-sponsored organizations
("PSOs") to contract directly with Medicare, instead of contracting through an
HMO. If the PHC Practices, PHC Networks and Affiliated Networks participate in
such PSOs, they could increase the percentage of Medicare-related business,
which would also increase the exposure for losses if Medicare revenues fall
short of the cost of services actually utilized by Medicare beneficiaries. If
PHC does not participate in such PSOs, whether by choice or because it does
not obtain a required license to act as a PSO, PHC's ability to participate in
Medicare programs could be limited. The BBA also amends the fraud and abuse
laws to require permanent exclusion from Medicare of anyone convicted of three
Medicare program-related crimes and to impose new civil monetary penalties to
anyone contracting with an excluded health care provider. These changes
increase the regulatory and other risks encountered by the Company. See "--
Direct Capitation and Other Risks Associated With Managed Care Contracts."
Legislative Developments
In addition, proposed legislation regarding health care reform has been
introduced before many state legislatures. Any such reform at the federal or
state level could significantly alter patient-provider relationships. State
and federal agency rule-making addressing these issues is also expected. No
predictions can be made as to whether future health care reform legislation,
similar legislation or rule-making will be enacted or, if enacted, its effect
on the Company. Any federal or state legislation prohibiting investment
interests in, or contracting with, the Company by health care providers for
which there is no statutory exception would have a material adverse effect on
the Company's business, financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL
The development of the Company's business and its operations have been
materially dependent upon the active participation of the Company's executive
officers and key employees. The loss of the services of one or more of these
persons could have a material adverse effect on the business, financial
condition or results of operations of the Company. The Company maintains a key
person life insurance policy in the amount of $3.0 million on the life of its
Chief Executive Officer and President, Sarah C. Garvin. See "Management."
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CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this Offering, the officers and directors of the Company,
together with their affiliates, will own beneficially approximately 22.9% of
the outstanding shares of Common Stock (22.0% if the Underwriters' over-
allotment option is exercised in full). Such persons acting together could
have a significant influence on matters requiring stockholder approval,
including the election of directors, mergers and other extraordinary corporate
events. See "Management" and "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following the Offering. The shares being sold in the Offering will be
freely tradable unless acquired by affiliates of the Company. Certain
stockholders of the Company hold, in the aggregate, 7,093,240 shares of Common
Stock and 288,193 shares of Non-Voting Common Stock, none of which were
acquired in transactions registered under the Securities Act. Accordingly,
such shares may not be sold except in transactions registered under the
Securities Act or pursuant to an exemption from registration. The Company and
its directors, executive officers and current stockholders holding an
aggregate of shares have agreed not to offer or sell any shares of
Common Stock for a period of 180 days (the "180-Day Lockup Period") following
the date of this Prospectus without the prior written consent of BancAmerica
Robertson Stephens, except that the Company may, subject to certain
conditions, issue Common Stock in connection with acquisitions and with awards
under the 1995 Stock Option Plan. After the expiration of the 180-Day Lockup
Period, such shares may be sold in accordance with Rule 144 under the
Securities Act, subject to the applicable volume limitations, holding period
and other requirements of Rule 144.
The Company intends to register an additional 1,500,000 shares of its Common
Stock under the Securities Act subsequent to completion of the Offering for
use by the Company as all or a portion of the consideration to be paid in
future acquisitions. Those shares, if issued, will be freely tradable by
nonaffiliates after their issuance, unless the resale thereof is contractually
restricted, and resales of any such shares during the 180-Day Lockup Period
would require the prior written consent of BancAmerica Robertson Stephens.
The Company anticipates that, prior to the consummation of the Offering, the
Company will have outstanding under the 1995 Stock Option Plan options to
purchase approximately 1,623,442 shares of Common Stock. The Company intends
to register the shares issuable upon exercise of options granted under the
1995 Stock Option Plan. See "Management--1995 Stock Option Plan" and "Shares
Eligible for Future Sale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or,
if a trading market does develop, that it will continue after the Offering.
The initial public offering price of the Common Stock will be determined
through negotiations between the Company and the Underwriters and may not be
indicative of the price at which the Common Stock will trade after the
Offering. See "Underwriting" for a description of the factors to be considered
in determining the initial public offering price. The securities markets have,
from time to time, experienced significant price and volume fluctuations that
may be unrelated to the operating performance of particular companies. These
fluctuations often substantially affect the market price of a company's stock.
The market prices for securities of health care practice management companies
have been and continue to be particularly volatile. The market price of the
Common Stock could be subject to significant fluctuations in response to
numerous factors, including variations in financial results or announcements
of material events by the Company or its competitors. Regulatory changes,
developments in the health care industry or changes in general conditions in
the economy or the financial markets could also adversely affect the market
price of the Common Stock.
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER AND BYLAW PROVISIONS; POSSIBLE
ISSUANCES OF PREFERRED STOCK
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the
16
<PAGE>
Company or limit the price that certain investors may be willing to pay in the
future for shares of the Common Stock. The Certificate of Incorporation also
permits the Board of Directors to determine the rights, preferences and
restrictions of unissued series of the Company's authorized Preferred Stock
and to fix the number of shares and the designation of and to nominate
directors, to submit proposals to be considered at stockholders' meetings and
to adopt amendments to the Bylaws. Such provisions of the Certificate of
Incorporation and Bylaws: (i) divide the Company's Board of Directors into
three classes, each of which will serve for different three-year periods and
(ii) restrict the right of stockholders to call a special meeting of
stockholders. The Company also is subject to Section 203 of the Delaware
General Corporation Law ("DGCL"), which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business acquisitions with an "interested stockholder" for a period of three
years following the date such stockholder became an interested stockholder.
See "Description of Capital Stock."
RISKS ASSOCIATED WITH UNSPECIFIED USE OF PROCEEDS
A significant portion of the net proceeds of the Offering will be available
for working capital and general corporate purposes, including the acquisition
of physician practices, the acquisition and development of ancillary health
care services and development of physician networks and payor contracts. The
Company's management, subject to approval by the Board of Directors, will have
broad discretion with respect to the use of such proceeds of the Offering. See
"Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares in the amount of $12.55 per share. In the event the Company
issues additional Common Stock in the future, including shares that may be
issued in connection with future acquisitions, purchasers of Common Stock in
the Offering may experience further dilution in the net tangible book value
per share of Common Stock. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid any cash dividends and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. See "Dividend
Policy."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting the underwriting discounts and commissions and
estimated Offering expenses) are estimated to be approximately $39.3 million
(approximately $45.6 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $15.00 per
share (the midpoint of the estimated initial public offering price range). Of
such net proceeds: (i) approximately $21.0 million will be used to repay
certain of the Company's indebtedness immediately following the Offering; (ii)
$6.2 million will be used to repay certain indebtedness of the Company in
April 1998; (iii) $300,000 will be used to pay accrued but unpaid dividends on
the Class A Stock; and (iv) the remainder will be available for working
capital and general corporate purposes, including the acquisition of physician
practices, the acquisition and development of ancillary health care services
and the development of physician networks and payor contracts. The Company has
no present agreements for the acquisition of physician practices or ancillary
health care services. Pending such uses, the net proceeds will be invested in
short-term, interest bearing, investment grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
The indebtedness to be retired with the proceeds of the Offering is
comprised of approximately $12.0 million outstanding under the Company's
senior credit facility (the "Senior Debt") and approximately $9.0 million in
senior subordinated debt (the "Subordinated Debt"). The Company is required to
retire the Subordinated Debt with the proceeds of this Offering. The Company
is required to use net proceeds to the Company from this Offering in excess of
$40 million to retire the Senior Debt. The Senior Debt was incurred in
November and December 1997 to finance acquisitions, pay transaction expenses
and for general corporate purposes, bears interest at a floating rate equal
to, at the Company's option, prime plus 1.75% or LIBOR (the London InterBank
Offered Rate) plus 3.0%, and is payable in quarterly installments until
maturity in April 2002.
The Subordinated Debt bears interest at the rate of 12.0% per annum and is
payable in full in November 2004. The proceeds of the Subordinated Debt, which
were obtained by the Company in November 1997, were used by the Company to
refinance certain prior acquisitions, finance acquisitions and pay transaction
costs. In April 1998, the Company also will use the proceeds of the Offering
to retire a $6.2 million unsecured non-interest bearing note that matures at
that time and constituted a portion of the consideration paid in the
acquisition of the Arlington Cancer Center. The proceeds of the Senior Debt
and Subordinated Debt were used to finance the acquisitions of Louisville
Cardiology Medical Group, PSC, Physicians Strategic Alliance, Inc., Southern
Dependacare, Healthcare Strategic Initiatives LLP, Pulmonary Sleep
Consultants, Inc., Diagnostic Internists, Inc., Parkcrest Surgical Associates,
Inc., IMS, Primary Care Specialists, Inc., Larach, Williamson & Ferrara, Inc.,
National Sleep Dynamics, Inc., Home Care for Sleep Disorders, Inc., Greater
Cincinatti Gastro, Northside Ob-Gyn, P.C. and Eagles Landing Ob-Gyn
Associates, P.C.
DIVIDEND POLICY
It is the Company's current intention to retain earnings for the foreseeable
future to support operations and finance expansion. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and
will depend upon, among other things, the Company's earnings, financial
condition, cash flow from operations, capital requirements, expansion plans,
the income tax laws then in effect, the requirements of Delaware law and
restrictions that may be imposed in the Company's future financing
arrangements. In addition, the Company's senior credit facility prohibits the
payment of dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization of
the Company: (i) at September 30, 1997; (ii) on a pro forma basis to reflect
the acquisitions of PHC Practices since September 30, 1997 and the conversion
of the Company's Prime Common Stock, Class A Stock (Series 1 and Series 2),
Series B Redeemable Convertible Preferred Stock (the "Series B Voting
Preferred Stock") and Series B Non-Voting Redeemable Convertible Preferred
Stock (the "Series B Non-Voting Preferred Stock"); and (iii) on a pro forma
basis as adjusted to give effect to the receipt and application of the net
proceeds of the Offering. See "Use of Proceeds." The Series B Voting Preferred
Stock and the Series B Non-Voting Preferred Stock are collectively referred to
as the "Series B Preferred Stock." This table should be read in conjunction
with "Unaudited Pro Forma Combined Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt(3)......................... $13,071 $14,197 $14,197
======= ======= =======
Long-term debt, net of current portion..... 14,435 29,289 8,289
Redeemable Preferred Stock:
Class A Stock, par value $0.01 per share,
500,000 shares authorized; 200,000 shares
issued and outstanding (actual); and no
shares issued and outstanding (pro forma
and pro forma as adjusted)................ 2,772 -- --
Series B Redeemable Convertible Preferred
Stock, par value $0.01 per share,
15,000,000 shares authorized; 3,824,493
shares issued and outstanding (actual);
and no shares issued and outstanding (pro
forma and pro forma as adjusted).......... 13,675 -- --
Stockholders' equity (deficit):
Preferred Stock, par value $0.01 per
share, 18,000,000 shares authorized;
none issued (actual, pro forma and pro
forma as adjusted)...................... -- -- --
Common Stock, par value $0.0025 per
share, 140,000,000 shares authorized;
1,414,244 shares issued and outstanding
(actual); and shares issued and
7,381,433 outstanding (pro forma) and
10,381,433 shares issued and outstanding
(pro forma as adjusted)(4).............. 4 18 26
Prime Common Stock, par value $0.0025 per
share, 20,000,000 shares authorized;
4,039,666 shares issued and outstanding
(actual); and no shares issued and
outstanding (pro forma and pro forma as
adjusted)............................... 10 -- --
Additional paid-in capital................. 10,984 70,124 109,416
Accumulated deficit........................ (19,899) (19,899) (19,899)
Notes receivable from stockholder.......... (443) (443) (443)
------- ------- -------
Total stockholders' equity (deficit)....... (9,344) 49,800 89,100
------- ------- -------
Total capitalization....................... $21,538 $79,089 $97,389
======= ======= =======
</TABLE>
- --------
(1) Gives effect to acquisitions of PHC Practices since September 30, 1997 and
the mandatory conversion of the Prime Common Stock, the Class A Stock and
the Series B Preferred Stock, upon completion of the Offering.
(2) Gives effect to completion of the Offering and the receipt and application
of the net proceeds therefrom. See "Use of Proceeds."
(3) Short-term debt includes current maturities of long-term debt. See Note 4
to Notes to Consolidated Financial Statements for a description of the
Company's indebtedness.
(4) Excludes: (i) an aggregate of 502,498 (actual) and 1,076,571 (pro forma)
shares of Common Stock issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.20 (actual) and $3.10 (pro forma)
per share; (ii) an aggregate of 1,035,407 (actual) and 1,623,442 (pro
forma) shares of Common Stock issuable upon exercise of stock options
outstanding at a weighted average exercise price of $11.33 (actual) and
$13.73 (pro forma) per share under the Company's Amended and Restated 1995
Stock Option Plan (the "1995 Stock Option"); and (iii) 1,038,517 (actual)
and 1,980,517 (pro forma) shares of Common Stock reserved for issuance
under the 1995 Stock Option Plan following consummation of the Offering.
See "Management--1995 Stock Option Plan."
19
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company as of September 30,
1997 was approximately $(29.0) million, or approximately $(10.82) per share.
The pro forma net tangible book value of the Company as of September 30, 1997
was approximately $(13.8) million, or approximately $(1.88) per share. Pro
forma net tangible book value (deficit) per share is determined by dividing
the net tangible book value of the Company (tangible assets less total
liabilities) by the number of shares of Common Stock outstanding, giving pro
forma effect to the conversion of all outstanding shares of Prime Common
Stock, Class A Stock, Series B Preferred Stock into 3,685,889 shares of Common
Stock and 288,193 shares of Non-Voting Common Stock. After giving effect to
the sale by the Company of 3,000,000 shares of Common Stock offered at a price
of $15.00 per share (the midpoint of the estimated initial public offering
price range) and the application of the estimated net proceeds therefrom as
set forth under "Use of Proceeds," the pro forma net tangible book value of
the Company as of September 30, 1997 would have been $2.45 per share. This
represents an immediate increase in the net tangible book value of
approximately $39.3 million, or approximately $4.33 per share to existing
stockholders and an immediate dilution to new investors purchasing Common
Stock in the Offering of approximately $12.55 per share. The following table
illustrates the per share dilution to new investors purchasing Common Stock in
the Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $15.00
Historical net tangible book value (deficit)........... $(10.82)
Increase per share attributable to the additional asset
acquisitions and conversion of shares into Common
Stock................................................. 8.94
Increase per share attributable to the Offering........ 4.33
-------
Pro forma net tangible book value per share after the
Offering.............................................. 2.45
------
Dilution per share to initial public offering investors.. $12.55
======
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Offering as of September 30, 1997, the number of shares of Common Stock and
Non-Voting Common Stock purchased from the Company, the total consideration to
the Company and the average price per share paid to the Company by existing
stockholders and the new investors purchasing shares from the Company in the
Offering (before deducting underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 7,381,433 71.1% $ 58,690,951 56.6% $ 7.95
New investors........... 3,000,000 28.9 45,000,000 43.4 15.00
---------- ----- ------------ -----
Total................. 10,381,433 100.0% $103,690,951 100.0%
========== ===== ============ =====
</TABLE>
All of the calculations above exclude: (i) an aggregate of shares 1,076,571
of Common Stock issuable upon exercise of warrants outstanding at a weighted
average exercise price of $3.10 per share; (ii) an aggregate of 1,623,442
shares of Common Stock issuable upon exercise of stock options outstanding at
a weighted average exercise price of $13.73 per share under the Company's
Amended and Restated 1995 Stock Option Plan (the "1995 Stock Option"); and
(iii) 1,980,517 shares of Common Stock reserved for future issuance under the
1995 Stock Option Plan following consummation of the Offering. See
"Management--1995 Stock Option Plan."
20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements include the
unaudited pro forma combined balance sheet of the Company as of September 30,
1997, and the unaudited pro forma combined statements of operations for the
year ended December 31, 1996 and nine months ended September 30, 1997.
The accompanying unaudited pro forma financial statements give effect to the
following pro forma adjustments (collectively, the "Transactions"): (i) the
asset acquisitions of the PHC Practices at fair market value and related
purchase accounting adjustments; (ii) the entering into of a $62.5 million
credit agreement with a syndicate of banks led by Banque Paribas; (iii) the
entering into of a $15.0 million subordinated credit agreement with an
affiliate of Banque Paribas; (iv) the issuance of equity securities to an
affiliate of Banque Paribas; and (v) the consummation of the Offering.
The asset acquisitions of physician practices have been accounted for under
the purchase method of accounting, and pro forma adjustments include: (i) the
elimination of patient service revenue for all practices in which the Company
does not have an equity ownership interest; (ii) the addition of management
fee revenue for practices in which the Company does not have an equity
ownership interest; (iii) the payment of cash and the issuance of Common Stock
and notes to the former practice owners; and (iv) the allocation of purchase
price in excess of net assets to intangibles.
The accompanying unaudited pro forma combined balance sheet gives effect to
the Transactions occurring after September 30, 1997 as if they had occurred on
September 30, 1997. The accompanying unaudited pro forma combined statements
of operations give effect to the Transactions as if they had occurred on
January 1, 1996.
The Company has performed a preliminary analysis of the savings that it
expects to realize as a result of: (i) consolidating certain general and
administrative functions; (ii) the reduction in interest payments related to
the repayment of certain outstanding acquisition debt; (iii) its ability to
borrow at lower interest rates than the individual practices; (iv) the
interest earned on the net proceeds of the Offering remaining after
applications of proceeds as described in "Use of Proceeds;" and (v)
efficiencies in other general and administrative areas. The Company has not
and cannot quantify these savings until after completion of the Offering and
acquisitions. It is anticipated that these savings will be partially offset by
the costs of the Company's recent additions to senior management and expenses
associated with being a public company. These costs cannot be quantified
accurately. Accordingly, only those anticipated savings and costs that are
factually supportable have been included in the accompanying pro forma
financial information of the Company.
The unaudited pro forma combined financial statements are not necessarily
indicative of the Company's financial condition or results of operations that
would have been achieved if the Transactions had occurred as of September 30,
1997 or January 1, 1996 or of future operations. See "Risk Factors."
The unaudited pro forma combined financial statements should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and notes
of the Company; Arlington Cancer Center; Greater Cincinnati Gastro; IMS;
Parkcrest; and Southern Dependacare, which are included elsewhere in this
Prospectus.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
PHYSICIAN GREATER OTHER PRO FORMA
HEALTH CINCINNATI ACQUIRED PRO FORMA PRO FORMA COMBINED
CORPORATION GASTRO IMS PARKCREST ENTITIES(3) COMBINED ADJUSTMENTS(4) COMBINED ADJUSTMENTS(5)
----------- ---------- ------ --------- ----------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 5,219 $ 311 $ 337 $ 3 $ 2,391 $ 8,261 $ 18,400 (q) $ 7,204 $18,300 (u)
(17,300)(q)
(2,157)(a)
Accounts
receivable,
net............ 8,113 1,266 989 1,662 8,150 20,180 (2,086)(a) 18,094 --
Inventory....... 430 -- -- -- 24 454 52 (a) 506 --
Prepaid expenses
and other
current
assets......... 1,207 23 41 208 279 1,758 (535)(a) 1,223 --
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total current 14,969 1,600 1,367 1,873 10,844 30,653 (3,626) 27,027 18,300
assets.........
Property and
equipment, net.. 6,499 112 219 561 2,452 9,843 590 (a) 10,433 --
Intangible 19,676 -- -- -- 8,183 27,859 -- 63,642 --
assets, net.....
(8,183)(b)
43,966 (b)
Other long-term 589 -- 37 156 378 1,160 (560)(a) 3,400 --
assets..........
2,800 (q)
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total assets.... $41,733 $1,712 $1,623 $2,590 $21,857 $69,515 $ 34,987 $104,502 $18,300
======== ====== ====== ====== ======= ======= ======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabili-
ties:
Accounts $ 1,844 $ 179 $ 67 $ 689 $ 2,834 $ 5,613 $ (511)(a) $ 5,102 $ --
payable........
Accrued 5,280 639 378 721 478 7,496 (1,381)(a) 6,115 --
expenses.......
Current portion
of long-term
debt........... 13,071 -- 730 63 2,014 15,878 (1,681)(a) 14,197 --
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total current
liabilities.... 20,195 818 1,175 1,473 5,326 28,987 (3,573) 25,414
Long-term debt.. 30,882 -- 38 205 3,927 35,052 11,470 (c) 29,288 (21,000)(u)
1,700 (c)
(900)(r)
(18,034)(t)
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total
liabilities and
redeemable
preferred
stock.......... 51,077 818 1,213 1,678 9,253 64,039 (9,337) 54,702 (21,000)
Stockholders' eq-
uity:
Preferred
Stock.......... -- -- -- -- 2,505 2,505 (2,505)(d) -- --
Common Stock.... 14 3 3 1 96 117 (102)(d) 18 8 (u)
3 (t)
Additional paid-
in-capital..... 10,541 7 (18) 53 6,508 17,091 31,459 (d) 69,681 39,292 (u)
2,200 (q)
900 (r)
18,031 (t)
Retained
earnings
(deficit)...... (19,899) 884 425 858 3,495 (14,237) (5,662)(d) (19,899) --
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total
stockholders'
equity
(deficit)...... (9,344) 894 410 912 12,604 5,476 44,324 49,800 39,300
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total
liabilities and
stockholders'
equity......... $ 41,733 $1,712 $1,623 $2,590 $21,857 $69,515 $ 34,987 $104,502 $18,300
======== ====== ====== ====== ======= ======= ======== ======== =======
<CAPTION>
ADJUSTED
PRO FORMA
COMBINED
----------
<S> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 25,504
Accounts 18,094
receivable,
net............
Inventory....... 506
Prepaid expenses
and other
current
assets......... 1,223
----------
Total current 45,327
assets.........
Property and
equipment, net.. 10,433
Intangible 63,642
assets, net.....
Other long-term 3,400
assets..........
----------
Total assets.... $122,802
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabili-
ties:
Accounts $ 5,102
payable........
Accrued 6,115
expenses.......
Current portion
of long-term
debt........... 14,197
----------
Total current
liabilities.... 25,414
Long-term debt.. 8,288
----------
Total
liabilities and
redeemable
preferred
stock.......... 33,703
Stockholders' eq-
uity:
Preferred
Stock.......... --
Common Stock.... 26
Additional paid-
in-capital..... 108,973
Retained
earnings
(deficit)...... (19,899)
----------
Total
stockholders'
equity
(deficit)...... 89,100
----------
Total
liabilities and
stockholders'
equity......... $122,802
==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
PHYSICIAN ARLINGTON GREATER SOUTHERN OTHER
HEALTH CANCER CINCINNATI DEPENDA- ACQUIRED PRO FORMA
CORPORATION CENTER(2) GASTRO IMS PARKCREST CARE(2) ENTITIES(3) COMBINED ADJUSTMENTS(4)
----------- --------- ---------- ------ --------- -------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Patient service
revenues........ $ 15,991 $9,846 $4,394 $5,310 $5,466 $2,804 $40,569 $ 84,380 $(67,625)(e)
Management fees.. -- -- -- -- -- -- -- -- 54,586 (f)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Net revenues.... 15,991 9,846 4,394 5,310 5,466 2,804 40,569 84,380 (13,039)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Operating ex-
penses:
Salaries and
benefits........ 4,880 3,748 3,054 3,823 3,982 946 24,198 44,631 6,622 (h)
(23,364)(g)
Contract and
professional
services........ 746 318 -- -- -- -- 1,651 2,715 --
Provision for bad
debts........... 938 174 38 80 31 36 (1) 1,296 --
General and
administrative.. 11,876 4,328 808 1,124 1,635 1,813 11,650 33,234 --
Depreciation and
amortization.... 732 316 30 58 28 7 937 2,108 1,036 (j)
420 (s)
Write down of
assets.......... 715 -- -- -- -- -- 2 717 (717)(k)
Purchased
research &
development..... 13,252 -- -- -- -- -- -- 13,252 (13,252)(k)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Total operating
expenses....... 33,139 8,884 3,930 5,085 5,676 2,802 38,437 97,953 (29,255)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Income (loss)
from
operations...... (17,148) 962 464 225 (210) 2 2,132 (13,573) 16,216
Interest expense,
net............. 1,767 64 (14) 34 12 2 429 2,294 511 (l)
1,643 (r)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Income (loss)
before minority
interest and
income taxes.... (18,915) 898 478 191 (222) -- 1,703 (15,867) 14,062
Minority inter-
est............. (2,081) -- -- -- -- -- -- (2,081) 2,650 (m)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Income (loss)
before income
taxes........... (16,834) 898 478 191 (222) -- 1,703 (13,786) 11,412
Income tax ex-
pense........... 14 -- 182 73 (84) -- -- 185 (254)(n)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Net income
(loss).......... $(16,848) $ 898 $ 296 $ 118 $ (138) $ -- $ 1,703 $(13,971) $ 11,666
======== ====== ====== ====== ====== ====== ======= ======== ========
Net income (loss)
per share....... $ (5.82)
========
Weighted average
shares outstand-
ing............. 2,894
========
<CAPTION>
PRO PRO FORMA ADJUSTED
FORMA COMBINED PRO FORMA
COMBINED ADJUSTMENTS(5) COMBINED
--------------- --------------- ---------
<S> <C> <C> <C>
Revenues:
Patient service
revenues........ $16,755 $ -- $16,755
Management fees.. 54,586 -- 54,586
--------------- --------------- ---------
Net revenues.... 71,341 -- 71,341
--------------- --------------- ---------
Operating ex-
penses:
Salaries and
benefits........ 27,889 -- 27,889
Contract and
professional
services........ 2,715 -- 2,715
Provision for bad
debts........... 1,296 -- 1,296
General and
administrative.. 33,234 -- 33,234
Depreciation and
amortization.... 3,564 (420)(w) 3,144
Write down of
assets.......... -- -- --
Purchased
research &
development..... -- -- --
--------------- --------------- ---------
Total operating
expenses....... 68,698 (420) 68,278
--------------- --------------- ---------
Income (loss)
from
operations...... 2,643 420 3,063
Interest expense,
net............. 4,448 (1,782)(v) 2,666
--------------- --------------- ---------
Income (loss)
before minority
interest and
income taxes.... (1,805) 2,202 397
Minority inter-
est............. 569 -- 569
--------------- --------------- ---------
Income (loss)
before income
taxes........... (2,374) 2,202 (172)
Income tax ex-
pense........... (69) -- (69)
--------------- --------------- ---------
Net income
(loss).......... $(2,305) $ 2,202 $ (103)
=============== =============== =========
Net income (loss)
per share....... $ (0.27)(o)(p) $ (0.01)
=============== =========
Weighted average
shares outstand-
ing............. 8,535 11,535
=============== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
PHYSICIAN ARLINGTON GREATER SOUTHERN OTHER
HEALTH CANCER CINCINNATI DEPENDA- ACQUIRED PRO FORMA
CORPORATION CENTER GASTRO IMS PARKCREST CARE ENTITIES(3) COMBINED ADJUSTMENTS(4)
----------- --------- ---------- ------ --------- -------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Patient service
revenues........ $ 4,036 $23,297 $6,097 $6,167 $10,515 $3,096 $53,125 $106,333 $(91,952)(e)
Management fees.. -- -- -- -- -- -- -- -- 69,434 (f)
------- ------- ------ ------ ------- ------ ------- -------- --------
Net revenues.... 4,036 23,297 6,097 6,167 10,515 3,096 53,125 106,333 (22,518)
------- ------- ------ ------ ------- ------ ------- -------- --------
Operating ex-
penses:
Salaries and ben-
efits........... 2,915 8,283 4,985 4,531 6,915 1,601 35,217 64,447 9,287 (h)
(37,719)(g)
Contract and pro-
fessional serv-
ices............ 194 627 -- -- -- -- 1,956 2,777 --
Provision for bad
debts........... 660 380 50 126 44 50 176 1,486 --
General and
administrative.. 2,748 10,281 1,038 1,312 3,195 1,407 13,360 33,341 --
Depreciation and
amortization.... 161 1,009 25 68 48 20 1,467 2,798 1,227 (j)
560 (s)
Write down of as-
sets............ 195 -- -- -- -- -- -- 195 (195)(k)
------- ------- ------ ------ ------- ------ ------- -------- --------
Total operating
expenses....... 6,873 20,580 6,098 6,037 10,202 3,078 52,176 105,044 (26,840)
------- ------- ------ ------ ------- ------ ------- -------- --------
Income (loss)
from
operations...... (2,837) 2,717 (1) 130 313 18 949 1,289 4,322
Interest expense,
net............. 30 68 (26) 26 (26) 18 579 669 1,906 (l)
2,185 (r)
------- ------- ------ ------ ------- ------ ------- -------- --------
Income before
minority (loss)
interest and
income taxes.... (2,867) 2,649 25 104 339 -- 370 620 231
Minority inter-
est............. -- -- -- -- -- -- -- -- --
------- ------- ------ ------ ------- ------ ------- -------- --------
Income (loss)
before income
taxes........... (2,867) 2,649 25 104 339 -- 370 620 231
Income tax ex-
pense........... 17 -- 10 38 129 -- -- 194 146 (n)
------- ------- ------ ------ ------- ------ ------- -------- --------
Net income
(loss).......... $(2,884) $ 2,649 $ 15 $ 66 $ 210 $ -- $ 370 $ 426 $ 85
======= ======= ====== ====== ======= ====== ======= ======== ========
Net income (loss)
per share....... $ (1.34)
=======
Weighted average
shares
outstanding..... 2,156
=======
<CAPTION>
PRO PRO FORMA ADJUSTED
FORMA COMBINED PRO FORMA
COMBINED ADJUSTMENTS(5) COMBINED
-------------- ------------------ ---------
<S> <C> <C> <C>
Revenues:
Patient service
revenues........ $14,381 $ -- $14,381
Management fees.. 69,434 -- 69,434
-------------- ------------------ ---------
Net revenues.... 83,815 -- 83,815
-------------- ------------------ ---------
Operating ex-
penses:
Salaries and ben-
efits........... 36,015 -- 36,015
Contract and pro-
fessional serv-
ices............ 2,777 -- 2,777
Provision for bad
debts........... 1,486 -- 1,486
General and
administrative.. 33,341 -- 33,341
Depreciation and
amortization.... 4,585 (560)(w) 4,025
Write down of as-
sets............ -- -- --
-------------- ------------------ ---------
Total operating
expenses....... 78,204 (560) 77,644
-------------- ------------------ ---------
Income (loss)
from
operations...... 5,611 560 6,171
Interest expense,
net............. 4,760 (2,376)(u) 2,384
-------------- ------------------ ---------
Income before
minority (loss)
interest and
income taxes.... 851 2,936 3,787
Minority inter-
est............. -- --
-------------- ------------------ ---------
Income (loss)
before income
taxes........... 851 2,936 3,787
Income tax ex-
pense........... 340 1,175 (n) 1,515
-------------- ------------------ ---------
Net income
(loss).......... $ 511 $ 1,761 $ 2,272
============== ================== =========
Net income (loss)
per share....... $ 0.06(o)(p) $ 0.20
============== =========
Weighted average
shares
outstanding..... 8,535 11,535
============== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BACKGROUND
Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of December 31, 1997, the Company provided payor contract
administration and related services to 25 physician networks, one of which is
owned by the Company, one of which is a nonprofit corporation of which the
Company is the sole member (together, the "PHC Networks") and the remainder of
which are independent entities that receive services from the Company (the
"Affiliated Networks"). The PHC Networks and Affiliated Networks included
approximately 3,300 physicians and 2.3 million covered lives under 29 managed
care contracts including specialty capitated and global risk contracts. As of
December 31, 1997, the Company provided practice management services to 34
physician practices ("PHC Practices") including 171 physicians (the "PHC
Physicians"). The Company was a party to Practice Management Agreements with
26 of the PHC Practices that employed 113 PHC Physicians. The Company directly
owned and operated the remaining eight PHC Physicians through which it
directly employed 58 PHC Physicians.
There are three types of economic models that the Company has under its
management services agreement: (i) a designated percentage of net patient
service revenue, ranging from 10% to 25%; (ii) a designated percentage of net
patient service revenue, with potential adjustments based on income before
physician compensation above certain negotiated levels; and (iii) a guaranteed
dollar fee. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation--Overview."
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial statements represent the financial position and
results of operations of the Company and physician practices and were derived
from the respective financial statements where indicated. All entities
acquired in the asset acquisitions have a December 31 year end, except for
Parkcrest whose fiscal year end is March 31. Since Parkcrest's year end is
within 93 days of December 31, its results have not been recast. The audited
historical financial statements included elsewhere in this Prospectus have
been included in accordance with applicable Securities and Exchange Commission
rules and regulations. The Company will continue to have a December 31 year
end.
Arlington Cancer Center and Southern Dependacare were acquired by Physician
Health Corporation as of June 1, 1997 and September 1, 1997, respectively.
Their operating results after their respective acquisition dates are included
in the results of operations of Physician Health Corporation for the nine
months ended September 30, 1997.
3. PHYSICIAN PRACTICE ASSET ACQUISITIONS
The Company has acquired substantially all of the net assets of the
physician practices. See "Business-- Operations." These asset acquisitions
will be accounted for using the purchase method of accounting.
The Company had acquired 12 physician practices through asset acquisitions
as of September 30, 1997. See Note 2 to the Notes to the Consolidated
Financial Statements of the Company.
The following practices are directly owned by the Company:
<TABLE>
<CAPTION>
ORLANDO, FLORIDA ST. LOUIS, MISSOURI
------------------------------------------- -------------------------------------------
<C> <S>
Internal Medicine Specialists (IMS) G.H. Kursar Eye Care Services, Inc.
(Kursar)
Primary Care Specialists, Inc. (PCS) Surgical Group South
Larach, Williamson & Ferrara, Inc. (Larach) Eye Care Services of Missouri, Inc. (Jones
Eye Center)
Tri County Eye Center, Inc.
PHC--West Plains, Inc. (Ream Optometry
Ltd.)
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the estimated consideration paid and to be
paid to its stockholders for the asset acquisitions occurring after September
30, 1997 (in thousands), subject to certain purchase price adjustments and
final purchase price allocations.
<TABLE>
<CAPTION>
STOCK TOTAL
CASH NOTES VALUE CONSIDERATION
------ ------ ------- -------------
<S> <C> <C> <C> <C>
Atlanta practices........................... $1,575 $ 497 $ 2,279 $ 4,351
Greater Cincinnati Gastro................... 4,468 -- 5,585 10,053
MidSouth.................................... -- -- 4,900 4,900
IMS......................................... -- -- 4,500 4,500
Other Orlando practices..................... 1,755 -- 4,174 5,929
Parkcrest................................... -- -- 6,494 6,494
Other St. Louis practices................... 1,471 667 3,313 5,451
------ ------ ------- -------
Total..................................... $9,269 $1,164 $31,245 $41,678
====== ====== ======= =======
</TABLE>
The holders of most shares of PHC stock issued as consideration in the asset
acquisitions since mid-October 1997 have contractually agreed with the Company
not to offer, sell, or otherwise dispose of any of those shares for a holding
period ranging from 14 months to 42 months after the respective asset
acquisitions. The fair value of these shares reflects this restriction.
The estimated total purchase price (based on the fair value of the shares to
be issued) of the asset acquisitions since September 30, 1997 is allocated as
follows (in thousands):
<TABLE>
<S> <C>
Adjusted net assets from the asset acquisitions, at book value..... $ 7,088
Intangibles, primarily service agreements.......................... 34,590
-------
Total purchase price............................................. $41,678
=======
</TABLE>
Based on management's preliminary analysis, it is anticipated that the
historical carrying value of the acquisitions' assets and liabilities will
approximate fair value. Management of the Company has not identified any other
material tangible or identifiable intangible assets of the acquisitions to
which a portion of the purchase price could reasonably be allocated. This
preliminary allocation is not expected to differ materially from the final
allocation.
The following is a summary of the adjustments reflected in the Unaudited Pro
Forma Financial Statements giving effect to the completion of the asset
acquisitions of the PHC Practices. The Company has not acquired equity
interests in most of the PHC Practices, but has acquired substantially all of
the non-medical assets of the Practices and, in most cases, will have a 40-
year Practice Management Agreement with each practice.
4. PRO FORMA BALANCE SHEET AND OPERATIONS STATEMENT ADJUSTMENTS
(a) Reflects the adjusted net assets acquired, at fair-market value, from
the asset acquisitions since September 30, 1997. See Note 3.
(b) Reflects the adjusted intangible amount associated with the asset
acquisitions since September 30, 1997. The ending intangibles amount of
$63.6 million as of September 30, 1997 also includes estimated
capitalized costs associated with the asset acquisitions of $1.2
million.
(c) Reflects the adjusted long-term debt associated with the asset
acquisitions since September 30, 1997. See Note 3.
(d) Reflects the adjusted total stockholders' equity associated with the
asset acquisitions since September 30, 1997. See Note 3.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(e) Reflects the elimination of patient service revenue for all physician
practices with which the Company has a Practice Management Agreement,
but will not directly employ the physicians of such practices. See (h).
(f) Reflects the management service revenue received from the Practice
Management Agreements. Pursuant to Practice Management Agreements, the
Company will act as the exclusive manager and administrator of a PHC
Practice. The Practice Management Agreements provide for the PHC
Practice to assign to the Company all or substantially all of its
rights and interests in the proceeds of its non-governmental accounts
receivable (or the revenue it receives) and grants to the Company the
right to collect and retain the proceeds of governmental accounts
receivable (or revenue) for the Company's account to be applied in
accordance with the agreement. Although such proceeds of the accounts
receivable (or revenue) are collected by the Company on behalf of the
practice, the practice grants to the Company the right to grant a
security interest and factor such accounts, and such receivables secure
Company borrowings under its credit facility.
(g) Reflects the elimination of physician compensation at the practices in
which the Company does not have an equity ownership interest. After the
Company collects its management fees pursuant to the Practice
Management Agreements, the remaining revenues will be remitted to the
PHC Practice to pay physician compensation and benefits pursuant to
employment agreements between the practice and each individual
physician and to pay physician assistant compensation and benefits.
(h) Reflects the cost of salaries of the physicians employed by the Company
after the asset acquisition of the various practices.
(i) Intentionally not used.
(j) Reflects the adjusted depreciation of the property and equipment
acquired and amortization of the intangibles associated with the asset
acquisitions. Substantially all of the intangibles are being amortized
over 25-year periods. See Note 3.
(k) Reflects the reversal of one-time write offs recorded by the Company in
connection with the purchase of research and development acquired in
the Arlington Cancer Center acquisition. See the Consolidated Financial
Statements of the Company and the Notes thereto.
(l) Reflects interest expense on asset acquisition indebtedness based on
the interest rate applicable to each instrument.
(m) Includes the elimination of the minority interest portion of one-time
write offs at the Arlington Cancer Center. See (k). Also includes the
minority interest in the net income of Arlington Cancer Center and
Jones Eyecare Center.
(n) Reflects the establishment of a provision for income taxes. Most of the
practices are S corporations with such corporations owing no federal or
state taxes and the shareholders of each such entity being responsible
for their payment.
(o) The shares used in computing pro forma net income per common share
includes the following:
<TABLE>
<S> <C>
Outstanding shares of Common Stock as of September 30, 1997.... 2,682,699
Shares issued in connection with the post September 30, 1997
asset acquisitions............................................ 2,721,987
Outstanding shares of the Company's Class A Stock and Series B
Preferred Stock to be converted into Common Stock upon
completion of the Offering.................................... 1,976,747
Common Stock equivalents (stock options and warrants using the
treasury stock method)........................................ 941,522
Conversion of minority interest into Common Stock of Company... 173,006
Other.......................................................... 39,250
----------
Pro forma combined shares..................................... 8,535,211
==========
Common Stock offered........................................... 3,000,000
----------
Pro forma combined shares as adjusted......................... 11,535,211
==========
</TABLE>
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(p) Certain stock options have been granted by the Company. Stock options
granted at fair market value to employees are accounted for under APB
No. 25 and do not require compensation cost to be recognized. Stock
options granted below fair market value to employees do require
compensation costs to be recognized. Stock options granted to
nonemployees are accounted for under SFAS No. 123. This accounting
standard requires options to be recorded at fair value, which normally
entails compensation expense.
The Company has entered into an agreement with Banque Paribas for a $20.0
million term loan facility, a $32.5 million acquisition line facility, a $10.0
million working capital revolving loan facility, and an approximately $15.0
million subordinated debt loan facility. All the facilities will bear interest
at a floating rate of prime plus 1.75% or, at the Company's option, LIBOR plus
3.0%, with the exception of the subordinated debt which bears interest at
12.0%. Additionally, an affiliate of Banque Paribas purchased approximately
553,683 shares of Series B Voting Preferred Stock of the Company for
approximately $2.2 million. In connection with this investment and the
subordinated debt, the Company issued Banque Paribas affiliates warrants
exercisable for 376,800 shares of Non-Voting Common Stock and 58,090 shares of
Common Stock. If the Company completes an initial public offering by February
28, 1998 or April 27, 1998, respectively, the Banque Paribas affiliates will
forfeit warrants exercisable for 226,080 or 188,400 shares of Non-Voting
Common Stock, respectively, retaining warrants exercisable for 150,720 or
188,400 shares of Non-Voting Common Stock, respectively as well as retaining
the warrants exercisable for 58,090 shares of Common Stock.
The Company used $12.0 million of the $20.0 million term loan and $9.0
million of the subordinated debt to pay or refinance the cash component of the
acquisitions consummated since September 30, 1997 and to pay transaction
costs. See Note 3. The remaining $8 million under the term loan and $6 million
under the subordinated loan is available only to pay certain other outstanding
indebtedness of the Company. Approximately $2.1 million of the acquisition
line facility has been drawn to pay the cash component of acquisition
consummated following September 30, 1997, and the remaining $30.4 million is
available for future acquisitions. The $2.2 million equity infusion has been
will be used for general corporate purposes, including working capital.
The following pro forma adjustments are made to reflect properly the Banque
Paribas agreements (in thousands):
(q)
<TABLE>
<S> <C>
Gross proceeds of initial borrowings and equity infusion.......... $21,200
Less:
Commitment fee.................................................. 2,200
Estimated legal costs........................................... 600
Cash portion of acquisitions.................................... 17,300
-------
Net proceeds...................................................... $ 1,100
=======
</TABLE>
(r) Reflects the interest expense associated with the Banque Paribas
agreement. Amount is calculated as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
$10.0 million term loan at 9.3%............... $ 925 $ 698
$9.0 million subordinated debt imputed at
14.0%........................................ 1,260 945
------ ------
$2,185 $1,643
====== ======
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company has allocated $900,000 as the fair market value of the warrants
issued in connection with the subordinated debt.
(s) Reflects the amortization of the debt issuance costs associated with
the Banque Paribas agreement over five years.
(t) Reflects the conversion of Class A Stock, Series B Preferred Stock and
Prime Common Stock into Common Stock, all of which are subject to
mandatory conversion upon consummation of the Offering.
5. POST COMBINATION ADJUSTMENTS
(u) The proceeds from the issuance of 3.0 million shares of the Company's
Common Stock, net of estimated offering costs (based on an assumed
initial public offering price of $15.00 per share) will be applied as
follows (in thousands).
<TABLE>
<S> <C>
Gross proceeds of the Offering.................................... $45,000
Less:
Underwriting discount........................................... (3,200)
Estimated expenses.............................................. (2,500)
Payment of certain debt obligations............................. (21,000)
-------
Net cash received in Offering..................................... $18,300
=======
</TABLE>
Estimated expenses primarily consist of accounting fees, legal fees,
and printing expenses.
(v) Reflects the interest expense savings associated with the payment of
certain debt obligations from the Offering proceeds. Amount is
calculated as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
$12.0 million term loan at an average inter-
est rate of 9.3%............................ $1,116 $ 837
$9.0 million subordinated debt imputed at
14.0%....................................... 1,260 945
------ ------
$2,376 $1,782
====== ======
</TABLE>
The $12.0 million term loan includes a $2.5 subordinated debt that was
assumed by the Company in the September 30 pro forma financial statements.
(w) Reflects the elimination of the amortization expense for debt issuance
costs associated with Banque Paribas. See (s).
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data for the period from
inception to December 31, 1995, the year ended December 31, 1996 and the nine
month period ended September 30, 1997 are derived from the audited
consolidated financial statements of the Company, and the selected
consolidated financial data for the year ended December 31, 1994 and for the
period from January 1, 1995 to October 31, 1995 are derived from the audited
financial statements of the Predecessor. The selected consolidated financial
data for the nine month period ended September 30, 1996 are derived from the
unaudited financial statements of the Company. As a result of acquisitions
occurring in 1997, the Company's historical financial statements are not
representative of the financial results expected for future periods. This
information should be read in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the Notes thereto included elsewhere in
the Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------ --------------------------------------------
PERIOD FROM
PERIOD FROM INCEPTION
JANUARY 1, (AUGUST 29, NINE MONTHS ENDED
YEAR ENDED 1995 TO 1995) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, ------------------
1994(1) 1995(1) 1995(1) 1996 1996 1997
------------ ----------- ------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues............ $812 $1,949 $ 456 $ 4,036 $ 2,720 $ 15,991
Operating expenses:
Salaries and benefits.. 531 1,533 362 2,915 2,123 4,880
Contract and profes-
sional services....... 38 125 70 194 370 746
Provision for bad
debts................. -- -- 40 660 104 938
General and administra-
tive.................. 225 463 131 2,748 1,242 11,875
Depreciation and amor-
tization.............. 58 106 14 161 81 732
Write down of as-
sets(2)............... -- -- -- 195 -- 715
Purchased research and
development(3)........ -- -- -- -- -- 13,252
---- ------ ------ ------- ------- ---------
Total operating ex-
penses................ 851 2,227 617 6,873 3,920 33,139
---- ------ ------ ------- ------- ---------
Income (loss) from oper-
ations................. (39) (278) (161) (2,837) (1,200) (14,148)
Interest expense, net... 24 86 7 30 9 1,767
---- ------ ------ ------- ------- ---------
Loss before minority
interest and income
taxes.................. (63) (364) (168) (2,867) (1,209) (18,915)
Minority interest....... -- -- (1) -- -- (2,081)
---- ------ ------ ------- ------- ---------
Loss before income tax-
es..................... (63) (364) (167) (2,867) (1,209) (16,834)
Income tax expense...... -- -- -- 17 -- 14
---- ------ ------ ------- ------- ---------
Net loss................ $(63) $ (364) (167) $(2,884) $(1,209) $(16,848)
==== ====== ====== ======= ======= =========
Net loss per share...... N/A N/A $(0.18) $ (1.34) $ (0.56) $ (5.82)
---- ------ ------ ------- ------- ---------
Weighted average shares
outstanding............ N/A N/A 941 2,156 2,143 2,894
==== ====== ====== ======= ======= =========
DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------ ------- ------------------
BALANCE SHEET DATA:
Working capital................................... $2,415 $ 146 $(5,226)
Total assets...................................... 4,870 4,143 41,733
Long-term debt.................................... 10 500 14,435
Total shareholders' equity (deficit).............. 1,292 (405) (9,344)
</TABLE>
- --------
(1) The Company commenced operations in 1994 as a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August
1995 and acquired the Predecessor in November 1995.
(2) The $195,000 charge in 1996 is related to the write off of operating
assets related to certain contracts that were entered into by the
Predecessor and did not conform to the Company's business plan. The
$715,000 charge in 1997 is related to the write off of deferred financing
fees related to a credit arrangement with NationsCredit Commercial
Corporation that was terminated and the write off of operating assets
related to certain contracts that were entered into by the Predecessor and
did not conform to the Company's business plan.
(3) The $13.3 million charge in 1997 is related to the write off of certain
purchased research and development expenses in association with the
Arlington Cancer Center acquisition.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain forward-looking
statements relating to future events or the future financial performance of
the Company. Such statements are only predictions and the actual events or
results may differ materially from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors," as well as
those discussed elsewhere in this Prospectus. As a result of the substantial
number of recent acquisitions, the historical results set forth in this
discussion and analysis are not indicative of trends with respect to any
actual or projected future financial performance of the Company. This
discussion and analysis should be read in conjunction with the Unaudited Pro
Forma Combined Financial Statements and the Financial Statements and related
Notes thereto included elsewhere in this Prospectus.
OVERVIEW
Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of December 31, 1997, the Company provided payor contract
administration and related services to 23 Affiliated Networks and two PHC
Networks. The PHC Networks and Affiliated Networks included approximately
3,300 physicians and had approximately 2.3 million covered lives under 29
managed care contracts including specialty capitated and global risk
contracts. As of December 31, 1997, the Company also provided practice
management services to 34 PHC Practices including 171 PHC Physicians. The
Company was a party to Practice Management Agreements with 26 of the PHC
Practices that employed 113 PHC Physicians through practice management
agreements. The Company directly owned and operated the remaining eight PHC
Practices through which directly employed 58 PHC Physicians.
The Company commenced operations in 1994 as a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August 1995
and acquired the Predecessor in November 1995. The Company's current regional
markets are centered in Atlanta, Georgia; Cincinnati, Ohio; Dallas/Ft. Worth,
Texas; Memphis, Tennessee; Orlando, Florida; and St. Louis, Missouri. The
Company also provides services in Alabama, Arizona, Illinois, Kentucky,
Mississippi and Virginia.
The Company derives its revenues from five primary sources: (i) management
fees from management of PHC Practices; (ii) patient service revenues generated
by PHC Practices owned by the Company; (iii) reimbursements of operating
expenses paid by PHC on behalf of the managed PHC Practices; (iv) management
fees from management of Affiliated Networks and administering managed care
contracts; and (v) revenues from the operation of ancillary health care
services. The practice management fees payable to PHC by the PHC Practices
vary based on the nature and amount of services provided. The practice
management fees are payable monthly and generally consist of percentages of
revenues or the income of the PHC Practices. For the nine months ended
September 30, 1997 revenues from the Company's practice management business,
ancillary health care services business and contracting business constituted
approximately 77%, 0%, and 23% of the Company's total revenues, respectively.
On a pro forma basis for the nine months ended September 30, 1997, revenues
from the Company's practice management business, ancillary health care
services business and contracting business constituted approximately 93%, 2%,
and 5% of the Company's total revenues, respectively.
Management fees payable to the Company under the Practice Management
Agreements are determined in arm's-length negotiations based on the nature and
amount of services provided. Such fees generally consist of combinations of
the following: (i) percentages (generally ranging from 10% to 25%) of the
earnings of the PHC Practices; (ii) operating and non-operating expenses of
the PHC Practices paid by the Company pursuant to the Practice Management
Agreements; and (iii) certain negotiated performance and other adjustments. In
negotiating performance and other adjustments, the principal factor considered
by the Company and the PHC Practice is the potential for growth in the revenue
or profitability of the PHC Practice and whether adjustments to the base fee
are appropriate as any such growth occurs. In the case of the Arlington Cancer
Center, the Company's
31
<PAGE>
management fee is 12% of revenues plus 55% of the practice's income after
physician compensation. In Illinois where fees based on percentages of
revenues or income are not permissible, PHC charges a flat fee. In many
instances, for the first five years of the term of a Practice Management
Agreement the service fee is the greater of the fee determined by the
applicable formula or a fixed minimum amount. The base minimum amounts
typically are determined by multiplying the percentage of earnings that has
been agreed upon as the base management fee by the historical earnings of the
PHC Practice for a recent period. Payment of this minimum is, in many
instances, guaranteed by the physicians and the practice. For a description of
the terms of the Practice Management Agreements and Direct Employment
Agreements, see "Business--Contractual Agreements with PHC Practices."
Operating expenses include the expenses incurred by the Company in
fulfilling its obligations under the Practice Management Agreements. These
expenses are the same as the operating costs and expenses that would have been
incurred by the PHC Practices, including salaries, employee benefits, medical
supplies, building rent, equipment leases, malpractice insurance premiums,
management information systems, and other expenses related to practice
operations. In addition to the practice expenses discussed above, the Company
also incurs personnel and administrative expenses in connection with
maintaining a corporate office that provides management, administrative,
marketing and acquisition services to the PHC Practices, organizes networks
and negotiates and administers payor contracts, and manages and develops
ancillary health care services. The Company can only indirectly manage the
profitability of the PHC Practices the Company does not own. To the extent
that a PHC Practice, with the assistance of the Company pursuant to the
Practice Management Agreement, increases its revenues or decreases its
operating expenses, the practice management fee payable to the Company may
increase.
The Company earns management fees from management of networks and managed
care contracts under agreements between the Company and the PHC Networks or
Affiliated Networks. These agreements generally provide that the Company is
entitled to receive a percentage of the payments made by payors to the
network, ranging from 4.5% to 10.0%. The agreements with the networks
generally have terms of from one to five years, with provisions for automatic
renewal at the end of the term. See "Business--Operations."
In some cases, the Company enters into capitated or financial risk-sharing
managed care contracts directly with the payors. In these cases, the Company
receives the managed care payments and retains financial risk for care,
including responsibility for paying contracted providers for medical services.
To the extent that the cost of services falls below expectations, the Company
retains a larger portion of the managed dollar. Excess services, on the other
hand, would result in reduced profitability or operating losses to the
Company. See "Business--Operations."
The structure of the financial interest held by the Company in ancillary
health care services delivered by the Company or the PHC Practices will differ
based on the Company's evaluation of the requirements of state laws
prohibiting the corporate practice of medicine, as well as federal and state
anti-kickback and self-referral laws. Where legally permissible, the Company
may own all or part of an ancillary health care service provider. In other
instances the Company may manage the delivery of ancillary health care
services through a PHC Practice in exchange for a management fee. Currently,
the Company has an interest in a wholly-owned sleep laboratory located in
Atlanta, Georgia and a 51% partnership interest in an ambulatory surgery
center located in Orlando, Florida. The Company derives revenue from the sleep
laboratories through the conduct of sleep studies and the sale of durable
medical equipment related to sleep disorders. Revenues from the ambulatory
surgery center are derived from facility fees charged by the center. The
Company also manages this ambulatory surgery center for a fee of 6% of the
center's revenues. The Company has options, commencing in June 1998, to
purchase a 51% interest in two other ambulatory surgery centers located in
Orlando, Florida.
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Since November 1996, the Company has acquired 34 PHC Practices that are
affiliated with 171 PHC Physicians. Aggregate consideration paid in connection
with these acquisitions was approximately $88.5 million, consisting of
approximately $29.2 million in cash, approximately $14.8 million in promissory
notes, approximately $44.6 million in Company stock and 20% interests in three
Company subsidiaries that are convertible into a total of approximately
693,000 shares of Common Stock. In connection with these acquisitions, PHC has
recognized or will recognize approximately $63.6 million in intangibles.
On June 16, 1997, the Company acquired substantially all of the assets of
the Arlington Cancer Center for approximately $11.8 million in cash, $12.6
million in promissory notes and a 20% membership interest in MHOA Texas I,
LLC, the subsidiary of the Company that purchased such assets and manages the
Arlington Cancer Center. On September 12, 1997, the Company acquired
substantially all of the assets of Southern Dependacare for approximately $4.5
million in cash, $1.8 million in promissory notes and 540,000 shares of Prime
Common Stock. On November 10, 1997, pursuant to an Agreement and Plan of
Merger, a wholly-owned subsidiary of the Company was merged with and into
Greater Cincinnati Gastro, all of the shares of capital stock of Greater
Cincinnati Gastro were converted into the right to receive, in the aggregate,
approximately $3.5 million in cash and approximately 410,000 shares of Common
Stock, and Greater Cincinnati Gastro became a wholly-owned subsidiary of the
Company. On November 12, 1997 pursuant to an Agreement and Plan of Merger,
Parkcrest was merged with and into a wholly-owned subsidiary of the Company,
all of the outstanding shares of capital stock of Parkcrest were converted
into the right to receive, in the aggregate, $348,148 in cash and
approximately 406,400 shares of Common Stock, and Parkcrest became a wholly-
owned subsidiary of the Company. On November 12, 1997, pursuant to an
Agreement and Plan of Merger, a wholly-owned subsidiary of the Company was
merged with and into IMS, all of the outstanding capital stock of IMS
converted into the right to receive, in the aggregate, approximately $3.7
million in cash and 351,867 shares of Common Stock, and IMS became a wholly-
owned subsidiary of the Company. On November 12, 1997, pursuant to an
Agreement and Plan of Merger, MidSouth merged with and into a wholly-owned
subsidiary of the Company, all of the outstanding shares of capital stock of
MidSouth were converted into the right to receive, in the aggregate,
approximately $2.5 million in cash and 272,521 shares of Common Stock and
MidSouth became a wholly-owned subsidiary of the Company.
RESULTS OF OPERATIONS
As a result of the Company's recent acquisitions and limited period of
affiliation with PHC Practices, the Company believes that the period-to-period
comparisons and percentage relationships within the periods set forth below
are not meaningful. The Company acquired its first PHC Practice in November
1996. The Company acquired 11 additional PHC Practices during the first nine
months of 1997. Changes in results of operations for the year ended December
31, 1996 as compared to the year ended December 31, 1995 and for the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996 were caused primarily by the acquisitions of those PHC Practices.
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The following table shows the percentage of net revenue represented by
various expense categories reflected in the Company's Consolidated Statements
of Operations:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
--------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ -----------------
1994 1995 1996 1996 1997
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues....................... 100% 100% 100% 100% 100%
Operating expenses:
Salaries and benefits............ 65 79 72 78 31
Contract and professional servic-
es.............................. 5 8 5 14 5
Provision for bad debts.......... -- 2 16 4 6
General and administrative....... 28 25 68 45 74
Depreciation and amortization.... 7 5 4 3 4
Write down of assets............. -- -- 5 -- 4
Purchased research and develop-
ment............................ -- -- -- -- 83
--- --- --- ------ -------
Total operating expenses....... 105 119 170 144 207
--- --- --- ------ -------
Loss from operations............... (5%) (19%) (70%) (44%) (107%)
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net revenue increased to $15.9 million for the nine months ended September
30, 1997 from $2.7 million for the same period in 1996, an increase of $13.3
million or 488%. This increase was primarily due to approximately $11.6
million in additional revenues from the 12 PHC Practices acquired since
November 1996. This additional revenue was comprised of approximately $1.8 in
management fee revenue, approximately $1.9 in net patient revenues related to
employed physicians, and approximately $7.9 million in reimbursement of
clinical operating expenses. The remaining increase of approximately $1.5
million was due primarily to the start-up of global risk contracting in
September 1996, increased capitation contract revenues and revenues generated
by five new employee physicians in the Orlando market.
Salaries and benefits increased to $4.9 million for the nine months ended
September 30, 1997 from $2.1 million for the same period in 1996, an increase
of $2.8 million or 130%. The addition of staff related to the acquisitions of
12 PHC Practices constituted approximately $4.0 million of this increase.
Approximately $370,000 of this increase related to the addition of five
physician employees in the Orlando market. Additional amounts of approximately
$376,000 related to the addition of staff in support of growth in revenues. As
a percentage of net revenues, salaries and benefits expense decreased to 31%
for the nine months ended September 30, 1997 from 78% for the same period in
1996.
Contract and professional services expense increased to $746,000 for the
nine months ended September 30, 1997 from $370,000 for the same period in
1996, an increase of $376,000 or 102%. This increase was primarily due to the
acquisitions of six PHC Practices as well as increased legal fees associated
with new capitated contracts. As a percentage of net revenues, contract and
professional services expense decreased to 5% for the nine months ended
September 30, 1997 from 14% for the same period in 1996.
Provision for bad debts increased to $938,000 for the nine months ended
September 30, 1997 from $104,000 for the same period in 1996, an increase of
$388,000 or 797%. This increase primarily related to reserves established
based on historical collection experience for accounts receivable generated by
PHC Practices. As a percentage of net revenues, provision for bad debts
increased to 6% for the nine months ended September 30, 1997 from 4% for the
same period in 1996.
General and administrative expenses increased to $11.9 million for the nine
months ended September 30, 1997 from $1.2 for the same period in 1996, an
increase of $10.7 million or 857%. This increase was due to the asset
acquisitions of PHC Practices, the addition of four physician employees in the
Orlando market, as well as other increases in staffing levels. As a percentage
of net revenues, general and administrative
34
<PAGE>
expenses increased to 74% for the nine months ended September 30, 1997 from
45% for the same period in 1996.
Depreciation and amortization expense increased to $732,000 for the nine
months ended September 30, 1997 from $81,000 for the same period in 1996, an
increase of $651,000 or 804%. This increase was directly related to fixed
assets and goodwill acquired in the acquisitions of six PHC Practices. As a
percentage of net revenues, depreciation and amortization expense increased to
4% for the nine months ended September 30, 1997 from 3% for the same period in
1996.
The write down of assets for the nine months ended September 30, 1997
relates to the expense of certain loan issuance costs related to a terminated
credit arrangement.
Purchased research and development expense for the nine months ended
September 30, 1997 relates to a non-recurring expense of writing off an
intangible asset of a PHC Practice acquired in June 1997 based on management's
assessment that such asset had no future alternative benefit for the Company.
Interest expense increased to $1.8 million for the nine months ended
September 30, 1997 from $1,000 for the same period in 1996. The increase was
due to the debt incurred in connection with asset acquisitions and working
capital borrowings.
As a result of the foregoing, net loss increased to $16.8 million for the
nine months ended September 30, 1997 from $1.2 million for the same period in
1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
On November 3, 1995, the Company acquired the Predecessor by merger. Prior
to such acquisition, the Company did not have significant operations. The
Predecessor commenced operations in 1994. The operations for 1995 for the
Predecessor and the Company have been combined for presentation purposes. The
combined presentation is not in accordance with generally accepted accounting
principles.
Net revenue increased to $4.0 million in 1996 from $2.4 million in 1995, an
increase of $1.6 million or 66%. This increase was due primarily to an
increase in single specialty contracting as well as the commencement of global
risk contracting in September 1996. Additionally, a portion of the increase
relates to the acquisition of Metropolitan Plastic & Reconstructive Surgery,
Ltd. ("Metropolitan Plastic") in November 1996.
Salaries and benefits increased to $2.9 million in 1996 from $1.9 million in
1995, an increase of $1.0 million or 53%. This increase was due to additional
staffing added to support the growth in revenues as well as the hiring of
employees of Metropolitan Plastic in November 1996. As a percentage of net
revenues, salaries and benefits expenses decreased to 72% for 1996 compared to
79% for 1995.
Contract and professional services expense was $194,000 in 1996 compared to
$195,000 in 1995. As a percentage of net revenues, contract and professional
services expense decreased to 5% in 1996 from 8% in 1995.
Provision for bad debts increased to $660,000 in 1996 from $40,000 in 1995,
an increase of $620,000 or 1550%. This amount primarily related to reserves
established for contracts that were entered into by the predecessor and did
not conform to the Company's business plan.
General and administrative expenses increased to $2.7 million in 1996 from
$594,000 in 1995 an increase of $2.1 million or 355%. This increase was
related to increased staffing levels for anticipated growth in 1997 as well as
the acquisition of Metropolitan Plastic. As a percentage of net revenues,
general and administrative expenses increased to 68% for 1996 compared to 25%
for 1995.
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<PAGE>
Depreciation and amortization expenses increased to $161,000 in 1996 from
$120,000 in 1995, an increase of $41,000 or 34%. This increase was directly
related to fixed assets and goodwill acquired in connection with an
acquisition of Metropolitan Plastic. As a percentage of net revenues,
depreciation and amortization expenses decreased to 4% for 1996 from 5% in
1995.
The write down of assets in 1996 relates to the write off of operating
assets related to certain terminated physician arrangements.
Interest expense decreased to $30,000 in 1996 from $93,000 in 1995, a
decrease of $63,000. The decrease was due to the reduction of certain above-
market rate debt.
As a result of the foregoing, net loss increased to $2.9 million in 1996
from $531,000 in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenue increased to $2.4 million in 1995 from $812,000 in 1994, an
increase of $1.6 million or 197%. The increase was due to an increase in the
number of payor contracts administered in 1995.
Salaries and benefits increased to $1.9 million in 1995 from $531,000 in
1994, an increase of $1.4 million or 263%. The increase was due to an increase
in the number of employees to administer payor contracts. As a percentage of
revenues, salary and benefits expenses increased to 79% in 1995 from 65% in
1994.
Contract and professional services expense increased to $195,000 in 1995
from $37,000 in 1994, an increase of $158,000 or 427%. As a percentage of
revenues, contract and professional services expense increased to 8% in 1995
from 5% in 1994.
Provision for bad debts increased to $40,000 in 1995 from $0 in 1994.
General and administrative expenses increased to $594,000 in 1995 from
$225,000 in 1994, an increase of $369,000 or 164%. As a percentage of
revenues, general and administrative expenses decreased to 25% in 1995 from
28% in 1994.
Depreciation and amortization expenses increased to $120,000 in 1995 from
$58,000 in 1994, an increase of $62,000 or 107%. As a percentage of revenues,
depreciation and amortization expenses decreased to 5% in 1995 from 7% in
1994.
Interest expense increased to $93,000 in 1995 from $24,000 in 1994, an
increase of $69,000 or 288%. The increase was due to the acquisition debt
incurred to purchase the Predecessor.
As a result of the foregoing, net loss increased to $531,000 in 1995 from
$63,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, working capital was $(5.2) million, a decrease of
$5.4 million during the first nine months of 1997, and cash and cash
equivalents were $5.2 million. At September 30, 1997, net accounts receivable
increased to approximately $8.1 million compared to approximately $465,000 at
December 31, 1996. The increase is attributable to growth in revenues and
acquired assets due to the acquisition of PHC Practices.
Capital expenditures during the first nine months of 1997 totaled
approximately $341,000. The Company is committed to make specified levels of
capital expenditures under certain of its Practice Management Agreements.
During June 1997, the Company completed a private placement of its Series B
Preferred Stock (the "Series B Offering"). Pursuant to the Series B Offering,
the Company received net proceeds of approximately
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<PAGE>
$9.8 million at the initial closing in June 1997 (substantially all of which
was used in connection with the acquisition of the assets of the Arlington
Cancer Center by the Company). At the second closing in July 1997,
approximately $5.5 million was deposited into an escrow account which was
accessed by the Company in connection with its acquisition of practices
meeting certain agreed upon criteria. Although the Company expects to retire
approximately $6.2 million in indebtedness incurred in connection with the
Arlington Cancer Center acquisition with the proceeds of the Offering, the
Company has the ability instead to require the holders of its Series B
Preferred Stock to purchase shares of Common Stock at $4.00 per share
sufficient to retire this indebtedness in April 1998, pursuant to an equity
call agreement.
In October 1997, the Company entered into a credit agreement with a group of
banks led by Banque Paribas (the "Bank Group") under which agreement, as
amended and restated in December 1997, the Bank Group agreed to provide the
Company with up to $62.5 million in senior debt (the "Senior Facility"). The
Senior Facility is comprised of a term loan in an amount up to $20.0 million
(the "Term Loan"), a revolving loan in an amount up to $10.0 million (the
"Revolving Loan") and an acquisition loan in an amount up to $32.5 million
(the "Acquisition Loan"). The Senior Facility is secured by substantially all
of the Company's assets. At December 31, 1997, approximately $12.0 million was
outstanding under the Term Loan, approximately $1.5 million was outstanding
under the Revolving Loan and approximately $1.1 million was outstanding under
the Acquisition Loan. In connection with the Senior Facility, the Company sold
to Paribas Principal Incorporated ("PPI"), an affiliate of Banque Paribas, for
approximately $2.2 million, 553,683 shares of Series B Preferred Stock and
warrants exercisable for 58,090 shares of Common Stock at a nominal exercise
price. Further, in October 1997, the Company obtained from Paribas Capital
Funding LLC ("PCF"), an affiliate of Banque Paribas, a senior subordinated
loan (the "Subordinated Loan") in the amount of $15.0 million (of which $9.0
million was advanced), and sold to PCF warrants exercisable for 376,800 shares
of the Company's Non-Voting Common Stock. If the Company completes an initial
public offering by February 27, 1998 or April 27, 1998, respectively, PCF will
forfeit warrants exercisable for 226,080 or 188,400 shares of Non-Voting
Common Stock, respectively, retaining warrants exercisable for 150,720 or
188,400 shares of Non-Voting Common Stock, respectively. The Company will
repay the Subordinated Debt with the net proceeds of the Offering and will use
$12.0 million of such net proceeds to repay indebtedness under the Term Loan.
Commitments under the Term Loan will be extinguished upon repayment. Following
such required repayments, such financing must be paid down with excess cash
flow. Following repayment of the indebtedness, neither the Bank Group nor the
Company's subordinated lenders will have any obligation to advance additional
funds to the Company.
The Company historically has funded its acquisitions and operations through
cash flow from operations, borrowings and sales of equity securities. In
addition to the proceeds from the offering, funds available under its bank
borrowings, cash reserves and cash flow from operations, the Company expects
to incur, from time to time, short-term and long-term bank indebtedness and to
issue equity and debt securities, the availability and terms of which will
depend upon market and other conditions, to meet the Company's current planned
acquisition, capital expenditure and working capital needs for the next 12
months and to provide the funds necessary for the continued pursuit of the
Company's long-term expansion strategy. There can be no assurance that such
additional financing will be available on terms acceptable to the Company.
RECENT PRONOUNCEMENTS
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." SFAS No. 128 is designed to improve the
earnings per share information provided in the financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of earnings per share data.
SFAS No. 128 is effective for periods ending after December 15, 1997,
including interim periods. The Company will adopt SFAS No. 128 for the fiscal
and interim
37
<PAGE>
periods ending December 31, 1997. As of September 30, 1997, the disclosure
requirements of SFAS No. 128 would not require a different presentation of
earnings per share than currently presented due to the antidilutive effect of
all common stock equivalents.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information About Capital Structure." SFAS No. 129
requires companies to disclose descriptive information about an entity's
capital structure. It also requires disclosure of information about the
liquidation preference of preferred stock and redeemable stock. SFAS No. 129
is effective for the Company's fiscal year ending December 31, 1998. The
Company does not expect that SFAS No. 129 will require significant revision of
prior disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income." SFAS No. 130 is designed to improve the
reporting of changes in equity from period to period. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. The Company will
adopt SFAS No. 130 for fiscal 1998. Management does not expect SFAS No. 130 to
have a significant impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires that an enterprise disclose certain information about
operating segments. SFAS No. 131 is effective for financial statements for the
Company's fiscal year ending December 31, 1998. The Company does not expect
that SFAS No. 131 will require significant revision of prior disclosures.
The Emerging Issues Task Force of the FASB has recently issued its Consensus
Opinion 97-2 ("EITF 97-2"). EITF 97-2 addresses certain specific matters
pertaining to the physician practice management industry. EITF 97-2 would be
effective for the Company for its year ending December 31, 1998. EITF 97-2
addresses the ability of physician practice management companies to
consolidate the results of physician practices with which it has an existing
contractual relationship. The Company is still in the process of analyzing the
effect on all of its contractual relationships, but currently believes that
certain contracts would meet the criteria of EITF 97-2 for consolidating their
results of operations, which would require the Company to restate its
financial statements to reflect such consolidation. EITF 97-2 also has
addressed the accounting method for future combinations with individual
physician practices. The Company believes that, based upon the criteria set
forth in EITF 97-2, virtually all of its future acquisitions of individual
physician practices will continue to be accounted for under the purchase
method of accounting.
38
<PAGE>
BUSINESS
OVERVIEW
Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of December 31, 1997, the Company provided payor contract
administration and related services to 23 Affiliated Networks and two PHC
Networks. The PHC Networks and Affiliated Networks included approximately
3,300 physicians and had approximately 2.3 million covered lives under 29
managed care contracts including specialty capitation contracts and global
risk contracts. As of December 31, 1997, the Company also provided practice
management services to 34 PHC Practices, including 171 PHC Physicians. The
Company was a party to Practice Management Agreements with 26 of the PHC
Practices that employed 113 PHC Physicians. The Company directly owned and
operated the remaining eight of the PHC Practices through which it directly
employed 58 PHC Physicians.
The Company's objective is to continue building comprehensive and integrated
networks of physicians in selected regional markets in order to: (i) establish
a significant market presence enabling it to negotiate favorable payor
contracts and (ii) provide a broad range of physicians and ancillary health
care services to payors and patients. To achieve these objectives, the Company
seeks to: (a) leverage contracting expertise to enhance its strategic position
in its markets; (b) selectively acquire key practices to strengthen market
presence; (c) provide management expertise and capital for development of
ancillary health care services; (d) negotiate and administer beneficial payor
contracts; and (e) utilize information technology to improve practice
performance and meet payor requirements and patient needs. The Company
believes that the expertise of its management team in network development,
payor contracting and ancillary health care services, as well as PHC's
flexible approach to entering new markets and structuring its operations,
differentiates it from traditional physician practice management companies
("PPMs") and enhance its ability to attract physicians and to negotiate
favorable payor contracts. PHC's acquisition of key practices is a part of its
overall strategy of strengthening its networks and market presence and
enhancing the Company's ability to contract with managed care payors and
providers.
The Company commenced operations in 1994 as a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August 1995
and acquired the Predecessor in November 1995. Prior to the acquisition of the
first PHC Practice in November 1996, the Company principally engaged in
network development and administration, payor contracting, practice
administration, and development activities related to potential acquisitions.
The Company's current regional markets are centered in Atlanta, Georgia;
Cincinnati, Ohio; Dallas/Ft. Worth, Texas; Memphis, Tennessee; Orlando,
Florida; and St. Louis, Missouri. The Company also provides services in
Alabama, Arizona, Illinois, Kentucky, Mississippi and Virginia.
INDUSTRY BACKGROUND
The Health Care Financing Administration ("HCFA") has estimated that
national health care spending increased to approximately $1.0 trillion, or
approximately 14% of GDP, in 1995 from $247 billion, or approximately 9% of
GDP, in 1980. HCFA projects that annual health care spending will increase at
a compounded annual growth rate of over 8% to $1.5 trillion and approximately
16% of the GDP by the year 2000. HCFA also has estimated that approximately
$200 billion, or approximately 20%, of total health care expenditures, in 1995
were directly attributable to physician services, and an additional amount of
approximately $515 billion or 52% of such expenditures were under physician
direction.
As a result of escalating health care expenditures, governmental and other
payors have adopted cost containment initiatives in an effort to control
spending. These initiatives have resulted in a shift from traditional fee-for-
service provider reimbursement to an evolving array of managed care
arrangements, varying from discounted fee-for-service to fully capitated plans
in which providers assume the financial risks related to service utilization
for a defined group of covered members and services. The industry has also
experienced a decrease in inpatient occupancies as payors have implemented
incentives for providing care in a more cost-effective setting, which is often
an outpatient surgery center, in-office laboratory or similar outpatient
location.
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<PAGE>
Cost-containment initiatives, including reduced reimbursement, have hindered
physician practice profitability while demands for increased clinical
documentation, cost, quality and utilization data have increased physicians'
administrative duties. Small and mid-sized practices generally do not have the
market presence, expertise or sophisticated cost accounting and quality
management systems required, and may not have the time necessary, to evaluate
and enter into informed capitated risk-sharing arrangements or to continue
practicing profitably under reduced reimbursement. In addition, these
practices often lack the capital required to purchase new medical equipment
and information systems to enhance the efficiency and quality of their
practices. As a result, individual physicians and small group practices are
increasingly consolidating, either by affiliating with larger group practices
and PPMs or by forming networks or independent practice associations. By
consolidating into larger organizations, physicians can achieve lower
administrative costs, gain leverage in negotiating with managed care
organizations and position themselves to attract needed capital resources.
Although the larger organizations resulting from these consolidations have
often improved practice profitability through reductions in overhead and
centralization of certain administrative functions, the Company believes that
many such organizations lack the expertise and market presence to negotiate
successful managed care contracts. In addition, the Company believes that many
PPMs do not offer opportunities for practices and physicians to integrate
complementary ancillary health care services and share in the resulting
income.
THE PHC PHILOSOPHY
The Company seeks to affiliate with physicians who are leaders in the
delivery of medical care and who apply sound business principles to the
operation of their practices. The Company believes that physicians are best
qualified to develop appropriate treatment protocols, and as a result, the
Company provides PHC Physicians, PHC Networks and Affiliated Networks with the
resources necessary to enhance their decision making. The Company also
believes that health care is essentially a regional or local business.
Therefore, PHC aims to integrate practice management, ancillary health care
services, network development and administration and payor contracting at a
regional level. Through such integration and by supporting physicians with
strong, experienced local management teams, the Company believes it provides
physicians with the tools necessary to compete in a changing and increasingly
competitive health care environment.
STRATEGY
The Company's objective is to continue building comprehensive and integrated
networks of physicians in selected regional markets in order to: (i) establish
a significant market presence enabling it to negotiate favorable payor
contracts and (ii) provide a broad range of providers to payors and patients.
To achieve its objectives, the Company seeks to:
Leverage Contracting Expertise to Enhance its Strategic Position in its
Markets. The Company enters markets both by providing network development and
contracting services and, in certain cases, by acquiring practices that the
Company believes can serve as foundations for future networks. As it enters
markets, the Company seeks to form comprehensive provider panels and provide
managed care contracting services to physician practices and networks in order
to gain negotiating leverage with payors and to achieve economies of scale.
The Company believes its network development and contracting services model
enables it to establish a significant market platform with less initial
management time and capital than PPM models based solely on acquisitions. In
addition, the Company believes its network development and contracting
expertise enhances its credibility with market participants and enables it to
identify new markets in which managed care contracting is likely to grow and
the key practices in these markets. Where appropriate, the Company enters a
new market through selective acquisitions of such key practices.
Selectively Acquire Key Practices to Strengthen Market Presence. The Company
selectively acquires key physician practices from its networks and from the
suburban and rural communities surrounding these markets to solidify its
market position, to strengthen its existing networks and to establish,
organize and support new networks. Through network development and contracting
services, the Company establishes relationships with
40
<PAGE>
physicians and identifies leading physicians and practices who apply sound
business principles and are attractive to patients and payors. By acquiring
physician practices from within its networks or existing markets, the Company
believes it makes informed decisions about practice acquisitions and the
allocation of capital resources. The Company also may acquire non-network
practices that it believes will serve as foundations for building new
networks. PHC's acquisition of key practices is a part of its overall strategy
of strengthening its networks and market presence and enhancing the Company's
ability to contract with managed care payors and providers.
Provide Management Expertise and Capital for Development of Ancillary Health
Care Services. The Company intends to acquire and develop ancillary health
care services in order to improve the revenues and operating margins of the
Company and the PHC Practices. The Company believes that the availability of
ancillary health care services provides physicians with scheduling flexibility
and greater practice efficiency. Additionally, ancillary health care services
provided in an outpatient setting are attractive to payors because they
generally are less expensive than similar inpatient services. By providing
ancillary health care services, the Company also increases its flexibility in
negotiating global risk contracts. The Company's management team has
experience in the successful development of outpatient surgery centers and
other ancillary health care services.
Negotiate and Administer Beneficial Payor Contracts. The Company focuses on
negotiating and administering payor contracts on behalf of the PHC Practices,
Affiliated Networks and PHC Networks. The Company believes that its
contracting expertise helps it develop and improve relationships with
physicians and payors, and that its contracting services can result in
increased revenues and profits for PHC, the PHC Physicians, PHC Practices, PHC
Networks and Affiliated Networks. The Company believes that its strategy of
providing network development and administration services and specialty and
other contracting services also enables it to establish: (i) a strong market
position; (ii) stable networks of high quality providers; (iii) strong payor
relationships; (iv) integration of ancillary health care services; and (v)
access to cost, quality and utilization data, all of which are essential to
entering into profitable partial and global risk contracts.
Utilize Information Technology to Improve Practice Performance and Meet
Payor Requirements and Patient Needs. The Company intends to provide its
physicians access to information and technologies that will enhance their
ability to deliver care more efficiently and profitably in a managed care
environment. The Company's clinical information system collects network data
that enable it to price and manage specialty capitation contracts as well as
partial and global risk contracts. The system also provides a broad range of
statistical data to support utilization analysis, to identify physician
outliers and to develop practice protocols. With the data it collects, the
Company can also meet various requirements of payors, including supplying
information to support accreditation of providers and networks by health care
industry organizations such as the National Committee for Quality Assurance
("NCQA") and the Utilization Review Accreditation Committee ("URAC").
OPERATIONS
PHC acquires and manages practices, acquires or develops and manages
ancillary health care services, develops and administers networks, and
negotiates and administers payor contracts in its selected markets. In
choosing new markets, the Company analyzes the population, demographics,
market potential, competitive environment, supply of physicians, needs of
managed care plans or other large payors and general economic conditions. The
Company seeks markets in which it believes it can achieve a significant market
share and, in particular, in which there is evidence of risk shifting from
payors to providers. PHC enters new markets where it has identified an
opportunity or where payors or providers have requested its services.
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The following table sets forth certain information regarding the PHC
Networks, Affiliated Networks, PHC Physicians and the managed care contracts
administered by the Company as of December 31, 1997. Markets identified as
integrated regional markets are those in which the Company has affiliated with
a network and has acquired selected PHC Practices affiliated with the
contracting networks. Developing regional markets are those in which the
Company has affiliated with PHC Physicians but does not yet manage a
corresponding network. Additional contracting markets are those in which PHC
is administering active managed care contracts and has not yet determined
whether to seek physician practice acquisitions. For additional detailed
information regarding individual networks and practices see Appendix A.
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF APPROXIMATE
NUMBER OF NUMBER OF MANAGED NUMBER OF
NETWORK PHC PHC PHYSICIAN CARE COVERED
REGIONAL MARKET PHYSICIANS NETWORK SPECIALTIES PHYSICIANS SPECIALTIES CONTRACTS LIVES
- ------------------------------ ----------- ------------------------ ---------- --------------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTEGRATED REGIONAL MARKETS
Atlanta, GA.................. 1,200 Primary Care/Multi- 18 Primary Care; 14 1,375,000
Specialty; Neuroscience; OB/Gyn
OB/Gyn;
Orthopaedics; Urology
Dallas/Fort Worth, TX........ 130 Gastroenterology; 10 Oncology 4 400,000
Mental Health;
Oncology;
Urology
Memphis, TN.................. 800 Primary Care/Multi- 32 Family Practice -- --
Specialty
Orlando, FL.................. 550 Primary Care/Multi- 51 Primary Care; 4 85,000
Specialty; Ophthalmology Allergy; Colorectal;
Gastroenterology;
Nephrology; OB/Gyn;
Orthopaedics; Surgery
St. Louis, MO................ 260 Primary Care/ 41 Primary Care; -- --
Multi-Specialty Multi-Specialty
Surgery; Cardiology;
Ophthalmology;
Optometry;
Orthopaedics;
Pulmonary
Tucson/Phoenix, AZ area...... 25 Primary Care/Multi- 3 Primary Care 1 60
Specialty; Nephrology
DEVELOPING REGIONAL MARKET
Cincinnati, OH............... -- -- 12 Cardiology; -- --
Gastroenterology
ADDITIONAL CONTRACTING MARKETS
Birmingham, AL............... 250 Cardiology; Cardiac -- -- 5 400,000
Surgery;
Gastroenterology;
Orthopaedics;
Urology
Chattanooga, TN ............. 45 Multi-Specialty Surgery -- -- 1 30,000
Houston, TX.................. 60 Gastroenterology -- -- -- --
OTHER
Outreach Oncology Practices
(IL, MS, VA)................ n/a n/a 4 Oncology n/a n/a
----- --- --- ---------
TOTALS: 3,320 171 29 2,290,060
</TABLE>
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Practice Acquisition and Management
A part of the Company's strategy is to acquire leading medical practices in
markets in which the Company believes it can establish a significant market
presence and in which it provides significant contracting services and has
significant local management relationships. The Company selectively acquires
key physician practices from its networks and from the suburban and rural
communities surrounding these markets in order to solidify its market position
and strengthen its networks. Additionally, in markets where the Company has
identified an attractive opportunity, the Company will acquire selected
physician practices. PHC's acquisition of key practices is a part of its
overall strategy of strengthening its networks and market presence and
enhancing the Company's ability to contract with managed care providers.
The Company seeks to acquire practices of physicians who: (i) are viewed by
the Company as important to the long-term success of its networks; (ii) apply
sound business principles in the operation of their practices and are high
growth oriented; (iii) have reputations in the market as leaders in the
delivery of medical care; and (iv) embrace new medical technologies and
procedures. As part of this process, the Company often targets a particular
type of practice or specialty that the Company believes contains physician
leaders in the specific market.
The Company believes that the following characteristics differentiate it from
other alternatives available to physicians and physician networks and position
it to succeed in acquiring physicians and practices: (i) its contracting
expertise; (ii) the quality, experience and credibility of its local management
teams and its knowledge of the markets in which it operates; (iii) its
ancillary health care services expertise; (iv) its governance structure, which
fosters physician autonomy while promoting physician participation; and (v) its
flexible approach to entering new markets and structuring its operations.
Acquisition Process. The Company's business development team identifies,
pursues and negotiates practice acquisitions. After identifying a practice or
physician, the Company meets with the physicians to determine whether they meet
the Company's criteria and have an interest in affiliating with PHC. The
Company's business, financial and legal due diligence includes site visits,
analysis of financial and other data and analysis of the group's operations,
leadership, clinical practices and commitment to long-term growth.
Additionally, the Company reviews the medical professionals' training,
licensure and experience and the practice's Medicare and Medicaid compliance,
billing practices and operating history. Upon successful completion of due
diligence, the Company structures and negotiates the acquisition terms,
including the type and amount of consideration as well as noncompete
agreements. The consideration paid in the Company's acquisitions is designed to
align its interests with those of the physicians and includes a combination of
Company stock, cash and, sometimes, notes. The consideration for each practice
varies on a case-by-case basis, depending on a variety of factors including
historical operating results, the future prospects of the practice and the
ability of the practice to complement the services offered by other PHC
Practices. When the Company acquires the non medical assets of a physician
practice that it will not directly own, it generally purchases all of the
tangible and intangible assets of the practice with the exception of patient
medical records and real estate. Patient medical records are retained by the
selling practice or a new entity formed by the practice's physicians, and the
practice or new entity enters into a Practice Management Agreement in
connection with the acquisition. When the Company acquires a physician practice
that the Company will own, the Company generally purchases all of the tangible
and intangible assets of the practice, including medical records, and employs
the practice's physicians.
Practice Management Services. Pursuant to its Practice Management Agreements,
the Company provides a range of services including among other things: (i)
acting as manager and administrator of non-medical services relating to the
operation of the PHC Practice; (ii) billing patients, insurance companies and
other third-party payors and collecting the fees for professional medical
services and other services rendered and products sold by the PHC Practice;
(iii) providing, as necessary or requested, clerical, accounting, purchasing,
payroll, legal, bookkeeping and computer services and personnel, information
management, preparation of certain tax returns, printing, postage and
duplication services and medical transcribing services; (iv) supervising and
maintaining custody of substantially all files and records; (v) providing
facilities for the PHC Practice; (vi) preparing, in
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consultation with a joint policy board and the PHC Practice, all capital
expenditure and operating budgets; (vii) ordering and purchasing inventory and
supplies as reasonably requested by the PHC Practice; and (viii) providing
financial and business assistance in the negotiation, establishment,
supervision and maintenance of contracts and relationships with managed care
and similar payors. Management fees payable to the Company under the Practice
Management Agreement are determined in arm's-length negotiations based on the
nature and amount of services provided. Many of the Company's services are
designed to reduce the amount of time physicians must spend on administrative
matters, thereby enabling the physicians to focus on the delivery of health
care. The Company also assists in the development of ancillary health care
services by conducting feasibility studies and providing project development
services and capital resources.
The Company employs most of the PHC Practices' non-physician personnel. These
non-physician personnel, along with additional personnel at the local
management level, manage the day-to-day non-medical operations of each of the
PHC Practices, including, among other things, secretarial, bookkeeping,
scheduling and other business services. In Florida, Missouri and other states
that permit the corporate practice of medicine, the Company may employ
physicians as well as non-physician personnel. The PHC Physicians in the owned
PHC Practices continue to control the medical aspects of the practice and have
input with respect to strategic planning and budgeting. PHC has direct
responsibility for all non-medical aspects of the operation of the owned PHC
Practices.
Ancillary Health Care Services
In evaluating a market, the Company analyzes opportunities to develop or
acquire ancillary health care services. Where appropriate, PHC intends to
acquire and to develop ancillary health care services to complement its local
PHC Practices, PHC Networks and Affiliated Networks. Ancillary health care
services include those that are: (i) part of a practice such as a single-
purpose, office-based surgery suite; (ii) connected with a group practice,
which may consist of several otherwise independent practices, such as a
birthing center; or (iii) affiliated with a coherent specialty network such as
a lithotripter with a urologist network or a sleep lab with a network of
otolaryngology (ENT) physicians. The Company encourages physician participation
in these ancillary health care services, either through an ownership interest
in a joint venture established to own and operate a facility or through
clinical participation. The Company believes that ancillary health care
services provide physicians with scheduling flexibility and greater practice
efficiency. Additionally, ancillary health care services provided in an
outpatient setting are attractive to payors because they generally are less
expensive than similar inpatient services. By providing ancillary health care
services, the Company also increases its flexibility in negotiating global risk
contracts. The Company's management team has experience in the successful
development of outpatient surgery centers and other ancillary health care
services.
The structure of the financial interest held by the Company in ancillary
services delivered by the Company or the PHC Practices will differ based on the
Company's evaluation of the requirements of state laws prohibiting the
corporate practice of medicine, as well as federal and state anti-kickback and
self-referral laws. Where legally permissible, the Company may own all or part
of an ancillary health care service provider. In other instances the Company
may manage the delivery of ancillary health care services through a PHC
Practice in exchange for a management fee.
Currently, the Company has an interest in a wholly-owned sleep laboratory
located in Atlanta, Georgia and a 51% partnership interest in an ambulatory
surgery center located in Orlando, Florida. The Company derives revenue from
the sleep laboratory through the conduct of sleep studies and the sale of
durable medical equipment related to sleep disorders. Revenues from the
ambulatory surgery center are derived from facility fees charged by the center.
The Company also manages this ambulatory surgery center for a fee of 6% of the
revenues of the ambulatory surgery center. The Company has options, commencing
in June 1998, to purchase a 51% interest in two other ambulatory surgery
centers located in Orlando, Florida.
Network Services
Network Formation and Development. In forming networks, the Company focuses
on developing networks of sufficient size and specialties to respond
successfully to payors' geographic, service and utilization
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<PAGE>
management needs. The Company contacts physicians that it believes offer the
medical expertise and quality of care that are attractive to payors. In both
network formation and network development, the Company assists physicians in
determining the number and types of specialists, subspecialists and hospitals
required for a network to be attractive to payors and to meet the needs of a
particular payor's contract. The Company then aids in selecting and
credentialing the panel of physicians. After the panel of physicians is
selected, the Company assists in forming protocol, finance, utilization,
credentialing and quality assurance (peer review) committees composed of
network physicians. In addition, the Company assists physicians in developing
or revising protocols, although physicians in each network retain ultimate
responsibility for selecting and adopting appropriate protocols for their
market. In the PHC Network model, network physicians contract directly with the
PHC Network to provide medical services. The physicians do not contract among
themselves, except where they may have formed their own group practices. In the
PHC Network model, each physician must elect to participate in any new managed
care agreement, although the Company is attempting to shift its model to one in
which the network is permitted to commit its providers to providing services
under managed care contracts. For the Affiliated Networks, the Company
contracts with the network to provide services to the network. No contracts are
executed between the Company and the Affiliated Network physicians.
Network Services Agreements. The Company provides a variety of services to
physician networks under its network services agreements. Networks can elect to
receive all or only a selection of the available services, which include
network formation and development, contract marketing, negotiation and pricing,
contract administration and other custom services, as further described below.
Some networks request the Company's assistance with the earliest stages of
building the network and others already have executed managed care agreements
prior to hiring the Company for administrative and claims processing services.
Fees paid to the Company under the network services agreements are generally
structured as a percentage of payments made by the payor to the network. The
precise percentage depends on the nature and extent of services provided, and
currently ranges from 4.5% to 10.0%. For capitated and other financial risk-
sharing contracts that are directly held by the Company, the service fee is in
addition to amounts that may be earned by the Company through management of
utilization resulting in an excess of payments from the payor over provider
claims.
Contract Marketing, Negotiation and Pricing. An integral element of the
Company's network services is its contracting expertise. The Company also can
provide marketing services such as conducting payor surveys to determine payor
interest in managed care contracting in the market, preparing descriptive
materials and marketing the networks to payors. Once interest is established,
the Company's contracting team, on behalf of the network, works closely with
physicians to prepare contract proposals, analyze contract pricing and
negotiate with payors. The Company has developed a database of managed care
cost and utilization information collected from its networks that it can
utilize to predict the type and quantity of services that will be required by
many different types of contracts. Based upon this information, the Company is
able to formulate different service offerings and pricing models for use in
contract negotiations.
Contract Administration Services. After a network executes a contract, the
Company implements and administers the contract on behalf of the network and
serves as the interface between the network physicians and the payor. The
Company prepares an administrative manual for each managed care contract for
use by the providers, provides claims processing and utilization reporting
services, administers and distributes funds, and assists in designing
compensation methods and schedules for the network providers consistent with
the managed care environment. Claims processing services generally include
verification of claim eligibility, matching claims to pre-certification
approvals, reviewing claims for completeness, providing coordination of
benefits services, submitting claims to payors, acting as an interface among
the network, providers and payors with respect to claims issues, maintaining an
accounting of amounts due from and paid by payors, calculating amounts due to
providers, preparing explanations of benefits ("EOBs") and, if requested by the
network, distributing EOBs and payments to network participants.
The Company believes that managed care contracts are most successful when the
economic interests of the providers and payors are aligned. Therefore, the
Company works with both the network and the payor to develop payment structures
and protocols that encourage optimization of facility usage through the use of
the most
45
<PAGE>
appropriate type of facility for each procedure, often reducing overall
facility costs. The Company's standard form of reports relating to incidence
rates, utilization, flow of funds and treatment outcomes are included in most
packages, with custom reports available for an additional fee. Such information
is used by both the network and the payors in developing or refining protocols,
identifying physician outliers, ensuring that standards of care are met,
determining cost-effective treatment plans and meeting NCQA and Health Employer
Data Information System requirements. Additional custom services may include
conducting adverse outcome and patient and provider satisfaction surveys, as
well as conducting site surveys, record reviews and education and consulting
services to meet NCQA level compliance. The Company is URAC certified, which
enables the Company to manage the pre-admission certification process for major
procedures and hospital stays under the supervision of the network's physician
medical director.
Managed Care Contracts. As of December 31, 1997 all of the capitated and
other financial risk-sharing contracts managed by the Company for Affiliated
Networks were directly between the Affiliated Network and the payor. Under this
structure, the affiliated network and the providers directly benefit if
decreased utilization of medical services results in a surplus of funds
available to pay providers, and have the risk that increased utilization will
result in funding deficiencies that could result in decreased reimbursement to
the providers. Payments by payors under the managed care agreements are made
either directly to the network, or to the Company on behalf of the network, and
the Company is paid its percentage management fee out of such funds. As of
December 31, 1997, the Company, through a 51% owned subsidiary, directly holds
three global risk contracts for which services are provided largely by
agreement with the non-profit PHC Network. The PHC Network providers are paid
by the Company on a fee-for-service basis. Thus, the Company both receives the
financial benefit of decreased utilization and takes the primary risk of
increased utilization. Some PHC Practices individually are parties to specialty
capitated contracts directly with payors. As a result, the Company also manages
these capitated contracts.
The Company is experienced in negotiating and implementing a variety of
managed care contracts, including single- and multi-specialty capitated
contracts, partial risk contracts and global risk contracts. Single-specialty
capitated contracts are contracts that carve out treatment by physicians of a
single medical specialty. Multi-specialty capitated contracts usually involve a
range of specialists required to provide a defined spectrum of care. The
network is usually paid on a capitated per member per month basis for both
single- and multi- specialty capitated contracts, and in some cases the
contracts also have a facility/total cost share component. Partial risk
contracts are contracts for most professional services of most physician
specialties to be rendered to the plan members but do not include the provision
of facility-based care. If the network lacks specialties it must expand or
subcontract with a single- or multi-specialty network to provide such services.
Global risk contracts are contracts for all professional, technical and
facilities services, supporting a spectrum of health care needs for plan
members. The network may be paid on either a capitated per member per month
basis or on a percentage of premium basis for both partial risk and global risk
contracts and the contracts have a facility/total cost share component.
In addition to the types of managed care contracts discussed above, the
Company administered one disease state management contract covering 60 lives
and two access fee contracts as of December 31, 1997. Disease state management
contracts are contracts for professional services and facilities necessary to
provide the full spectrum of services required to treat a chronic disease. The
network is paid either on a capitated per member per month basis or on a case
rate basis. Access fee contracts are contracts pursuant to which the Company
makes available physicians in one of its networks to a payor on a fee-for-
service basis. A physician invoices the payor if and when services are
provided. The Company receives a percentage of the physician's reimbursement as
an access fee.
The Company began administering its first specialty capitated contract in
June 1994 and its first global risk contract in September 1996. Company
employees have expertise in managed care contracting. The Company's Executive
Vice President of Networking and Contracting has been negotiating and managing
capitated and risk-sharing managed care contracts since 1982. The Company's
Senior Vice President of Specialty Contracting has negotiated and managed at
least 50 single specialty capitated contracts since 1990 with the assistance of
one of the contracting division's vice presidents, who specializes in
utilization data management and reporting.
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Additional team members include a divisional Vice President with ten years of
managed care experience, including network and contract administration,
operations and claims and a recently hired divisional Assistant Vice President
with four years of experience in network management and managed care contract
administration, including management of at least five global contracts. As of
December 31, 1997, the Company had 29 managed care contracts with
approximately 2.3 million covered lives. For the nine months ended September
30, 1997, the Company received 10% on a historical basis, and 2% or a pro
forma basis, of its total revenues from direct contracts with managed care
payors.
MANAGEMENT INFORMATION SYSTEMS
Upon the acquisition of a practice, the Company maintains the clinical
medical records and financial systems in place at the PHC Practice. Clinical
and financial data collected at the practice are sent to the Company's
corporate headquarters on a monthly basis through network interfaces,
electronic data interchange or manually. The Company intends to maintain local
systems in an effort to minimize the disruption that can occur when local
systems are replaced with corporate-mandated systems. The Company uses its
management information systems to generate information that will assist the
PHC Practices in the maintenance and selection of appropriate practice
protocols, and in the management of quality improvement procedures and
utilization. The Company currently collects cost and utilization data from the
PHC Networks and Affiliated Networks for managed care contract pricing and
administration, and intends to collect such data at the PHC Practices. The
Company intends also to use this information to improve operating efficiency
and to encourage the development and implementation of best clinical
practices.
GOVERNANCE AND QUALITY ASSURANCE
The Company's current governance structure promotes physician participation
in the management of the Company. Certain physicians who are or have been
associated with PHC Practices serve on the Board of Directors. Each PHC
Practice has a Joint Policy Board whose membership includes physician
representatives from the Company and the PHC Practice. The Joint Policy Boards
have responsibilities that include developing long-term strategic objectives,
developing practice expansion and payor contracting guidelines, promoting
practice efficiencies, recommending significant capital expenditures and
facilitating communication and information exchange between the Company and
each of the PHC Practices.
The Company has established a Compliance Committee of the Board of Directors
that consists of physician and management members of the Board. The Compliance
Committee is responsible for approving the Company's health care compliance
objectives and developing and implementing the Company's health care
compliance programs at the practice and Company level. To facilitate this
process, the Company is establishing compliance committees at the PHC Practice
level comprised of representatives of the PHC Practice and the Company to
oversee development and implementation of compliance programs at the PHC
Practice level. Through counsel, the Company has retained outside consultants
to assist with practice and Company assessments that will assist the
Compliance Committee of the Board of Directors, the local compliance
committees and management in developing the Company's compliance programs.
CONTRACTUAL AGREEMENTS WITH PHC PRACTICES
The Company's practice acquisition structure is designed to align the
interests of the Company with those of PHC Physicians. When a physician group
has agreed to enter into a practice management or employment relationship with
the Company, the Company purchases the group's operating assets typically in
exchange for a combination of Company stock, cash and notes. The Company
intends to continue to use Common Stock as a significant portion of its
consideration in future practice acquisitions. Typically, upon the acquisition
of a PHC Practice, the Company enters into a Practice Management Agreement
with a professional corporation or other entity that will employ the
physicians associated with the PHC Practice.
The following summary is intended to be a brief summary of the typical terms
of Practice Management Agreements, Physician Employment Agreements and Direct
Employment Agreements to which the Company or a
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PHC Practice is a party and intends to enter in the future. The actual terms of
these agreements vary on a case by case basis, depending on the negotiations
with the individual practices and physicians.
Service Fees. Management fees payable to the Company under the Practice
Management Agreements are determined in arm's-length negotiations and based on
the nature and amount of services provided. Such fees generally consist of
combinations of the following: (i) percentages (generally ranging from 10% to
25%) of the earnings of the PHC Practices; (ii) operating and non-operating
expenses of the PHC Practices paid by the Company pursuant to the Practice
Management Agreements; and (iii) certain negotiated performance and other
adjustments. In the case of the Arlington Cancer Center, the Company's
management fee is 12% of the practice's revenues plus 55% of the practice's
income after physician compensation. Some of these services result in operating
expenses that are directly reimbursed to the Company. Currently, Illinois is
the only state in which the Company is paid a flat fee because fees based on
percentages of revenues or income are not permissible. In certain states where
fees based on percentages of revenue or income are not permissible, the Company
charges a flat fee. In many instances, for the first five years of the Practice
Management Agreement the service fee is the greater of the fee determined by
the applicable formula or a fixed minimum amount. Payment of this minimum is,
in most instances, guaranteed by the physicians and the practice for five
years.
Services Provided. Pursuant to the various Practice Management Agreements,
the Company provides a range of services in consultation with the PHC Practice
including, among other things: (i) acting as manager and administrator of non-
medical services relating to the operation of the PHC Practice; (ii) billing
patients, insurance companies and other third-party payors and collecting the
fees for professional medical services and other services and products rendered
or sold by the PHC Practice; (iii) providing, as necessary or requested,
clerical, accounting, purchasing, payroll, legal, bookkeeping and computer
services and personnel, information management, preparation of certain tax
returns, printing, postage and duplication services and medical transcribing
services; (iv) supervising and maintaining custody of substantially all files
and records; (v) providing facilities for the PHC Practice; (vi) preparing, in
consultation with the Joint Policy Board and the PHC Practice, all capital
expenditure and operating budgets; (vii) ordering and purchasing inventory and
supplies as reasonably requested by the PHC Practice; and (viii) providing
financial and business assistance in the negotiation, establishment,
supervision and maintenance of contracts and relationships with managed care
and other payors.
PHC Practice Responsibilities. Under the Practice Management Agreements, the
PHC Practices retain the responsibility for, among other things: (i) hiring and
compensating physician employees and other medical professionals; (ii) ensuring
that physicians and other medical professionals have the required licenses,
credentials, approvals and other certifications needed to perform their duties;
and (iii) complying with certain federal and state laws and regulations
applicable to the practice of medicine. In addition, the PHC Practices retain
exclusive control of all aspects of the practice of medicine and the delivery
of medical services.
Term and Termination. The Practice Management Agreements are generally for
initial terms of 40 years. Practice Management Agreements may be terminated by
either party if the other party: (i) files a petition in bankruptcy or other
similar events occur or (ii) defaults in the performance of a material
financial obligation, which default continues for a specified term after
notice. In addition, certain Practice Management Agreements may also be
terminated by the Company if the PHC Practice or a physician employee engages
in conduct or is formally accused of conduct for which the physician employee's
license to practice medicine reasonably would be expected to be subject to
revocation or suspension or is otherwise disciplined by any licensing,
regulatory or professional entity or institution, the result of any of which
does or reasonably would be expected to materially adversely affect the PHC
Practice. Certain PHC Practices may terminate their respective Practice
Management Agreements, subject to repurchase of their respective practice
assets, after the expiration of 66 months from the dates of such agreements,
for the original purchase price (including goodwill) with appropriate
adjustments.
Breach. The Company includes in all standard Practice Management Agreements
breach provisions that it believes to be stronger than those used by other
PPMs. The Company believes that these provisions discourage frivolous claims
that the Company has breached its obligations as a means of causing the
Practice Management
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Agreement to terminate early. In the event of a non-financial breach by either
party to the Practice Management Agreement, the non-breaching party typically
must, prior to termination, submit to an arbitrator the question of whether:
(i) a material breach has occurred and, if so, (ii) the amount of lost income,
exclusive of punitive or consequential damages (the "Lost Income Amount"),
suffered by the non-breaching party as the result of the breach. Typically, the
non-breaching party may terminate the Practice Management Agreement only if the
arbitrator determines a Lost Income Amount and the breaching party fails to pay
the Lost Income Amount within a specified time following determination of the
Lost Income Amount. Generally, upon termination of the Practice Management
Agreement, the PHC Practice is required to repurchase the assets used in the
operation of the PHC Practice, including assets such as goodwill.
Physician Employment Agreements. The Practice Management Agreements require
the PHC Practice to enforce restrictive covenants contained in the employment
agreements (the "Physician Employment Agreements") between the PHC Practice and
the physicians associated with the PHC Practice. Typically, the Physician
Employment Agreements provide for an initial term of five years, require the
PHC Practice to compensate the PHC Physician on the basis negotiated between
the PHC Practice and the PHC Physician and require that the physician not
compete with the PHC Practice or the Company within a specified geographic area
during the term of the Physician Employment Agreement and for a period of up to
two years thereafter. In addition, certain Physician Employment Agreements
provide that if such physician's employment is terminated during the initial
five-year term for any reason other than the physician's death or disability or
the occurrence of certain events outside the physician's control, the physician
will be required to pay liquidated damages to the PHC Practice which the PHC
Practice in turn is obligated to remit to the Company. In most instances, the
Company is named as a third-party beneficiary of the Physician Employment
Agreements, with the right to enforce provisions of the Physician Employment
Agreements.
Owned Practices; Direct Employment. In states that permit such structures,
the Company directly employs physicians associated with the PHC Practice
pursuant to employment agreements (the "Direct Employment Agreements"). Florida
and Missouri are currently the only states in which PHC does business that
permit such employment arrangements. In such instances, each physician's annual
compensation is determined based generally on the net profits generated by the
physician. The physicians continue to control the medical aspects of the
practice and have input with respect to budgeting and strategic planning for
the PHC Practice. The Company has direct responsibility for all non-medical
aspects of the operation of the owned PHC Practices. Typically, the Company is
entitled to terminate the Direct Employment Agreement for cause as defined in
the relevant agreement. In addition, the Company may terminate the Direct
Employment Agreement if the physician materially breaches the Direct Employment
Agreement (as determined by an arbitrator) and either: (i) fails to pay the
Lost Income Amount suffered by PHC (as determined by an arbitrator) as a result
of the breach or (ii) continues to breach the Direct Employment Agreement,
despite having paid the Lost Income Amount.
Under a Direct Employment Agreement, the physician may voluntarily terminate
the physician's employment thereunder, at any time during the five-year term,
by delivering to the Company written notice of such intention not less than one
year prior to the effective date of termination. The physician may also
terminate the Direct Employment Agreement if: (i) the Company materially
breaches, and does not cure within the specified period, any of its financial
obligations under the Direct Employment Agreement or (ii) upon the occurrence
of an event of bankruptcy by PHC. Additionally, the physician, in conjunction
with the other physicians who sold the practice to PHC, may terminate the
Direct Employment Agreement if the Company materially breaches a non-financial
obligation (as determined by an arbitrator) and either: (a) fails to pay the
Lost Income Amount suffered by the physician (as determined by an arbitrator)
as a result of the breach or (b) continues to breach the Direct Employment
Agreement, despite having paid the Lost Income Amount. However, if the
physician terminates the physician's employment for any reason, other than upon
scheduled retirement, death or disability, or if the Company terminates the
physician's employment for cause within the first five years, then the
physician is required to pay to the Company liquidated damages. Two owned
practices in the Orlando area may be repurchased by their former physician
shareholders in the event all such physicians' employment agreements
simultaneously terminate as a result of a material breach by the Company. The
Company believes
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that these limitations on the physician's ability to terminate his or her
Direct Employment Agreement discourage frivolous claims that the Company has
breached its obligations thereunder as a means of causing the early termination
of a Direct Employment Agreement.
Restrictive Covenants. The Direct Employment Agreements include several
restrictive covenants, including a covenant not to compete which prohibits the
physician from practicing the same type of medicine the physician practices for
the Company for two years following the date of cessation of employment by PHC
within a specified radius of the medical offices of the Company in which the
physician practiced. The Direct Employment Agreements also generally include
restrictions on the physician's right to solicit employees or patients of the
Company for a period of two years following the termination of physician's
employment with the Company. Certain physicians in the Orlando area have the
option of returning a portion of the acquisition consideration in lieu of
refraining from competition with the Company upon the expiration of their
Direct Employment Agreements. Finally, the Direct Employment Agreements
typically prohibit the disclosure of trade secrets and other confidential
information regarding the Company. The Practice Management Agreements require
the managed PHC Practices, and in many cases per next PHC, to enforce
restrictive covenants contained in the Physician Employment Agreements.
COMPETITION
The Company, PHC Physicians, PHC Networks and Affiliated Networks face
intense competition in all aspects of their businesses. The Company believes
that changes in governmental and private reimbursement policies, among other
factors, have resulted in increased competition among providers of medical
services and among networks for managed care contracts. The Company itself
faces intense competition to acquire or provide management services to
physician practices; to acquire or develop and operate ancillary health care
service facilities; and to provide management services, including contracting
services, to physician networks. A number of hospitals, clinics, health care
companies, HMOs, insurance companies and physician practice management
companies, both publicly and privately held, some of which have established
operating histories and greater resources that the Company, engage in
activities similar to those of the Company. There can be no assurance that the
Company will be able to compete effectively with its competitors, that
additional competitors will not enter the market, or that the Company will be
able to acquire or manage physician practices, acquire or develop ancillary
health care services, affiliate with or develop networks, or negotiate payor
contracts on terms beneficial to the Company. Any such failure could have a
material adverse effect on the Company's business, financial condition or
results of operations.
GOVERNMENT REGULATION
General
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The Company believes that health care regulations
will continue to change. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment
changes. While the Company believes it will be able to structure its agreements
and operations in accordance with applicable law, there can be no assurance
that its business or such agreements or operations will not be successfully
challenged.
Every state imposes licensing requirements on individual physicians and on
facilities and services operated by physicians. In addition, federal and state
laws regulate HMOs and other MCOs with which the Company, PHC Physicians, PHC
Practices, PHC Networks and Affiliated Networks may have contracts. Many states
require regulatory approval, including certificates of need, before
establishing or expanding certain types of health care facilities, offering
certain services or making expenditures in excess of statutory thresholds for
health care equipment, facilities or programs. In connection with the expansion
of existing operations and the entry into new markets, the Company, PHC
Physicians, PHC Practices, PHC Networks and Affiliated Networks may become
subject to compliance with additional regulation.
The United States Congress and many state legislatures routinely consider
proposals to reform or modify the health care system, including measures that
would control health care spending, convert all or a portion of
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government reimbursement programs to managed care arrangements, and balance the
federal budget by reducing spending for Medicare and state health programs.
These measures can affect a health care company's cost of doing business and
contractual relationships. For example, recent developments that affect the
Company's activities include: (i) federal legislation requiring a health plan
to continue coverage for individuals who are no longer eligible for group
health benefits and prohibiting the use of "pre-existing condition" exclusions
that limit the scope of coverage; (ii) a HCFA policy prohibiting restrictions
in Medicare HMOs or physicians recommending to patients other health plans and
treatment options; and (iii) regulations imposing restrictions on physician
incentive provisions in physician provider agreements. There can be no
assurance that such legislation, programs and other regulatory changes will not
have a material adverse effect on the Company's business, financial condition
or results of operations.
The ability of the Company to operate profitably will depend in part upon the
ability of the Company, PHC Physicians, PHC Practices, PHC Networks and
Affiliated Networks obtaining and maintaining all necessary licenses,
certificates of need and other approvals and to operate in compliance with
applicable health care regulations.
Fee-Splitting; Corporate Practice of Medicine
The laws of many states prohibit physicians from splitting fees with non-
physicians (or other physicians) and prohibit non-physician entities from
practicing medicine. These laws vary from state to state and are enforced by
the courts and by regulatory authorities with broad discretion. Although the
Company believes its operations are in material compliance with existing
applicable laws, the Company's business operations have not been the subject of
judicial or regulatory interpretation; thus, there can be no assurance that
review of the Company's business by courts or regulatory authorities will not
result in determinations that could adversely affect the operations of the
Company or that the health care regulatory environment will not change so as to
restrict the Company's existing operations or their expansion. In addition, the
regulatory framework of certain jurisdictions may limit the Company's expansion
into such jurisdictions if the Company is unable to modify its operational
structure to conform with such regulatory framework.
In particular, at least one Texas court has taken the position that control
by a management company over certain medical related business aspects of a
medical practice effectively is the prohibited corporate practice of medicine
by the management company. PHC has structured the management services agreement
related to the PHC Practice managed by PHC in Texas to comply with Texas law,
although no assurance can be provided that a party could not successfully
assert that management services agreement violates Texas law. Illinois courts
have indicated that employment of physicians by for profit corporations that
are not hospitals violates Illinois law related to the corporate practice of
medicine and that management fees based on a percentage of revenue or income
violate Illinois' prohibitions on fee-splitting. Accordingly, in Illinois PHC
does not employ physicians and the management fee charged under its practice
management agreement is a flat fee. The Florida Board of Medicine recently
entered a final order in a case titled In Re: The Petition For Declaratory
Statement of Magan L. Bakarania, M.D., supported by a prior Florida Board of
Medicine Order, stating that a management fee based on a specified percentage
of net income without direct relation to the services provided violates Florida
law related to fee-splitting. That case has been stayed pending appeal. The
Company cannot predict the ultimate outcome of this case. If the Florida Board
of Medicine order is affirmed by the Florida Court, the Company will seek to
restructure certain of the practice management agreements to which it is a
party in Florida, although there can be no assurance that the Company will be
successful in doing so. Three of the four agreements that the Company may seek
to restructure in Florida require the parties to negotiate in good faith to
reform the agreements to comply with applicable law and for the matter to be
referred to arbitration in the event that agreement with respect to
restructured terms cannot be reached.
Except as indicated in this Prospectus, the Company is not aware of
significant litigation related to the corporate practice of medicine or state
laws prohibiting or limiting fee-splitting that the Company anticipates will
materially affect its business. A determination in any state that the Company
is engaged in the corporate practice of medicine or any unlawful fee-splitting
arrangement could render any Practice Management
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Agreement between the Company and a PHC Practice located in such state
unenforceable or subject to modification, which could have a material adverse
effect on the Company. There can be no assurance that regulatory authorities
or other parties will not assert that the Company or a PHC Practice is engaged
in the corporate practice of medicine in such states or that the management
fees paid to the Company by the Practices constitute unlawful fee-splitting or
the corporate practice of medicine. If such a claim were asserted
successfully, the Company could be subject to civil and criminal penalties and
the Company or the PHC Practices could be required to restructure their
contractual arrangements. Such results or the inability of the Company or the
Practices to restructure their relationships to comply with such prohibitions
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business--Government Regulation."
Changes in Payment for Medical Services
The Company believes that trends in cost containment in the health care
industry will continue to result in a reduction from historical levels in per-
patient revenue for PHC Practices. The federal government has implemented,
through the Medicare program, the RBRVS payment methodology for physician
services. The RBRVS is a fee schedule that, except for certain geographical
and other adjustments, pays similarly situated physicians the same amount for
the same services. The RBRVS is adjusted each year and is subject to increases
or decreases at the discretion of Congress. To date, the implementation of
RBRVS has reduced payment rates for certain of the procedures historically
performed by PHC Physicians. There can be no assurance that any reduced
operating margins could be recouped by the Company through cost reductions,
increased volume, introduction of additional procedures or otherwise.
Rates paid by nongovernmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician,
ambulatory surgery center and hospital charges, and are generally higher than
Medicare payment rates. A change in the makeup of the patient mix of the
medical practices under Company management that results in a decrease in
patients covered by private insurance or a shift by private payors to RBRVS or
similar payment structures could adversely affect the Company's business,
financial condition or results of operations.
Medicare and Medicaid Fraud and Abuse
The Anti-Kickback Law prohibits the offer, payment, solicitation or receipt
of any form of remuneration in return for, or in order to induce: (i) the
referral of a person; (ii) the furnishing or arranging for the furnishing of
items or services reimbursable under Medicare or Medicaid programs; or (iii)
the purchase, lease or order or arranging or recommending purchasing, leasing
or ordering of any item or service reimbursable under Medicare or Medicaid.
Pursuant to the Anti-Kickback Law, the federal government has announced a
policy of increased scrutiny of joint ventures and other transactions among
health care providers in an effort to reduce potential fraud and abuse
relating to Medicare costs. The applicability of these provisions to many
business transactions in the health care industry has not yet been subject to
judicial and regulatory interpretation. Noncompliance with the Anti-Kickback
Law can result in exclusion from Medicare and Medicaid programs and civil and
criminal penalties. The PHC Practices collectively derive approximately 30% of
their revenues on a pro forma basis for the nine months ended September 30,
1997 from Medicare or Medicaid payments.
Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by substantially
enlarging the field of physician-owned or physician-interested entities to
which the referral prohibitions apply. Stark II prohibits a physician from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment
interest, or with which the physician has entered into a compensation
arrangement. The designated health services include, for example, prosthetic
devices, clinical laboratory services, radiology (such as ultrasound, MRI and
CT), home health, physical and occupational therapy, prescription drugs and
inpatient and outpatient hospital services. The penalties for violating Stark
II include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each referral violation and $100,000 for
participation in a "circumvention scheme." To the extent that the Company or
any PHC Practice is deemed to be subject to the prohibitions
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contained in Stark II, the Company believes its activities fall within the
permissible activities defined in Stark II, including, but not limited to, the
provision of in-office ancillary services.
The Company believes that although it will receive service fees under its
agreements for management and administrative services, it is not generally in a
position to make or receive referrals of patients or services reimbursed under
the Medicare or Medicaid programs. Such service fees are intended by the
Company to be consistent with fair market value in arm's-length transactions
for the nature and amount of management services rendered and, therefore, would
not constitute unlawful remuneration under Anti-Kickback Law and regulations.
For these reasons, the Company does not believe that fees payable to it would
be viewed as remuneration for referring or influencing referrals of patients or
services covered by such programs as prohibited by statute. If the Company is
deemed to be in a position to make, influence or receive referrals from or to
physicians, the operations of the Company could be subject to scrutiny under
federal and state anti-kickback and anti-referral laws.
In some jurisdictions that do not prohibit the corporate practice of
medicine, the Company owns practices and employs physicians. Thus, with respect
to such practices, the Company is a provider of services and would be capable
of receiving referrals from other physicians affiliated with PHC in those
markets. In these circumstances, PHC Practices either will not accept referrals
involving designated health services from other physicians affiliated with PHC
or will form group practices comprised of PHC Practices in that market.
In addition, the Company also believes that the methods used to acquire the
assets of existing practices do not violate anti-kickback and anti-referral
laws and regulations. Specifically, the Company believes the consideration paid
by the Company to physicians to acquire assets in their practices is consistent
with fair market value in arm's-length transactions and not intended to induce
the referral of patients. Should this or any other Company practice be deemed
to constitute an arrangement designed to induce the referral of Medicare or
Medicaid patients, then such could be viewed as possibly violating anti-
kickback and anti-referral laws and regulations. A determination of liability
under any such laws could have a material adverse effect on the Company's
business, financial condition or results of operations.
Antitrust Issues
Federal and state antitrust statutes prohibit conduct such as price fixing,
market allocation and other anti- competitive activities by groups of
competitors. The federal and state antitrust enforcement agencies have not
hesitated to bring civil and criminal enforcement actions against the joint
activities of physician organizations that allegedly violate the antitrust
laws. Collaboration regarding the pricing of services, market allocation and
certain other types of joint action, however, may be permissible in the context
of an integrated joint venture if those activities are ancillary to the
otherwise legitimate purposes of the joint venture. The federal antitrust
enforcement agencies, the FTC and the DOJ, have established "antitrust safety
zones" for physician networks that meet certain criteria. To the extent
physician providers in a network constitute less than 20% of the total
physicians in a specialty or sub-specialty which compete in the market and such
providers are either integrated in terms of sharing substantial financial risk
in their joint activities or are engaged in designing or implementing clinical
pathways with a view to improving medical outcomes, the network should fall
within one of the DOJ/FTC antitrust safety zones. To the extent that the
physician network is non-exclusive, i. e., physicians may provide services
outside the confines of the network, individually or as part of other groups or
networks, the federal antitrust enforcement authorities have indicated that
they will not challenge joint pricing or market allocation actions of an
integrated network of up to 30% of the physicians in a particular specialty or
sub-specialty. Conduct outside the antitrust safety zones is not necessarily
unlawful, but greater scrutiny will be given to the potential impact on overall
competition by regulatory authorities. State antitrust agencies may or may not
rely on antitrust analysis similar to that of the federal agencies.
While the federal antitrust enforcement authorities generally view
"substantial risk" as capitation or substantial withholding with respect to the
specific contracts or negotiations by the physician network, the
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antitrust enforcement agencies have indicated that networks engaging in other
forms of financial risk-sharing may also be considered "integrated joint
ventures" for purposes of antitrust analysis. As yet, it is unclear whether
the agencies or the courts will consider arrangements in which providers have
an investment risk with actual capital contributed to the entity to be
sufficient financial integration. Nevertheless, to the extent that the
physician members will be at financial risk in terms of compensation under
proposed joint contracting under capitation or substantial withhold
arrangements, the agencies have indicated that these forms of risk-sharing are
sufficient to show the existence of an integrated joint venture. In addition,
demonstration of actual "clinical integration" by a physician network is
sufficient to avoid per se violations, according to the FTC and the DOJ.
The two PHC Networks are non-exclusive networks that operate in the greater
Atlanta and greater Orlando metropolitan areas, respectively. As of December
31, 1997, except for one fee-for-service contract in Orlando, all of their
contracts are capitated or global risk contracts in which the providers share
substantial financial risk. The Atlanta PHC Network is comprised of primary
care physicians constituting less than 30% of the market practitioners of
family/general, internal and pediatric medicine. The Company believes that the
Atlanta PHC Network is within the antitrust safety zone for non-exclusive
networks. The Orlando PHC Network is a multi-specialty network including
physicians of many specialties. The Company believes that physician
representation in the Orlando PHC Network may exceed the non-exclusive safety
zone in several non-primary care specialties. The antitrust agencies
emphasize, however, that even if a physician network does not come within a
safety zone, it is not necessarily unlawful under the antitrust laws. For the
following reasons, the Company believes that its activities in the greater
Orlando metropolitan areas are pro-competitive and have the potential to
benefit purchasers of the physician services offered by its providers. First,
physician participation in the network is non-exclusive, and physician members
do in fact contract with other networks and health plans. Second, physician
members share inherent substantial financial risk by providing services for
global risk contracts and have the incentive to provide high quality, cost-
effective care in an environment of increasing managed care penetration.
Third, there are competing physician networks in the greater Orlando area.
Fourth, the specialties with respect to which the Orlando PHC Network may
exceed the safety zone are generally ones characterized by a limited number of
practices and physicians within the market.
Insurance Regulatory Risks
An important element of the Company's business and strategy includes acting
as an agent for PHC Physicians, PHC Networks and Affiliated Networks to
negotiate with insurance companies, HMOs, employer self-funded plans, health
plans and other MCOs for the provision of health care services to the
subscribers or beneficiaries of the health plans operated by such parties.
Under some of these contracts, the Company receives capitation payments on
behalf of a network and reimburses participating physicians on a fee-for-
service basis. Under the laws of some states, this contracting arrangement
could be determined to involve an insurance risk. Therefore, to the extent the
Company is deemed to be in the business of insurance in a particular state,
the Company, PHC Physicians and PHC Networks could be subject to insurance
regulatory scrutiny; regulators could require restructuring of a specific
arrangement; and the Company's operations could be restricted, its expansion
limited, or certain of its operations prohibited.
Medicare Developments
The recently adopted Balanced Budget Act of 1997 (the "BBA") enacted a
Medicare Plus/Medicare Choice Program for Medicare enrollees. The program
would broaden the coverage options available to Medicare recipients, would
authorize broader use of medical savings accounts, and would allow physicians
and patients to contract for health care services at rates beyond what is paid
by Medicare. Such changes potentially could increase the services utilized by
Medicare recipients. In addition, the BBA allows provider sponsored
organizations ("PSOs") to contract directly with Medicare, instead of
contracting through an HMO. If the PHC Practices, PHC Networks and Affiliated
Networks participate in such PSOs, they could increase the percentage of
Medicare-related business, which would also increase the exposure for losses
if Medicare revenues fall short of the cost of services actually utilized by
Medicare beneficiaries. If PHC does not participate in such PSOs, whether by
choice or because it does not obtain a required license to act as a PSO, PHC's
ability to participate
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in Medicare programs could be limited. The BBA also amends the fraud and abuse
laws to require permanent exclusion from Medicare of anyone convicted of three
Medicare program-related crimes and to impose new civil monetary penalties to
anyone contracting with an excluded health care provider. These changes
increase the regulatory and other risks encountered by the Company. See "Risk
Factors--Direct Capitation; Risks Associated With Managed Care Contracts."
Legislative Developments
In addition, proposed legislation regarding health care reform has been
introduced before many state legislatures. Any such reform at the federal or
state level could significantly alter patient-provider relationships. State
and federal agency rule-making addressing these issues is also expected. No
predictions can be made as to whether future health care reform legislation,
similar legislation or rule-making will be enacted or, if enacted, its effect
on the Company. Any federal or state legislation prohibiting investment
interests in, or contracting with, the Company by health care providers for
which there is no statutory exception would have a material adverse effect on
the Company's business, financial condition or results of operations.
EMPLOYEES
As of December 31, 1997 the Company had approximately 477 employees, of
which approximately 52 were employed at the corporate or regional
administrative offices.
PROPERTIES
The Company leases office space and practice facilities for the PHC
Practices. The Company also leases its headquarters under lease agreements for
approximately 8,849 square feet expiring in March 31, 1999 and approximately
6,500 square expiring in January, 2000.
LEGAL PROCEEDINGS
Certain PHC Physicians and PHC Practices are named defendants in malpractice
cases. By virtue of acquisition of certain of these practices by merger or
stock purchase transactions, certain Company subsidiaries are or are expected
to be defendants in these cases. Although there can be no assurance regarding
the eventual outcome of any particular malpractice case, the Company believes
that it has commercially reasonable malpractice insurance and limits in place
with respect to these subsidiaries. PHC, the parent company, is not a party to
any claims, suits or complaints relating to services and products provided by
the Company, the PHC Physicians or PHC Practices or the networks. There can be
no assurance, however, that such claims will not be asserted against the
Company in the future or that the Company will not become subject to certain
claims as the result of successor liability in connection with the acquisition
of any practice or network.
CORPORATE LIABILITY AND INSURANCE
The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. The Company does not influence or
control the practice of medicine by physicians or the compliance with certain
regulatory and other requirements directly applicable to physicians and
physician groups. There can be no assurance that claims, suits or complaints
relating to services and products provided by physicians or networks will not
be asserted against the Company in the future. The Company currently maintains
insurance coverage that it believes will be adequate both as to risks and
amounts. Such insurance currently extends to professional liability claims
that may be asserted against PHC Physicians or against employees of the
Company that work locally at the PHC Practices or at the networks. In
addition, pursuant to the network service agreements and Practice Management
Agreements, the physicians and networks are required to maintain comprehensive
professional liability insurance. The availability and cost of such insurance
has been affected by various factors, many of which are beyond the control of
the Company, the physicians and the networks. The cost of such insurance to
the Company, PHC Physicians and PHC Networks may have a material adverse
effect on the Company's business, financial condition or results of
operations. In addition, successful malpractice or other claims asserted
against PHC Physicians, PHC Networks or the Company that exceed applicable
policy limits could have a material adverse effect on the Company's business,
financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, FOUNDERS AND KEY EMPLOYEES OF THE COMPANY
The following table sets forth certain information concerning the executive
officers, directors, founders and key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ----------------------------------------------------------
<S> <C> <C>
Sarah C. 51 Founder, Chairman of the Board, President and Chief
Garvin(1)(2)(3)........ Executive Officer
Thomas M. 54
Rodgers(1)(2)(3)....... Director, Chief Financial Officer, Secretary and Treasurer
J. Michael Ribaudo, 55
M.D.(1)................ Director, President/Ancillary Division
Richard Sanchez, M.D., 50 Executive Vice President/Network Development and
M.P.H.................. Contracting
James G. Burkhart, 33
C.P.A.................. Senior Vice President/Operations and Finance
Josh J. Coughlin........ 34 Senior Vice President/Corporate Development
Howard E. Fagin, Ph.D... 54 Founder, Senior Vice President/Specialty Contracting
Shamus M. Holt.......... 44 Founder, Chief Operating Officer/Orlando Operations
Lane Hooten............. 48 President/Arlington Cancer Center Operations
Julie Rawls Moore, 46
M.S.N.................. Founder, Senior Vice President/Strategic Planning
H. Thomas Scott, 37
C.P.A.................. Founder, Senior Vice President/Atlanta Operations
Murali 40
Anantharaman(1)(4)..... Director
Michael F. 44
Cronin(1)(2)(4)........ Director
Alfred DiStefano, 50 Director, Chief Executive Officer/Arlington Cancer
M.D.(3)................ Center Operations
Carl J. Schramm, Ph.D., 51
J.D.................... Director; Employee/Contracting Division
William C. Stewart, 36
M.D.................... Chief Executive Officer/Memphis Operations
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3)Member of the Compliance Committee.
(4) Member of the Audit Committee.
Sarah C. Garvin is a founder of the Company and has served as President,
Chief Executive Officer and Chairman of the Board since its organization in
October 1995. She also served as President and a Director of the Company's
predecessor, a subsidiary of Surgical Health Corporation, from 1993 until its
purchase in a management buyout by Ms. Garvin and others (the "Founders") in
1995. Ms. Garvin was a co-founder and served as Senior Vice President/Corporate
Development of Surgical Health Corporation from 1991 to 1993. Prior to joining
Surgical Health Corporation, Ms. Garvin served in executive positions with
HEALTHSOUTH Corporation and Medical Care International.
Thomas M. Rodgers has been the Company's Chief Financial Officer since
November 1996 and has served as a Director of the Company since June 1997. From
August 1995 until January 1997, Mr. Rodgers provided financial consulting
services to the Company. In January 1997, Mr. Rodgers became a Company employee
and ceased providing consulting services to the Company. Mr. Rodgers has served
since 1980 as Chairman of Continental Film Laboratories, Inc., a privately-held
movie film processing company with approximately 30 employees. From January
1993 to December 1995, Mr. Rodgers served as Chairman of Private Biologicals
Corp., a privately-held company.
J. Michael Ribaudo, M.D., has served as a Director and executive officer of
the Company since December 1996. He is currently President of the Company's
Ancillary Division. Dr. Ribaudo has served as President of
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Metropolitan Plastic & Reconstructive Surgery, Ltd. ("Metropolitan Plastic")
since 1980 and is a board certified, practicing plastic and reconstructive
surgeon. He founded Ballas Outpatient Surgery Center in St. Louis, Missouri and
was its Chairman of the Board and Chief Executive Officer when it merged with
Surgical Health Corporation in 1992. He was President of SHC Midwest and Senior
Vice President of Surgical Health Corporation when it was acquired by
HEALTHSOUTH Corporation in 1995. Dr. Ribaudo served as Executive Vice President
of HEALTHSOUTH Surgery Centers from 1995 to 1996 and currently provides
consulting services to that company. He is also a Director of Flow
International, Inc. a publicly-traded machine tool technology company.
Richard Sanchez, M.D., M.P.H. joined the Company in August 1997 as its
Executive Vice President/Network Development and Contracting. From December
1996 until August 1997, Dr. Sanchez served as Chief Executive Officer of New
York Doctors MSO, Inc., a medical services organization. He was a Senior Vice
President at Blue Cross of New York from 1995 until 1996, where he developed
and filed its first Medicare risk product. From 1992 to 1995, he was a Vice
President at FHP California Inc., a HMO with over two million members, where he
was responsible for network development, quality assurance and other aspects of
health care contracting. Dr. Sanchez was the Health Commissioner of San
Francisco from 1985 until 1991. He is a board certified pediatrician and a
fellow of the American Academy of Pediatrics. Dr. Sanchez earned an M.P.H. at
the University of California at Berkeley.
James G. Burkhart, C.P.A. joined the Company as its Senior Vice
President/Operations and Finance in October 1997. From June 1996 to September
1997, he served as Vice President of Operations/Finance of GranCare, Inc., a
health care company with over $1 billion in annual revenue. Mr. Burkhart was
the Senior Vice President of Finance of Community Care of America from 1995 to
1996 and the Executive Vice President and Chief Financial Officer of Nationwide
Care, Inc. from 1993 to 1995, which are long-term health care companies with
annual revenues exceeding $150 million and $125 million, respectively. Mr.
Burkhart served as a manager at Ernst & Young LLP from 1987 to 1993.
Josh J. Coughlin joined the Company in September 1997 as its Senior Vice
President/Corporate Development. Prior to joining the Company, Mr. Coughlin was
an officer of Preferred Oncology Networks of America, Inc., serving as Vice
President/Corporate Development from January 1996 and Chief Financial Officer
from July 1996. He served as Senior Executive Director of Planning and
Development for Magellan Health Services, Inc. from 1993 to 1995. Mr. Coughlin
was a consultant with Towers Perrin from 1990 to 1993 specializing in health
care delivery systems and managed care companies. Mr. Coughlin received his
M.B.A. from the University of Chicago.
Howard E. Fagin, Ph.D. is a Founder and currently serves as Senior Vice
President/Specialty Contracting. Dr. Fagin has been President of Fagin Advisory
Services, Inc. since 1972, providing consulting services to physician practices
and other health care organizations. Dr. Fagin holds an M.S. in Public Health,
an M.S. in Industrial and Systems Engineering and a Ph.D. in Health Economics
from the University of Oklahoma.
Shamus M. Holt is a Founder and has served the Company since 1995 as Chief
Operating Officer of the Company's Orlando operations. Mr. Holt served as
Administrator of PCS from 1988 until 1995 and has served as Administrator of
IMS since 1988, both of which became PHC Practices in November 1997. PCS and
IMS are included in the Pending Acquisitions. Mr. Holt received his M.B.A. from
the University of Central Florida.
Lane Hooten became President of the Company's Arlington Cancer Center
operations in June 1997 when the Company purchased the Arlington Cancer Center
assets. Mr. Hooten has served as the Chief Executive Officer of the Arlington
Cancer Center since 1994. He was a Regional Sales Manager for Signature Health
Care, a home health care organization, from 1993 to 1994. From 1991 to 1993,
Mr. Hooten served as Vice President of Alternate Sites of Curaflex Infusion
Services, where he was responsible for the operation and development of
clinics, infusion suites and ambulatory care centers. Mr. Hooten is a licensed
pharmacist.
Julie Rawls Moore, M.S.N. is a Founder and has served the Company in a
variety of roles since 1994, most recently as Senior Vice President/Strategic
Planning. Ms. Moore was Vice President of Development of Surgical
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Health Corporation from 1993 to 1994, focusing on the development of surgery
centers. Ms. Moore was with Ernst & Young LLP from 1987 to 1993, most recently
as Senior Manager for Physician Services. Before joining Ernst & Young LLP, she
spent three years as a Regional Vice President in Marketing and Physician
Services developing related physician services and facilities for American
Medical International, Inc., a company that owned and operated for-profit
hospitals.
H. Thomas Scott, C.P.A. is a Founder and has served the Company and its
predecessor in a variety of roles since 1994, including as a Director,
Controller, Senior Vice President/Finance and most recently as Senior Vice
President of its Atlanta operations. From 1991 to 1994, Mr. Scott served as
Controller for Heritage Surgical Corporation, an ambulatory surgery center
company.
Murali Anantharaman has been a Director of the Company since December 1995.
He has been a partner in EGL Holdings, Inc., an Atlanta-based venture capital
and investment banking firm ("EGL Holdings"), since May 1987. Mr. Anantharaman
also serves as a Director of Simione Central Holdings, Inc., a publicly-held
health care information services company. Mr. Anantharaman received his M.B.A.
from Harvard University.
Michael F. Cronin has served as a Director of the Company since June 1997. He
has been a general partner of Weston Presidio Capital, a venture capital
company with over $300 million under management, since 1991. Mr. Cronin
received his M.B.A. from Harvard University.
Alfred DiStefano, M.D. has been a Director of the Company and Chief Executive
Officer of the Arlington Cancer Center division since June 1997. He has been a
practicing medical oncologist with the Arlington Cancer Center since 1980 and
is its Managing Partner.
Carl J. Schramm, Ph.D., J.D. has served as a Director of the Company since
March 1996, served as its Executive Vice President/Global Contracting from 1996
until February 1997, and continues to serve as an employee of the Company's
contracting division. Since 1995, Dr. Schramm has served as the President of
Greenspring Advisors, Inc. a health care information systems consulting
company. From 1993 to 1995 he was an Executive Vice President of Fortis, Inc.
and President of its subsidiary, Time Insurance Co. Dr. Schramm served as
President and Chief Executive Officer of Health Insurance Association of
America from 1987 to 1992. He currently serves on the board of HCIA, Inc., a
publicly-held health care data services company of which he was a founder, and
LifeRate Systems Corp., a publicly-held health care information systems
company.
William C. Stewart, M.D. joined the Company in November 1997 as its Chief
Executive Officer/Memphis Operations and Dr. Stewart has consented to serve as
a Director of the Company upon consummation of the Offering. Dr. Stewart is a
founder and Director of MidSouth Practice Management, Inc., which was acquired
by the Company in November 1997. Since 1995, Dr. Stewart has been the Chairman,
Chief Executive Officer and Medical Director of MidSouth Health Plan, Inc., the
first physician-owned HMO in Tennessee. He also currently serves as Chief of
Staff of Baptist Memorial Hospital in Memphis and was the Deputy Chief of Staff
during 1996. Dr. Stewart was President of Baptist Rehabilitation Hospital
during the 1994 and 1995 calendar years and from 1993 through 1995 he served as
Assistant Medical Director. Dr. Stewart is board certified in internal
medicine. He was a founder of Internal Medicine Associates of Cordova, P.C.,
and continues to practice part-time in Memphis with Foundation Medical Group,
PLLC, a practice of ten board certified internists.
BOARD OF DIRECTORS
Upon consummation of the Offering, the Board of Directors of the Company
shall consist of seven members divided into three classes with two directors in
two classes and three directors in one class. Each class shall serve for a term
of three years. At each annual meeting of stockholders, directors will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring that year.
After completion of the Offering, Mr. Anantharaman may resign from the Board
of Directors. In connection with its acquisition of MidSouth Practice
Management, Inc., the Company has agreed to use its best efforts to cause Dr.
Stewart to be elected to the Board of Directors. In addition, the Company has
agreed that at such time
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as annual revenues generated by PHC Practices in the Cincinnati market equal or
exceed $75 million and there are more than 100 PHC Physicians practicing with
the PHC Practices in Cincinnati, it will use its best efforts to nominate and
to cause a PHC Physician from Cincinnati to be elected to the Board of
Directors.
BOARD COMMITTEES
The Company maintains an Executive Committee, a Compensation Committee, an
Audit Committee and a Compliance Committee. These committees have the following
functions:
The Executive Committee has broad authority to take certain actions on behalf
of the Board of Directors between meetings of the Board of Directors. This
committee currently consists of Ms. Garvin, Mr. Rodgers, Dr. Ribaudo, Mr.
Anantharaman and Mr. Cronin.
The Compensation Committee reviews and approves the salaries, bonuses and
other compensation and benefits of executive officers and advises management
regarding benefits and other terms and conditions of compensation. Ms. Garvin,
Mr. Rodgers and Mr. Cronin currently serve on this committee.
The Audit Committee makes recommendations to the Board of Directors with
respect to the appointment of independent auditors, reviews significant audit
and accounting policies and practices, meets with the Company's independent
public accountants concerning, among other things, the scope of audits and
reports, and reviews the performance of the overall accounting and financial
controls of the Company. This committee currently consists of Mr. Anantharaman
and Mr. Cronin.
The Compliance Committee establishes and communicates to the Company's
officers, employees, agents and the PHC Practices and PHC Physicians certain
guidelines with regard to compliance with the Company's mission, legal and
regulatory matters (including Medicare/Medicaid compliance) and other Company
policies. The Compliance Committee consults with and advises the Board of
Directors and the executive officers in charge of compliance, as appropriate,
regarding operational compliance with the established guidelines and procedures
for reporting and investigating instances of noncompliance. This committee has
three voting members, Ms. Garvin, Mr. Rodgers and Dr. DiStefano. Advisory
members include Ms. Moore, Stephen R. Mintz, M.D. and Daniel M. Epstein, M.D.
The Company intends to establish a committee of non-employee directors to
administer the Company's stock option plans on consummation of the Offering.
BOARD OF DIRECTOR COMPENSATION
The Company's Bylaws provide that Directors of the Company may be paid their
expenses of attending Board of Director and Committee meetings and may also be
paid a fixed sum for attendance at such meetings or a retainer for service as a
director. Currently, directors are only reimbursed for expenses and do not
receive any compensation for serving as a director or attending meetings.
Directors are also eligible for discretionary option grants under the 1995
Stock Option Plan. On March 7, 1996, Carl Schramm and Jack Keane (who served on
the Board of Directors from March 1996 to June 1997) were granted options to
purchase 300,000 shares of the Common Stock, at an exercise price of $3.18 per
share, for services rendered and to be rendered to the Company. Of each of
their grants, 23,550 options vested immediately, 17,663 vested on March 7, 1997
and 17,662 will vest on each of March 7, 1998, March 7, 1999 and March 7, 2000.
No other compensation was received by any director in 1997 for his or her
service as a director.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. Delaware law enables
corporations to limit available relief to equitable remedies such as injunction
or rescission. The Certificate of Incorporation limits the liability of
directors of the Company to the Company or its stockholders to the fullest
extent permitted by Delaware law. Specifically, directors of the Company will
not personally be liable for monetary damages for breach of a director's
fiduciary duty as a director, except for liability for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in the DGCL.
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<PAGE>
The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters.
1995 STOCK OPTION PLAN
In October, 1995, the Board of Directors adopted, and the stockholders of the
Company approved, the 1995 Stock Option Plan. The purpose of the 1995 Stock
Option Plan is to provide directors, key employees and certain advisors with
additional incentives by increasing their proprietary interest in the Company.
The aggregate amount of Common Stock with respect to which options may be
granted may not exceed 2,198,000 shares prior to consummation of the Offering
and 3,140,000 shares thereafter.
The 1995 Stock Option Plan provides for the grant of incentive stock options
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonqualified stock options (collectively "Awards").
The 1995 Stock Option Plan will be administered by a committee of non-employee
director upon consummation of the Offering. The committee will have, subject to
the terms of the 1995 Stock Option Plan, the sole authority to grant Awards
under the 1995 Stock Option Plan, to construe and interpret the 1995 Stock
Option Plan, and to make all other determinations and take any and all actions
necessary or advisable for the administration of the 1995 Stock Option Plan.
All of the Company's key employees, non-employee directors and advisors are
eligible to receive Awards under the 1995 Stock Option Plan, but only employees
of the Company are eligible to receive ISOs. Options will be exercisable during
the period specified in each option agreement and will generally become
exercisable in installments pursuant to a vesting schedule designated by the
Committee. In the discretion of the Committee, option agreements may provide
that options will become immediately exercisable in the event of a "change in
control" (as defined in the 1995 Stock Option Plan) of the Company. A "change
of control" is deemed to have occurred if the Company is a party to merger,
share exchange or other business combination pursuant to which the Company does
not remain independent or if substantially all of the assets of the Company are
sold or otherwise transferred. No option will remain exercisable later than ten
years after the date of grant (or five years from the date of grant in the case
of ISOs granted to holders of more than 10% of the voting capital stock of the
Company).
The exercise price for ISOs granted under the 1995 Stock Option Plan may be
no less than the fair market value of the Common Stock on the date of grant (or
110% in the case of ISOs granted to employees owning more than 10% of the
voting capital stock).
401(K) PLAN
Effective January 1996, the Company adopted the Physician Health Corporation
401(k) Plan (the "Savings Plan"). The Savings Plan is intended to provide PHC
employees with retirement benefits. The Savings Plan is intended to constitute
a qualified cash or deferred profit sharing plan within the meaning of Sections
401(a) and 401(k) of the Internal Revenue Code of 1986.
All employees of the Company are eligible to participate in the Savings Plan
who have reached the age of 21 years and have completed six months of service
with the Company as of any January 1 or July 1. The Savings Plan is
administered by the Board of Directors, which has full power to administer and
interpret the Savings Plan. The assets of the Savings Plan are held by a trust
administered by a trustee pursuant to a trust agreement.
Eligible employees may contribute a portion of their annual compensation, in
the form of payroll deductions, up to the legal maximum established by the
Internal Revenue Service for each plan year. The
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<PAGE>
Company may make profit sharing contributions, employee matching contributions
and other additional employer contributions of any amount at the Company's
sole discretion. Employee contributions are fully vested immediately. Company
contributions are vested over the first five years of employment. No Company
contributions have been made.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid by PHC for
services rendered in all capacities to PHC during 1997 to each executive
officer whose total annual salary and bonus exceeded $100,000 in 1997 (the
"Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------- ----------------------- -------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION RESTRICTED OPTIONS LTIP COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) STOCK AWARDS (#) PAYOUTS ($)
- --------------------------- -------- ----- ------------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sarah C. Garvin......... $136,667 -- -- -- -- -- --
Chairman of the Board,
Chief Executive Officer
and President
Thomas M. Rodgers....... 135,000 -- -- -- 90,478(1) $710,000(2)
Chief Financial Officer
and Treasurer
J. Michael Ribaudo, 100,000 -- -- -- 39,250(3) 600,000(4)
M.D....................
President of Ancillary
Division
</TABLE>
- --------
(1) Includes both options to purchase Common Stock and Prime Common Stock,
with the Prime Common Stock being adjusted to reflect its conversion into
Common Stock upon completion of the Offering and to give effect to the
0.314 for one stock split for the Common Stock.
(2) Amount paid in settlement of fees owed to Mr. Rodgers pursuant to a
consulting agreement between Mr. Rodgers and the Company that was entered
into before Mr. Rodgers became an employee of the Company. See "--
Compensation Committee Interlocks and Insider Participation."
(3) Options granted to Dr. Ribaudo pursuant to a settlement agreement. See
"Certain Transactions."
(4) Amount paid to Dr. Ribaudo pursuant to an Undertakings Agreement. See
"Certain Transactions."
Ms. Garvin currently is receiving an annual salary of $210,000 (to be
increased to $270,000 upon consummation of the Offering). Mr. Rodgers, Dr. J.
Michael Ribaudo, and Dr. Richard Sanchez, who became an employee of the
Company in August 1997, currently are receiving annual salaries of $205,000
(to be increased to $260,000 upon consummation of the Offering), $100,000 (to
be increased to $250,000 upon consummation of the Offering), and $200,000,
respectively. Certain other arrangements with Ms. Garvin, Mr. Rodgers and Dr.
Ribaudo are described in "Certain Transactions."
OPTION GRANTS DURING 1997
The following table sets forth information relating to options granted to
Named Executive Officers in 1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
------------------------------------------------- ------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR(1) (PER SHARE) DATE 0% 5% 10%
---- ----------- -------------- ----------- ---------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sarah C. Garvin......... -- -- -- -- -- -- --
Thomas M. Rodgers....... 2,401(3) 0.3% $0.04(3) 6/16/97 $7,562 $12,371 $19,749
11,775(3) 1.4% 3.50(3) 6/16/97 -- 19,834 56,015
76,302 9.11% 12.74 6/16/97 -- 611,286 1,549,118
J. Michael Ribaudo,
M.D.................... 39,250 4.7% 12.74 12/31/97 -- 314,447 796,871
</TABLE>
- --------
* less than 1%
(1) The Company has included both Prime Common Stock and Common Stock options
in the total options granted to employees in fiscal year 1997 on an as-
converted-to-Common-Stock (one-for-one) basis
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<PAGE>
(2) This column shows the hypothetical gains or "option spreads" of the
options based on both the fair market value of the Common Stock for
financial reporting purposes and assumed annual compound stock
appreciation rates of 5% and 10% over the terms of the options. The 5% and
10% assumed rates of appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection of
future Common Stock prices. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses
associated with the exercise of the option or the sale of the underlying
shares, or reflect nontransferability, vesting or termination provisions.
The actual gains, if any, on the exercises of stock options will depend on
the future performance of the Common Stock, among other things.
(3) These options to purchase Prime Common Stock were exercised on June 16,
1997. The number of securities underlying options granted and exercise
price per share have been adjusted for presentation to reflect the Reverse
Split.
AGGREGATE OPTION EXERCISES DURING 1997 AND YEAR-END OPTION VALUES
The following table sets forth information relating to options granted to
Named Executive Officers in 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-
OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($)(1)
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sarah C. Garvin......... -- -- -- -- -- --
Thomas M. Rodgers....... 124,076 $7,562.39 -- 76,302 -- $172,530
J. Michael Ribaudo,
M.D.................... -- -- 94,200 102,050 $213,000 230,750
</TABLE>
- --------
(1) Computed based on the difference between the per share exercise price and
mid-point of the assumed range ($15.00 per share).
EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company is party to Employment Agreements (collectively, the "Employment
Agreements") with each of Ms. Garvin, Mr. Rodgers and Dr. Ribaudo. Each of the
Employment Agreements provides for a specified base salary subject to annual
adjustment by the Board of Directors or the Compensation Committee of the
Board of Directors. Currently, the salaries payable under the Employment
Agreements are $210,000 for Ms. Garvin (subject to increase to $270,000 upon
consummation of the Offering), $205,000 for Mr. Rodgers (subject to increase
to $260,000 upon consummation of the Offering and $200,000 for Dr. Ribaudo
(subject to increase upon consummation of the Offering). In the event that the
Employment Agreements are terminated by the Company for cause (as defined in
the Employment Agreements) or by the employee without cause, the employee is
not entitled to severance pay. In the event that the Company terminates the
employee's employment by the Company without cause, the employee is entitled
to severance pay equal to 12 months' salary.
If the employee's employment with the Company is terminated following a
change in control of the Company (as defined in the Employment Agreement): (i)
by the Company without cause or (ii) by the employee because she or he is
required to relocate, her or his salary is reduced from the amount in effect
immediately prior to the change in control, her or his title is reduced or her
or his duties and responsibilities are substantially diminished, then the
employee is entitled to severance pay equal to 36 months' salary.
The Company and its Founders are parties to a Restated and Amended
Stockholder Agreement dated November 1, 1996, as amended in February 1997 (the
"Stockholder Agreement"). For each Founder 94,200 shares of Common Stock
("Founder Stock") are subject to the Stockholder Agreement. Pursuant to the
Stockholder Agreement, 41,213 shares of Founder Stock have vested, and
17,662.50 shares of the remaining shares will vest on each of January 1, 1998,
January 1, 1999 and January 1, 2000 if the Founder remains a full-time
employee of the Company until the applicable vesting date; provided, however,
that, with respect to 11,775 shares that would otherwise vest on January 1,
2000, the Company shall have met certain performance criteria by December 31,
1998. The Stockholder Agreement provides that all shares of Founder Stock will
vest immediately upon the merger, consolidation or sale of the Company with or
to any other entity if the Company is not the surviving entity, or upon the
sale of substantially all of the Company's assets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, the Board of Directors established a compensation committee
composed of Ms. Garvin and Messrs. Cronin and Rodgers. Prior to establishment
of the Compensation Committee, compensation for the Company's
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executive officers was determined by the entire Board of Directors. Mr. Rodgers
participated in deliberations of the Board of Directors concerning executive
officer compensation prior to his election to the Board of Directors in June
1997.
On May 1, 1997, Ms. Garvin loaned the principal amount of $250,000 to the
Company. On May 1, 1997, Thomas M. Rodgers, Jr. Defined Benefit Keogh Plan
11/15/82 also loaned the principal amount of $50,000 to the Company. Both notes
bear simple interest on principal at 12.0% per year, require payment of a 1%
origination fee upon retirement of the Notes and provide for payment on demand
after the earlier of closing of a venture capital investment by Weston Presidio
Capital or May 1, 1998. Such venture capital investment closed on June 16, 1997
but neither Ms. Garvin nor Mr. Rodgers has demanded payment of these notes.
The Company and its Founders, including Ms. Garvin, are parties to a Restated
and Amended Stockholder Agreement dated November 1, 1996, as amended in
February 1997 (the "Stockholder Agreement"). For each Founder 94,200 shares of
Common Stock ("Founder Stock") are subject to the Stockholder Agreement.
Pursuant to the Stockholder Agreement, 41,213 shares of Founder Stock have
vested, and 17,662.50 shares of the remaining shares will vest on each of
January 1, 1998, January 1, 1999 and January 1, 2000 if the Founder remains a
full-time employee of the Company until the applicable vesting date; provided,
however, that, with respect to 11,775 shares that would otherwise vest on
January 1, 2000, the Company shall have met certain performance criteria by
December 31, 1998. The Stockholder Agreement provides that all shares of
Founder Stock will vest immediately upon the merger, consolidation or sale of
the Company with or to any other entity if the Company is not the surviving
entity, or upon the sale of substantially all of the Company's assets.
Prior to becoming an employee in January 1997, Mr. Rodgers provided financial
consulting services to the Company. His compensation for these services was to
be primarily based on the Company's successful capital raising activities. In
June, 1997, Mr. Rodgers and the Company agreed to terminate this compensation
agreement and to settle all fees earned and expected to be earned for his
financial consulting services. Accordingly, Mr. Rodgers was granted an option
to purchase 7,648 shares of Prime Common Stock at $0.011 per share, an option
to purchase 37,500 shares of Prime Common Stock at an exercise price of $1.10
per share and an option to purchase 76,302 shares of Common Stock (vesting over
four years) at $12.74 per share. In addition, the settlement provided for the
full vesting of previously granted options to purchase 350,000 shares of Prime
Common Stock at $1.15 per share. Mr. Rodgers was also granted piggyback
registration rights with respect to the 350,000 shares and 76,302 shares. Upon
consummation of the Offering and giving effect to the reverse Stock Split, each
share of Prime Common Stock will convert into .314 share of Common Stock. As
cash consideration, Mr. Rodgers has received $810,000. As provided in his
original consulting agreement, the Company has agreed to pay Mr. Rodgers an
amount equal to the difference between the state and federal taxes he will owe
resulting from the exercise of the option to purchase 350,000 shares and the
state and federal taxes that he would have paid had the options received
incentive stock option treatment.
Also as part of this settlement, the Company loaned Mr. Rodgers approximately
$442,000 to exercise his options for 37,500 and 350,000 shares of Prime Common
Stock. The loans are non-recourse but are secured by the stock purchased with
the proceeds of the loan. The loans bear simple interest at a rate of 6.80% per
year. The notes are payable at the earlier of the sale of such stock or June
16, 2007. Interest on these notes will be reimbursed to Mr. Rodgers by the
Company (and grossed up based on applicable tax rates to Mr. Rodgers).
Mr. Cronin is a General Partner of Weston Presidio Capital, which manages
venture capital funds including Weston Presidio Capital II, L.P. ("Weston II").
On June 16, 1997, the Company entered into a Series B Securities Purchase
Agreement among the Company, Weston II, Asset Management plc, on behalf of
Rowan Nominees Limited ("Mercury") Mercury, NatWest Ventures Investments Ltd
("NatWest") and certain other investors. Pursuant to the Series B Securities
Purchase Agreement, in June 1997 the Company sold 2,447,772 shares of Series B
Stock for an aggregate purchase price of $9,791,088, of which 1,529,958 shares
were purchased by Weston II for an aggregate purchase price of $6,119,832,
305,938 shares were purchased by Mercury for an aggregate purchase price of
$1,223,752 and 152,969 shares were purchased by NatWest for an aggregate
purchase price of $611,876. Upon consummation of the Offering, each share of
Series B Voting Preferred Stock will be converted into .314 share of Common
Stock and the holder of such converted stock may
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<PAGE>
be entitled to an extraordinary dividend per share equal to the amount by
which $22.29 exceeds the initial offering price per share of Common Stock. See
"Description of Capital Stock-Authorized Capital Stock." As part of that
transaction, Weston II was granted a warrant to purchase 160,135 shares of
Common Stock for an aggregate purchase price of $5,099.86, Mercury was granted
a warrant to purchase 32,021 shares of Common Stock for an aggregate purchase
price of $1019.79 and NatWest was granted a warrant to purchase 16,010 shares
of Common Stock for an aggregate purchase price of $509.90. All such warrants
have an exercise price of $0.03 per share. The proceeds of the Series B
Securities Purchase Agreement were used to fund the acquisition of certain PHC
Practices. Pursuant to an Equity Call Agreement entered into on June 16, 1997
(the "Equity Call Agreement") the Company has the ability to require the
holder of its Series B Preferred Stock to purchase shares of Common Stock at
$12.74 per share sufficient to retire a $6.2 million note payable by the
Company on April 1, 1998 in connection with the purchase of the Arlington
Cancer Center. Weston II, Mercury and NatWest are obligated to purchase, at
the request of the Company, 170,336, 34,067 and 17,033 shares of Common Stock,
respectively, pursuant to such arrangement. The Series B Securities Purchase
Agreement and the Equity Call Agreement have been amended to include
subsequent purchasers of Series B Preferred Stock. Upon such further
investment, Weston II, Mercury and NatWest would receive additional warrants
to purchase 17,033, 3,406 and 1,703 shares of Common Stock, respectively, at
an exercise price of $0.03 per share. In connection with the Series B
Securities Purchase Agreement, Weston II, Mercury, NatWest, EGL Holdings, Ms.
Garvin, Mr. Rodgers, Mr. Holt, Ms. Moore, Dr. Fagin, Mr. Scott, Dr. Ribaudo
and certain other investors entered into a Second Amended and Restated
Stockholders' Agreement, which granted Weston II, Mercury, NatWest and EGL
Holdings co-sale rights and certain other voting agreements all of which
expire upon consummation of the Offering. The Second Amended and Restated
Stockholders' Agreement was amended on October 27, 1997 to include Paribas
Principal, Inc. and Paribas Capital Funding L.L.C. The Second Amended and
Restated Stockholders' Agreement will terminate upon consummation of the
Offering.
In September 1997, the Company borrowed $3.0 million from Southwest Bank
(the "Southwest Loan") to help finance the acquisition of Southern
Dependacare. The Company executed a demand note in connection with this loan,
payment of which was guaranteed by certain holders of the Series B Preferred
Stock (including without limitation Weston II, Mercury and NatWest). In
exchange for the guaranty, the Company issued to the guarantors warrants to
purchase a total of 26,840 shares of Common Stock at an exercise price of
$12.74 per share. The Southwest Loan was paid in full in November 1997 using
proceeds from the Banque Paribas financing.
CERTAIN TRANSACTIONS
Mr. Anantharaman is an executive officer and an owner of EGL Holdings. EGL
Holdings from time to time represents Mercury and NatWest, in venture capital
investments. Pursuant to a Stock and Warrant Purchase Agreement dated December
29, 1995, a group of investors led by EGL Holdings, including Mercury and
NatWest, made a $3.0 million investment in the Company through the Class A
Stock. In connection with the Stock and Warrant Purchase Agreement, the
Company issued 95,700 shares of Series 1 Class A Stock and contingent warrants
to purchase up to 95,700 shares of Series 1 Class A Stock to NatWest for an
aggregate purchase price of $1,435,500 and 95,700 shares of Series 2 Class A
Stock and contingent warrants to purchase up to 95,700 shares of Class A Stock
to Mercury Asset for an aggregate purchase price of $1,435,500. The contingent
warrants are exercisable upon a redemption of the Class A Stock by the Company
at an exercise price of $15.00 per share. The Company also issued to EGL
Holdings warrants to purchase up to 59,660 shares of Common Stock at an
exercise price of $.03 per share. In connection with this transaction, Ms.
Garvin, Dr. Fagin, Ms. Moore, Mr. Scott and Mr. Holt each executed a Non-
Competition and Non-Disclosure Agreement. The Company also agreed to engage
EGL Holdings to act as an advisor to the Company, at a fee of $6,000 per month
plus reimbursement of reasonable expenses, from January 1, 1996 until such
time as there are no longer any shares of the Company's Class A Stock
outstanding. The Company paid EGL Holdings approximately $73,000 during 1997
pursuant to this agreement. Upon consummation of the Offering and after giving
effect to the Reverse Split, each share of Class A Stock will be converted
into 3.01 shares of Common Stock. Mercury and NatWest are also parties to the
Series B Securities Purchase Agreement and the Equity Call Agreement.
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<PAGE>
Dr. DiStefano is the managing partner of the Arlington Cancer Center.
Pursuant to an Asset Purchase and Contribution Agreement, dated June 16, 1997,
among the Company, the Arlington Cancer Center, the individual physicians
named therein (the "Arlington Physicians"), each of the Arlington Physicians
wholly-owned professional associations (the "Physician Professional
Associations") and MHOA Texas I, L.L.C., a subsidiary of the Company ("MHOA
Texas"), (the "Arlington Purchase Agreement"), the Arlington Cancer Center
sold substantially all of its assets to MHOA Texas for an aggregate purchase
price of $24.5 million, of which $11.8 million was paid in cash, $6.2 million
was paid in the form of a promissory note and $6.5 million was paid in the
form of a subordinated promissory note. In addition to the cash consideration,
the Physician Professional Associations received in the aggregate a 20.0%
interest in MHOA Texas. The aggregate 20.0% interest in MHOA Texas held by the
Physician Professional Associations may be exchanged for a total of 480,420
shares of Common Stock under certain circumstances pursuant to an exchange
rights agreement. The $6.2 million promissory note is non-interest bearing and
the entire principal balance is due on April 1, 1998. The subordinated
promissory note is non-interest bearing and is payable in four annual
installments beginning on April 1, 1999. Through his interest in the Arlington
Cancer Center, Dr. DiStefano has a 4.6% interest in MHOA Texas. Pursuant to
the Arlington Purchase Agreement, the Company also agreed to appoint
Dr. DiStefano to the Board of Directors of the Company. The Company, MHOA
Texas and the Arlington Cancer Center have entered into a management services
agreement with a term of 40 years pursuant to which MHOA Texas provides
physician practice management services to the Arlington Cancer Center for an
annual fee equal 12.0% of the Arlington Cancer Center's net practice revenue,
an additional 55.0% of the practice pre-tax income and the reimbursement of
certain interest and depreciation expenses. Physicians salaries and operating
expenses, including the reimbursable interest and depreciation expenses, are
paid before PHC's management fees are paid. The annual management fee accrues
each year whether or not there are sufficient practice revenues remaining that
year after payment of physician salaries and operational expenses.
In connection with the purchase of the Arlington Cancer Center assets, MHOA
Texas obtained $8.0 million term debt financing from DVI Financial Services,
Inc. through six separate loans, and $5.0 million revolving credit facility
from DVI Business Credit Corporation. The interest rate on the DVI Financial
Services, Inc. loans is 12.25% simple interest and the loans mature in August,
2002. The interest rate on the DVI Business Credit Corporation facility loan
is 2.5% above the variable rate set by Bank of America, NT&SA in San
Francisco, California and that facility may be terminated by the Company in
August, 1999. The Company agreed to act as guarantor in connection with the
debt financing. The Company issued to DVI Financial Services, Inc. warrants to
purchase up to 15,700 shares of Common Stock at an exercise price of $15.92
per share in consideration of making the loans.
In November 1996, Metropolitan Plastic, of which Dr. Ribaudo is the sole
shareholder, sold substantially all of its assets to the Company in exchange
for: (i) $500,000 payable in the form of a convertible promissory note (the
"Convertible Note"); (ii) 125,000 shares of Prime Common Stock; and (iii) the
assumption of certain liabilities in the amount of $20,718. The promissory
note bore interest at a rate of 5.0% per annum and would have mature on
November 26, 1999. Prior to maturity but after an initial public offering by
the Company, the promissory note was convertible in $100,000 increments by the
holder into Common Stock at a price of $4.00 per share. The Company reimbursed
Dr. Ribaudo for approximately $32,000 in legal fees incurred by him in
connection with this transaction. Contemporaneously with the purchase of
substantially all of the assets of Metropolitan Plastic: (a) the Company
entered into an Undertaking Agreement with Dr. Ribaudo and Metropolitan
Plastic (the "Ribaudo Undertaking Agreement"); and (b) Metropolitan Plastic
entered into a Practice Management Agreement with the Company with a term of
40 years. Pursuant to the Practice Management Agreement, the Company agreed to
provide practice management and development services to Metropolitan Plastic
for an annual base fee of $100,000 plus 20.0% of the net practice revenue of
the practice less its operating expenses in excess of $550,000 per year during
the first five years of the agreement, and 20.0% of the net practice revenue
of the practice less operational expenses during the remainder of the
agreement. In addition, Metropolitan Plastic agreed to pay to the Company a
development fee equal to 7.0% of the revenues generated by new practice
physicians recruited by the Company.
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<PAGE>
Pursuant to the Ribaudo Undertaking Agreement the Company agreed to: (i)
employ Dr. Ribaudo on an at-will basis at an annual salary of $100,000 and to
increase his salary to $250,000 after the completion of an initial public
offering of Common Stock; (ii) appoint Dr. Ribaudo to the Board of Directors
of the Company; (iii) sell to him 31,400 shares of Common Stock at $12.74 per
share (which he has purchased); and (iv) provide him with a quarterly "draw"
as described below. The Ribaudo Undertaking Agreement also granted Dr.
Ribaudo: (a) an option to purchase 94,200 shares of Common Stock at $12.74 per
share, vesting over a period of four years (with accelerated vesting if PHC
completes a single sale of securities resulting in a change of control of the
Company); and (b) options to purchase 47,100 shares of Common Stock at $12.74
per share, 31,400 of which are vested, with options to purchase 7,850 shares
of Common Stock vesting on each of December 31, 1998 and 1999. The Ribaudo
Undertaking Agreement originally provided that Dr. Ribaudo would be paid
$600,000 upon the Company's achievement of $1.5 million in projected annual
practice revenue from Missouri and central and southern Illinois. The parties
revised the geographic area subject to this target several times, ultimately
determining that Dr. Ribaudo should receive credit toward meeting this target
from all practice acquisitions in which he played a substantial role. As a
result of several PHC Practice acquisitions in mid-November, it was determined
that the revenue goals were met and Dr. Ribaudo was paid $600,000.
Under the "draw" arrangement, for any month in which Dr. Ribaudo received
less than $29,167 in revenue from his medical practice, he was advanced the
deficiency from the Company. The advance was subject to offset, less his
"earned draw", against amounts due to Dr. Ribaudo or Metropolitan Plastic. The
earned draw was calculated as a percentage, ranging from 0.5% to 2.5%
depending on his role, of the initial annual management fee payable by PHC
Practices in which Dr. Ribaudo had a substantial role in the acquisition. Dr.
Ribaudo was paid approximately $248,000 pursuant to this arrangement for the
twelve months ended December 31, 1997. For that same period, his earned draw
was approximately $ , reducing to approximately $ the amount to be repaid
to the Company through offsets.
Effective December 31, 1997, Dr. Ribaudo and Company entered into a
settlement agreement (the "Settlement Agreement") pursuant to which the "draw"
arrangement was terminated, Dr. Ribaudo forgave amounts owed by PHC under the
Convertible Note and PHC forgave the approximately $ owed to PHC by Ribaudo
under the draw arrangement, as well a $30,000 loan made by PHC to Dr. Ribaudo.
Under the Settlement Agreement the Company also granted Dr. Ribaudo options to
purchase 47,100 shares of Common Stock at an exercise price of $12.74 per
share. Further, the Company and Dr. Ribaudo agreed that the Practice
Management Agreement between Metropolitan Plastic and the Company would
terminate on the earlier to occur of June 30, 1998 and the date that Dr.
Ribaudo ceases to practice medicine. The Company agreed to reimburse Dr.
Ribaudo for: (i) reasonable moving expenses related to the relocation of his
residence from St. Louis to Atlanta; (ii) malpractice premium expense; (iii)
legal fees up to $5,000 incurred by him in connection with negotiation of the
Settlement Agreement; (iv) rental expense for an apartment in Atlanta for a
period of up to 12 months; and (v) annual continuing medical education expense
up to $5,000 per year. Additionally, the Company agreed to increase Dr.
Ribaudo's salary from $100,000 to $200,000 effective January 1, 1998.
See also "Management--Compensation Committee Interlocks and Insider
Participation."
COMPANY POLICY
It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members
of the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company
does not intend to incur any further indebtedness to, or make any loans to,
any of its executive officers, directors or other affiliates.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon completion of the Offering, the Company's authorized capital stock will
consist of 100,000,000 shares of Voting Common Stock, par value $0.0025 per
share (the "Common Stock"), 40,000,000 shares of Non-Voting Common Stock, par
value $0.0025 per share (the "Non-Voting Common Stock") and 18,000,000 shares
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"). At
December 31, 1997 (without giving effect to the Reverse Split) there were:
(i) 500,000 shares of Class A Stock authorized and 200,000 shares of Class A
Stock outstanding; (ii) 9,000,000 shares of Series B Voting Preferred Stock
authorized and 3,460,362 shares of Series B Voting Preferred Stock
outstanding; (iii) 6,000,000 shares of Series B Non-Voting Preferred Stock
authorized and 917,814 shares of Series B Non-Voting Preferred Stock
outstanding; (iv) 20,000,000 shares of Prime Common Stock authorized and
6,358,140 shares of Prime Common Stock outstanding; (v) 40,000,000 shares of
Non-Voting Common Stock authorized, none of which are outstanding; and (vi)
100,000,000 shares of Common Stock authorized and 8,604,239 shares of Common
Stock outstanding. All of the currently outstanding shares of Common Stock,
Non-Voting Common Stock, Prime Common Stock, Class A Stock, Series B Voting
Preferred Stock and Series B Non-Voting Preferred Stock are validly issued,
fully paid and nonassessable under the Delaware General Corporation Law (the
"DGCL"). As of December 31, 1997, the Company had approximately 202
stockholders of record.
Upon the consummation of the Offering: (i) each share of Class A Stock will
convert into 3.01 shares of Common Stock; (ii) each share of Prime Common
Stock and Series B Voting Preferred Stock will convert into 0.314 of a share
of Common Stock; and (iii) each share of Series B Non-Voting Preferred Stock
will convert into 0.314 of a share of Non-Voting Common Stock. If the initial
Offering price is less than $22.29 per share of Common Stock, the Company will
be required to accrue an extraordinary dividend payable with respect to each
share of Series B Preferred Stock equal to $22.29 per share less the initial
Offering price per share of Common Stock. This extraordinary dividend would be
payable one year after the consummation of the Offering and could be paid
either in cash or in Common Stock. The requirement to pay such dividend will
be terminated if, at any time during the one-year period after consummation of
the Offering, the average price of the Common Stock on the Nasdaq National
Market is greater than $22.29 per share for any 20 consecutive trading days.
The following summary describes the capital stock of the Company to be
authorized on completion of the Offering. This summary describes the material
elements of the Company's Fourth Amended and Restated Certificate of
Incorporation (the "Certificate") as it relates to the Company's capital stock
but is subject to, and qualified in its entirety by, the provisions of the
Certificate and by the provisions of applicable law, including the DGCL.
COMMON STOCK AND NON-VOTING COMMON STOCK
Voting Rights
Each holder of Common Stock is entitled to one vote per share in the
election of directors and for all other purposes. The holders of Non-Voting
Common Stock do not have voting rights unless otherwise required by law or by
the Certificate. Except as otherwise provided, there are no cumulative voting
or preemptive rights applicable to any shares of the Company's stock.
Dividends and Other Distributions
All shares of Common Stock and Non-Voting Common Stock are entitled to
participate pro rata in distributions and in such dividends as may be declared
by the Board of Directors of the Company out of funds legally available
therefor, subject to any preferential dividend rights of outstanding shares of
Preferred Stock.
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<PAGE>
Subject to the prior rights of creditors, all shares of Common Stock and Non-
Voting Common Stock are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, or upon the sale of
substantially all of the assets of the Company or upon a merger of the Company
in which the Company is not the surviving entity (each a "Distribution Event")
to participate ratably, share and share alike, in the distribution of all the
remaining assets of the Company after distribution in full of preferential
amounts, if any, to be distributed to holders of Preferred Stock.
Conversion Rights
At the option of Regulated Stockholders (as defined below), each share of
Common Stock and Non-Voting Common Stock is convertible into one share of Non-
Voting Common Stock or Common Stock, as the case may be, at any time and from
time to time, upon delivery to the Company of a certificate signed on behalf of
the holder seeking such conversion. The Company will not convert, redeem,
purchase, acquire or take any other action affecting the outstanding shares of
Common Stock or Non-Voting Common Stock if such action would, with respect to:
(i) any legal entity that is subject to Regulation Y of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 225) (a "Regulated Stockholder")
or (ii) any affiliate of any such Regulated Stockholder, increase the
percentage of outstanding voting securities owned or controlled by such
Regulated Stockholder to more than 4.9% or increase the percentage of the total
equity or the value of all of the capital stock of the Company owned or
controlled by such Regulated Stockholder to more than 24.9% unless the Company
gives written notice of such action to each Regulated Stockholder or affiliate.
The terms of the Common Stock and Non-Voting Common Stock are the same with the
exception of voting rights. The Company may not redeem or take any other action
affecting outstanding shares of Common Stock or Non-Voting Common Stock, if
after giving effect to such redemption a Regulated Stockholder would own more
than 4.9% of any class of voting securities of the Company, 24.9% of the total
equity of the Company or more than 24.9% of the total capital stock of the
Company. The rights, preferences and privileges of holders of Common Stock are
subject to, and may be adversely affected by, the rights of any shares of
Preferred Stock that may be issued by the Company from time to time.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of Directors
as shares of one or more series. Subject to the provisions of the Certificate
of Incorporation and limitations prescribed by law, the Board of Directors is
expressly authorized to adopt resolutions to issue the shares, to fix the
number of shares and to change the number of shares constituting any series and
to provide for or change the voting powers, designations, preferences and
relative, participating, optional, exchange or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the holders of Common Stock.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might impede
a business combination by including class voting rights that would enable the
holders to block such a transaction; or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of Preferred Stock could adversely affect the voting power of the
holders of the Common Stock. Although the Board of Directors is required to
make any determination to issue such stock based on its judgment as to the best
interests of the stockholders of the Company, the Board of Directors could act
in a manner that would discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their stock over
the then-market price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of currently
authorized stock, unless otherwise required by law or the rules of any market
on which the Company's securities are traded.
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<PAGE>
STATUTORY BUSINESS COMBINATION PROVISION
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless: (i) before such person became an interested stockholder,
the board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination; (ii) upon consummation of the transaction that resulted
in the interested stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the corporation and by employee
stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which such
person became an interested stockholder, the business combination was approved
by the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
OTHER MATTERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables corporations to limit available relief
to equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of directors of the Company to the Company
or its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL.
The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters.
The Bylaws provide that stockholders may act only at an annual or special
meeting of stockholders and may not act by written consent. The Bylaws provide
that special meetings of the stockholders can be called only by the Chairman of
the Board, the Chief Executive Officer, the President or the Board of
Directors.
The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a result,
it is currently contemplated that approximately one-third of the Company's
Board of Directors will be elected each year. The classified board provision
could prevent a party who acquires control of a majority of the outstanding
voting stock of the Company from obtaining control of the Board of Directors
until the second annual stockholders meeting following the date the acquiror
obtains the controlling interest. See "Management--Directors and Executive
Officers."
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The Certificate of Incorporation provides that the number of directors shall
be as determined by the Board of Directors from time to time, but shall be at
least one and not more than nineteen. It also provides that directors may be
removed only for cause, and then only by the affirmative vote of the holders of
at least a majority of all outstanding voting stock entitled to vote. This
provision, in conjunction with the provision of the Bylaws authorizing the
Board of Directors to fill vacant directorships, will prevent stockholders from
removing incumbent directors without cause and filling the resulting vacancies
with their own nominees.
STOCKHOLDER PROPOSALS
The Company's Bylaws contain provisions: (i) requiring that advance notice be
delivered to the Company of any business to be brought by a stockholder before
an annual meeting of stockholders and (ii) establishing certain procedures to
be followed by stockholders in nominating persons for election to the Board of
Directors. Generally, such advance notice provisions provide that written
notice must be given to the Secretary of the Company by a stockholder: (a) in
the event of business to be brought by a stockholder before an annual meeting,
not less than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders (with certain exceptions if the date
of the annual meeting is different by more than specified amounts from the
anniversary date), and (b) in the event of nominations of persons for election
to the Board of Directors by any stockholder, (i) with respect to an election
to be held at the annual meeting of stockholders, not less than 90 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders (with certain exceptions if the date of the annual meeting is
different by more than specified amounts from the anniversary date), and (ii)
with respect to an election to be held at a special meeting of stockholders for
the election of directors, not later than the close of business on the 10th day
following the day on which notice of the date of the special meeting was mailed
to stockholders or public disclosure of the date of the special meeting was
made, whichever first occurs. Such notice must set forth specific information
regarding such stockholder and such business or director nominee, as described
in the Company's Bylaws. The foregoing summary is qualified in its entirety by
reference to the Company's Bylaws, which are included as an exhibit to the
Registration Statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, on a pro forma basis as
of December 31, 1997 to reflect the mandatory conversion to Common Stock of
certain classes of the Company's capital stock and other convertible
securities upon completion of the Offering, and after giving effect to the
completion of the Offering and such mandatory conversion, with respect to the
beneficial ownership of the Company's voting capital stock of: (i) each person
known by the Company to be a beneficial owner of more than 5% of any class of
the Company's voting capital stock; (ii) each executive officer and director
or director nominee of the Company; and (iii) all directors, director nominees
and executive officers of the Company as a group. Except as otherwise
indicated below, the persons named in the table have advised the Company that
they have sole voting and investment power with respect to the shares of
capital stock shown as beneficially owned by them. Unless otherwise indicated,
each person or group has sole voting and investment power with respect to all
such shares. Unless otherwise indicated, the number of shares and percentage
of ownership of Common Stock for each of the named stockholders, directors,
director nominee and executive officers assumes that shares of Common Stock
that the stockholders, directors, director nominee and executive officers may
acquire within 60 days are outstanding.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
-----------------------
SHARES PRO FORMA
BENEFICIALLY PRIOR TO AFTER
NAME OWNED(1) OFFERING(1) OFFERING(2)
- ---- ------------ ----------- -----------
<S> <C> <C> <C>
Murali Anantharaman(3)................... 892,108 13.7% 12.0%
EGL Holdings, Inc.(4).................... 860,708 13.2 11.6
Weston Presidio Capital II, L.P.(5)...... 649,998 9.9 8.7
Michael F. Cronin(6)..................... 649,998 9.9 8.7
Mercury Asset Management plc, on behalf
of Rowan Nominees Limited(7)............ 420,188 6.5 5.7
Sarah C. Garvin.......................... 408,200 6.4 5.6
Banque Paribas(8)........................ 382,528 5.8 5.1
NatWest Ventures Investments Ltd.(9)..... 354,937 5.5 4.8
Thomas M. Rodgers, Jr.(10)............... 205,716 3.2 2.8
J. Michael Ribaudo, M.D.(11)............. 164,850 2.5 2.2
Alfred DiStefano, M.D.................... -- * *
Richard Sanchez, M.D..................... -- * *
Carl J. Schramm, Ph.D.(12)............... 56,912 * *
All directors, director nominees and
executive officers as a group
(8 persons)(13)......................... 2,377,785 34.9 30.7
</TABLE>
- --------
* Less than 1%.
(1) Calculated on a pro forma basis to show the effect of mandatory
conversion to Common Stock of certain classes of the Company's capital
stock and other securities upon completion of the Offering and the
Reverse Split, for a total of 6,387,621 shares of Common Stock
outstanding.
(2) Gives effect to the issuance of shares of Common Stock offered hereby.
(3) Includes: (i) 59,660 shares of Common Stock into which a warrant held by
EGL Holdings is currently exercisable; (ii) 384,542 shares of Common
Stock held by Mercury; (iii) 35,644 shares of Common Stock into which
warrants held by Mercury are currently exercisable; (iv) 336,510 shares
of Common Stock held by NatWest; (v) 18,426 shares of Common Stock into
which warrants held by NatWest are currently exercisable; (vi) 25,923
shares of Common Stock held by certain individual investors; and
(vii) 31,400 shares held by David Ellis, a colleague of Mr. Anantharaman.
Mercury, NatWest and the certain individual investors have granted EGL
Holdings full power to vote and exercise all owner rights, powers and
privileges with respect to their shares. Although as a Partner of EGL
Holdings and otherwise,
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Mr. Anantharaman is likely to exercise voting rights with respect to all
of the forgoing shares, he denies all but an insignificant, economic
interest in these shares except to the extent of his interest in the
59,660 shares issuable to EGL Holdings proportionate to his ownership
interest in EGL Holdings. Beneficial ownership of these shares, except
those held by Mr. Ellis, are also attributed to EGL Holdings and, as
applicable, to Mercury or NatWest. Mr. Anantharaman's business address is
6600 Peachtree Dunwoody Road, 300 Embassy Row, Suite 300, Atlanta, Georgia
30328.
(4) Includes: (i) 59,660 shares of Common Stock into which a warrant held by
EGL Holdings is currently exercisable; (ii) 384,542 shares of Common
Stock held by Mercury; (iii) 35,644 shares of Common Stock into which
warrants held by Mercury are currently exercisable; (iv) 336,510 shares
of Common Stock held by NatWest; (v) 18,426 shares of Common Stock into
which warrants held by NatWest are currently exercisable; and (vi) 25,923
shares of Common Stock held by certain individual investors. Other than
the 59,660 shares into which its warrant is currently exercisable, EGL
Holdings denies any economic interest in these shares. Beneficial
ownership of these shares is also attributed to Mr. Anantharaman and, as
appropriate, to Mercury or NatWest. EGL Holding's business address is
6600 Peachtree Dunwoody Road, 300 Embassy Row, Suite 630, Atlanta,
Georgia 30328.
(5) Includes 169,591 shares of Common Stock into which warrants held by
Weston II are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Cronin. The business address of Weston II is
One Federal Street, 21st Floor, Boston Massachusetts 02110.
(6) Includes: (i) 480,406 shares of Common Stock held by Weston II and (ii)
169,591 shares of Common Stock into which warrants held by Weston II are
currently exercisable. Beneficial ownership of these shares is also
attributed to Weston II. Mr. Cronin's address is One Federal Street, 21st
Floor, Boston, Massachusetts 02110.
(7) Includes 35,644 shares of Common Stock into which warrants held by
Mercury are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Anantharaman and to EGL Holdings.
(8) Includes: (i) 173,856 shares of Common Stock held by Paribas Principal,
Inc. ("PPI"); (ii) 57,952 shares of Common Stock into which a warrant
held by PPI is currently exercisable; and (iii) 150,720 shares of Common
Stock into which a warrant held by Paribas Capital Funding, Inc. ("PCF")
is currently indirectly exercisable. PPI and PCF are affiliates of Banque
Paribas.
(9) Includes 18,426 shares of Common Stock into which warrants held by
NatWest are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Anantharaman and to EGL Holdings.
(10) Includes 40,820 shares of Common Stock held in a Keogh account for Mr.
Rodger's benefit. Mr. Rodgers denies the right to vote these shares.
(11) Includes: 94,200 shares of Common Stock that may be acquired on the
exercise of vested options.
(12) Includes 41,212 shares of Common Stock that may be acquired upon the
exercise of vested options.
(13) See Notes 3 (Mr. Anantharaman), 6 (Mr. Cronin), 10 (Mr. Rodgers), 11 (Dr.
Ribaudo) and 12 (Dr. Schramm).
72
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 10,381,433 shares
of Common Stock outstanding (10,831,433 if the Underwriters' over-allotment
option is exercised in full) of which 3,000,000 shares sold in the Offering
(3,450,000 if the Underwriters' over-allotment option is exercised in full)
will be freely tradable without restriction or further registration under the
Securities Act unless purchased by "affiliates" of the Company (as defined in
the Securities Act). The remaining 7,093,240 shares of Common Stock and
288,193 shares of Non- Voting Common Stock are deemed "restricted securities"
under Rule 144 in that they were originally issued and sold by the Company in
private transactions in reliance upon exemptions under the Securities Act, and
may be publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as those
provided by Rule 144 promulgated under the Securities Act as described below.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from an affiliate of the issuer, the acquiror or
subsequent holder would be entitled to sell within any three-month period a
number of those shares that does not exceed the greater of one percent of the
number of shares of such class of stock then outstanding or the average weekly
trading volume of the shares of such class of stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the issuer. In addition, if a period of at least two years has elapsed
since the later of the date of acquisition of restricted securities from the
issuer or from any affiliate of the issuer, and the acquiror or subsequent
holder thereof has not been an affiliate of the issuer at any time during the
90 days preceding a sale, such person would be entitled to sell such
restricted securities under Rule 144(k) without regard to the volume
limitations and manner of sale and notice requirements described above. Rule
144 does not require the same person to have held the securities for the
applicable periods. The foregoing summary of Rule 144 is not intended to be a
complete description thereof. The Commission has proposed certain amendments
to Rule 144 that would, among other things, eliminate the manner of sale
requirements and revise the notice provisions of that rule. The SEC has also
solicited comments on other possible changes to Rule 144, including possible
revisions to the one- and two-year holding periods and the volume limitations
referred to above.
As of December 31, 1997, options to purchase an aggregate of 1,623,442
shares of Common Stock were outstanding under the 1995 Stock Option Plan. See
"Management--1995 Stock Option Plan." In general, pursuant to Rule 701 under
the Securities Act, any employee, officer or director of, or consultant to,
the Company who purchased his or her shares pursuant to a written compensatory
plan or contract is entitled to rely on the resale provisions of Rule 701,
which permit non-affiliates to sell such shares without compliance with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permit affiliates to sell such shares without compliance with
the holding period provisions of Rule 144, in each case commencing 90 days
after the date of this Prospectus. In addition, the Company intends to file a
registration statement covering the 1,980,517 shares issuable upon exercise of
stock options that may be granted in the future under the 1995 Stock Option
Plan, in which case such shares of Common Stock generally will be freely
tradable by non-affiliates in the public market without restriction under the
Securities Act.
The Company, its executive officers, directors, and current stockholders
have agreed not to offer, sell, contract to sell, grant any option or other
right for the sale of, or otherwise dispose of any shares of Common Stock or
any securities, indebtedness or other rights exercisable for or convertible or
exchangeable into Common Stock owned or acquired in the future in any manner
prior to the expiration (the "180-Day Lockup Period") without the prior
written consent of BancAmerica Robertson Stephens, except that the Company
may, subject to certain conditions, issue Common Stock in connection with
acquisitions and may grant Awards (or Common Stock upon exercise of Awards)
under the 1995 Stock Option Plan. These restrictions will be applicable to any
shares acquired by any of those persons in the Offering or otherwise during
the 180-Day Lockup Period. Approximately shares of Common Stock issued by
the Company in October and November, 1997 were
73
<PAGE>
issued subject to agreements in which the persons who received the shares of
Common Stock in connection with acquisitions agreed not to transfer the shares
for periods ranging from 14 to 42 months following consummation of the
Offering.
Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time
after the Offering. The Company is unable to estimate the number of shares that
may be sold in the public market under Rule 144, or otherwise, because such
amount will depend on the trading volume in, and market price for, the Common
Stock and other factors. Nevertheless, sales of substantial amounts of shares
in the public market, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock of the Company. See
"Underwriting."
74
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters"), for whom BancAmerica Robertson
Stephens, NationsBanc Montgomery Securities, Inc., A.G. Edwards & Sons, Inc.,
and The Robinson-Humphrey Company, LLC are acting as representatives (the
"Representatives"), have severally agreed to purchase, and the Company has
agreed to sell, the respective number of shares of Common Stock set forth
opposite the name of each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
BancAmerica Robertson Stephens.....................................
NationsBanc Montgomery Securities, Inc. ...........................
A.G. Edwards & Sons, Inc. .........................................
The Robinson-Humphrey Company, LLC.................................
----
Total............................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock are subject to certain conditions, and
that, if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, then all the shares of
Common Stock agreed to be purchased by the Underwriters pursuant to the
Underwriting Agreement must be so purchased.
The Representatives have advised the Company that the Underwriters propose to
offer the shares of Common Stock in part directly to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such public offering price less a selling concession not in excess
of $ per share, of which $ may be reallowed to other dealers. After the
consummation of this Offering, the public offering price, the concession to
selected dealers and the reallowance may be changed by the Underwriters. No
such reductions shall change the amount of proceeds to be received by the
Company as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an option to purchase up to 450,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial commitment
as indicated in the preceding table.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The Company, its executive officers, directors and current stockholders have
agreed not to, directly or indirectly, offer for sale, sell, contract to sell,
grant any option or other right for the sale of, or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the future of) any
shares of Common Stock or any securities, indebtedness or other rights
exercisable for or convertible or exchangeable into shares of Common Stock
prior to the expiration of 180 days after the date of this Prospectus, without
the prior written consent of BancAmerica Robertson Stephens, except that the
Company may, subject to certain conditions, issue shares of Common Stock in
connection with acquisitions and grant Awards (or issue shares of Common Stock
upon exercise of Awards) under the 1995 Stock Option Plan. For information
respecting additional restrictions on sales by the Company's executive
officers, directors and current stockholders, see "Shares Eligible for Future
Sale."
75
<PAGE>
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of the
Common Stock on behalf of the Underwriters to reduce a short position incurred
by the Underwriters in connection with the Offering. A "penalty bid" is an
arrangement permitting the Representatives to reclaim the selling concession
otherwise accruing to an Underwriter or syndicate member in connection with the
Offering if the Common Stock originally sold by such Underwriter or syndicate
member is purchased by the Representatives in a syndicate covering transaction
and has, therefore, not been effectively placed by such Underwriter or
syndicate member. The Representatives have advised the Company that such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
Prior to the Offering, there has been no public market for the Company's
securities. The initial public offering price of the Common Stock will be
determined by negotiation among the Company and the Representatives. Among the
factors to be considered in such negotiations will be prevailing market
conditions, the results of operations of the Company in recent periods, market
valuations of publicly traded companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the current state of the industry and the economy as a whole, and
other factors deemed relevant.
The Company has applied to have the Common Stock approved for quotation on
the Nasdaq Stock Markets National Market under the symbol "PHCO." There can be
no assurance, however, that an active or orderly trading market will develop
for the Common Stock or that the Common Stock will trade in the public markets
subsequent to the offering at or above the initial public offering price.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of shares of Common Stock offered hereby to accounts
over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Jackson Walker L.L.P., Dallas, Texas. Certain legal matters
in connection with the sale of the Common Stock offered hereby will be passed
upon for the Underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The audited financial statements of the Company, Greater Cincinnati
Gastroenterology Associates, Inc., Internal Medicine Specialists, Inc.,
Parkcrest Surgical Associates, Inc., and Southern Dependacare, Inc. included in
this Prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Metroplex Hematology/Oncology Associates, L.L.P.
at December 31, 1996 and 1995, and for each of the two years in the period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
76
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-
1 (together with all exhibits, schedules and amendments relating thereto, the
"Registration Statement") with respect to the Common Stock offered hereby. This
Prospectus, filed as part of the Registration Statement, does not contain all
the information contained in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement including
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document filed as an exhibit to the
Registration Statement accurately describes the material provisions of such
document and are qualified in their entirety by reference to such exhibits for
complete statements of their provisions. All of these documents may be
inspected without charge at the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the following regional offices of the Commission: Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies can also be obtained from the
Commission at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission.
77
<PAGE>
INDEX TO HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Physician Health Corporation ("PHC" or the "Company")
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-5
Consolidated Statements of Stockholders' Equity.......................... F-7
Consolidated Statements of Cash Flows.................................... F-9
Notes to Consolidated Financial Statements............................... F-11
Metroplex Hematology / Oncology Associates, L.L.P.
(d/b/a) Arlington Cancer Center
Report of Independent Auditors........................................... F-23
Balance Sheets........................................................... F-24
Statements of Income and Changes in Partners' Capital.................... F-25
Statements of Cash Flows................................................. F-26
Notes to Financial Statements............................................ F-27
Greater Cincinnati Gastroenterology Associates, Inc.
Report of Independent Public Accountants................................. F-32
Balance Sheets........................................................... F-33
Statements of Operations................................................. F-34
Statements of Owners' Equity............................................. F-35
Statements of Cash Flows................................................. F-36
Notes to Financial Statements............................................ F-37
Internal Medicine Specialists, Inc.
Report of Independent Public Accountants................................. F-41
Balance Sheets........................................................... F-42
Statements of Operations................................................. F-43
Statements of Owners' Equity............................................. F-44
Statements of Cash Flows................................................. F-45
Notes to Financial Statements............................................ F-46
Parkcrest Surgical Associates, Inc.
Report of Independent Public Accountants................................. F-50
Balance Sheets........................................................... F-51
Statements of Operations................................................. F-52
Statements of Owners' Equity............................................. F-53
Statements of Cash Flows................................................. F-54
Notes to Financial Statements............................................ F-55
Southern Dependacare, Inc.
Report of Independent Public Accountants................................. F-60
Balance Sheets........................................................... F-61
Statements of Operations................................................. F-62
Statements of Owners' Equity............................................. F-63
Statements of Cash Flows................................................. F-64
Notes to Financial Statements............................................ F-65
</TABLE>
F-1
<PAGE>
After the reverse stock split discussed in Note 10 to the financial
statements of Physician Health Corporation and Subsidiaries is effected, we
expect to be in a position to render the following audit report.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
December 15, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Physician Health Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of PHYSICIAN
HEALTH CORPORATION (a Delaware corporation) AND SUBSIDIARIES (Successor
Company) as of December 31, 1995 and 1996 and September 30, 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the period from inception (August 29, 1995) through
December 31, 1995, the year ended December 31, 1996, and the nine months ended
September 30, 1997. We have also audited for Physician Health Corporation and
Subsidiaries (Predecessor Company) the accompanying consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 1994 and the period from January 1, 1995 to October 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Physician Health
Corporation and Subsidiaries (Successor Company) as of December 31, 1995 and
1996 and September 30, 1997, and the results of their operations and their
cash flows for the period from inception (August 29, 1995) through December
31, 1995, the year ended December 31, 1996, and the nine months ended
September 30, 1997 and for the Predecessor Company for the year ended December
31, 1994 and the period from January 1, 1995 to October 31, 1995 in conformity
with generally accepted accounting principles.
F-2
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $3,011,757 $1,160,910 $ 5,218,651
Accounts receivable, less allowance for
bad debts of $55,170, $463,970, and
$833,912 at December 31, 1995 and 1996
and September 30, 1997, respectively.... 400,479 465,089 8,112,843
Inventory................................ -- -- 430,616
Prepaid expenses and other current
assets.................................. 121,463 124,800 1,206,955
---------- ---------- -----------
Total current assets................... 3,533,699 1,750,799 14,969,065
Property and equipment, net................ 149,820 867,260 6,499,503
Intangible assets, net of accumulated
amortization of $7,936, $54,142, and
$298,295 at December 31, 1995 and 1996 and
September 30, 1997, respectively.......... 1,054,567 1,524,604 19,675,945
Other long term assets..................... 131,455 -- 588,961
---------- ---------- -----------
Total assets........................... $4,869,541 $4,142,663 $41,733,474
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable........................... $ 77,131 $ 606,531 $ 1,844,450
Accrued expenses........................... 673,735 922,353 5,280,185
Current portion of long-term debt.......... 368,237 75,808 13,070,895
---------- ---------- -----------
Total current liabilities................ 1,119,103 1,604,692 20,195,530
---------- ---------- -----------
Long-term debt............................... 10,358 500,000 14,434,603
---------- ---------- -----------
Commitments and contingencies (Notes 8 and 9)
Class A redeemable preferred stock, $.01 par
value; 500,000 shares authorized, 200,000
issued, and outstanding (redemption or
liquidation preference aggregating
$3,000,000, plus accrued dividends or
guaranteed return).......................... 2,447,836 2,442,712 2,772,204
---------- ---------- -----------
Series B redeemable convertible preferred
stock, $.01 par value; 15,000,000 shares
authorized, 3,824,493 issued and outstanding
at September 30, 1997....................... -- -- 13,675,368
---------- ---------- -----------
Stockholders, equity (deficit):
Common stock, $0.0025 par value;
140,000,000 shares authorized, 1,051,900,
1,196,340, and 1,414,244 shares issued and
outstanding at December 31, 1995 and 1996
and September 30, 1997, respectively...... 2,630 2,991 3,536
Prime common stock, $0.0025 par value;
20,000,000 shares authorized, 125,000 and
4,039,666 shares issued and outstanding at
December 31, 1996 and September 30, 1997,
respectively.............................. -- 313 10,100
Additional paid-in capital................. 1,456,562 2,642,529 10,984,743
Accumulated deficit........................ (166,948) (3,050,574) (19,898,860)
Notes receivable .......................... -- -- (443,750)
---------- ---------- -----------
Total stockholders' equity (deficit)..... 1,292,244 (404,741) (9,344,231)
---------- ---------- -----------
Total liabilities and stockholders'
equity (deficit)........................ $4,869,541 $4,142,663 $41,733,474
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE-MONTH PERIOD
(AUGUST 29, 1995) YEAR ENDED ENDED SEPTEMBER 30,
THROUGH DECEMBER 31, --------------------------
DECEMBER 31, 1995 1996 1996 1997
----------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net patient service
revenue................ $ -- $ 23,412 $ -- $ 2,510,529
Management fees......... 30,181 1,215,098 955,456 9,511,279
Other revenue........... 426,125 2,797,454 1,764,886 3,968,803
---------- ----------- ------------ ------------
Net revenue............ $ 456,306 $ 4,035,964 $ 2,720,342 $ 15,990,611
---------- ----------- ------------ ------------
Operating expenses:
Salaries and
benefits............. 362,287 2,915,041 2,123,523 4,880,327
Contract and
professional
services............. 69,830 193,561 369,745 746,304
Medical supplies and
other................ -- -- 32,916 5,487,850
Provision for bad
debts................ 40,170 660,159 104,560 938,383
General and
administrative....... 131,009 2,748,330 1,208,095 6,387,126
Depreciation and
amortization......... 13,577 161,236 80,884 731,892
Write down of assets.. -- 195,236 -- 714,665
Purchased research and
development.......... -- -- -- 13,251,860
---------- ----------- ------------ ------------
Total operating
expenses........... 616,873 6,873,563 3,919,724 33,138,407
---------- ----------- ------------ ------------
Loss from operations.... (160,567) (2,837,599) (1,199,382) (17,147,796)
Interest expense, net... 7,178 29,527 9,662 1,767,745
---------- ----------- ------------ ------------
Loss before minority
interest and income
taxes.................. (167,745) (2,867,126) (1,209,044) (18,915,541)
Minority interest in net
loss of subsidiary..... (797) -- -- (2,080,975)
---------- ----------- ------------ ------------
Loss before income
taxes.................. (166,948) (2,867,126) (1,209,044) (16,834,566)
Income tax expense...... -- 16,500 -- 13,720
---------- ----------- ------------ ------------
Net loss................ $ (166,948) $(2,883,626) $ (1,209,044) $(16,848,286)
========== =========== ============ ============
Loss per share.......... $ (0.18) $ (1.34) $ (0.56) $ (5.82)
========== =========== ============ ============
Weighted average shares
outstanding............ 941,050 2,156,068 2,143,035 2,893,999
========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995 TO
1994 OCTOBER 31, 1995
------------ ------------------
<S> <C> <C>
Net revenue..................................... $ 812,144 $1,949,421
--------- ----------
Operating expenses:
Salaries and benefits......................... 530,952 1,532,624
Contract and professional services............ 37,514 124,524
General and administrative.................... 224,673 463,478
Depreciation and amortization................. 58,266 106,584
--------- ----------
Total operating expenses.................... 851,405 2,227,210
--------- ----------
Loss from operations............................ (39,261) (277,789)
Interest expense, net........................... 24,033 86,487
--------- ----------
Loss before income taxes........................ (63,294) (364,276)
Income tax expense.............................. -- --
--------- ----------
Net loss........................................ $ (63,294) $ (364,276)
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK PRIME COMMON STOCK
--------------------------- ----------------------------
ADDITIONAL ADDITIONAL STOCKHOLDERS'
PAID-IN PAID-IN ACCUMULATED NOTES EQUITY
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE (DEFICIT)
--------- ------ ---------- --------- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August
29, 1995 (period
of inception).... -- $ -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock,
net of issuance
costs of
$38,453......... 1,051,900 2,630 1,064,542 -- -- -- -- -- 1,067,172
Issuance of
options and
warrants to
purchase common
stock........... -- -- 392,020 -- -- -- -- -- 392,020
Issuance of
preferred stock,
net of issuance
costs of
$267,472........ -- -- -- -- -- -- -- -- --
Accretion of
preferred
stock........... -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- (166,948) -- (166,948)
--------- ------ ---------- --------- ------- ---------- ------------ --------- -----------
Balance, December
31, 1995......... 1,051,900 2,630 1,456,562 -- -- -- (166,948) -- 1,292,244
Issuance of
common stock,
net of issuance
costs of
$43,065......... 144,440 1,150 1,185,967 -- -- -- -- -- 1,076,935
Issuance of
prime common
stock, net of
issuance costs
of $15,294...... -- -- -- 125,000 313 109,393 -- -- 109,706
Issuance cost
adjustment...... -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- (2,883,626) -- (2,883,626)
--------- ------ ---------- --------- ------- ---------- ------------ --------- -----------
Balance, December
31, 1996......... 1,196,340 2,991 2,533,136 125,000 313 109,393 (3,050,574) -- (404,741)
Issuance of
common stock,
net of issuance
costs of
$5,836.......... 217,904 545 2,770,909 -- -- -- -- -- 2,771,454
Issuance of
warrants to
purchase common
stock........... -- -- 1,717,106 -- -- -- -- -- 1,717,106
Issuance of
prime common
stock........... -- -- -- 3,914,666 9,787 3,854,199 -- (443,750) 3,420,236
Issuance of
preferred stock,
net of issuance
costs of
$638,282........ -- -- -- -- -- -- -- -- --
Dividends
accrued and
unpaid.......... -- -- -- -- -- -- -- -- --
Accretion of
preferred stock
for redemption.. -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- (16,848,286) -- (16,848,286)
--------- ------ ---------- --------- ------- ---------- ------------ --------- -----------
Balance,
September 30,
1997............. 1,414,244 $3,536 $7,021,151 4,039,666 $10,100 $3,963,592 $(19,898,860) $(443,750) $(9,344,231)
========= ====== ========== ========= ======= ========== ============ ========= ===========
<CAPTION>
REDEEMABLE PREFERRED STOCK
-----------------------------------------
CLASS A SERIES B
------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance, August
29, 1995 (period
of inception).... -- $ -- -- $ --
Issuance of
common stock,
net of issuance
costs of
$38,453......... -- -- -- --
Issuance of
options and
warrants to
purchase common
stock........... -- -- -- --
Issuance of
preferred stock,
net of issuance
costs of
$267,472........ 200,000 2,447,528 -- --
Accretion of
preferred
stock........... -- 308 -- --
Net loss........ -- -- -- --
------- ----------- --------- -----------
Balance, December
31, 1995......... 200,000 2,447,836 -- --
Issuance of
common stock,
net of issuance
costs of
$43,065......... -- -- -- --
Issuance of
prime common
stock, net of
issuance costs
of $15,294...... -- -- -- --
Issuance cost
adjustment...... -- (5,124) -- --
Net loss........ -- -- -- --
------- ----------- --------- -----------
Balance, December
31, 1996......... 200,000 2,442,712 -- --
Issuance of
common stock,
net of issuance
costs of
$5,836.......... -- -- -- --
Issuance of
warrants to
purchase common
stock........... -- -- -- --
Issuance of
prime common
stock........... -- -- -- --
Issuance of
preferred stock,
net of issuance
costs of
$638,282........ -- -- 3,824,493 12,897,920
Dividends
accrued and
unpaid.......... -- 225,000 -- 673,116
Accretion of
preferred stock
for redemption.. -- 104,492 -- 104,332
Net loss........ -- -- -- --
------- ----------- --------- -----------
Balance,
September 30,
1997............. 200,000 $2,772,204 3,824,493 $13,675,368
======= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
ADDITIONAL STOCKHOLDER'S
PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, Period of
inception................. -- $ -- $ -- $ -- $ --
Issuance of common
stock................... 1,000 10 490 -- 500
Net loss................. -- -- -- (63,294) (63,294)
----- ---- ---- --------- ---------
Balance, December 31,
1994...................... 1,000 10 490 (63,294) (62,794)
Net loss................. -- -- -- (364,276) (364,276)
----- ---- ---- --------- ---------
Balance, October 31, 1995.. 1,000 $10 $490 $(427,570) $(427,070)
===== ==== ==== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM NINE-MONTH PERIOD
INCEPTION YEAR ENDED ENDED SEPTEMBER 30,
(AUGUST 29, 1995 DECEMBER 31, -------------------------
TO DECEMBER 31, 1995) 1996 1996 1997
--------------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net loss.............. $ (166,948) $(2,883,626) $(1,209,044) $(16,848,286)
Adjustments to recon-
cile net loss to net
cash provided by
(used in) operating
activities:
Depreciation,
amortization, and
accretion of
preferred stock...... 13,577 161,236 85,448 1,838,832
Write-down of assets.. -- 195,236 -- 714,665
Purchased research and
development.......... -- -- -- 13,251,860
Loss on disposal of
fixed assets......... -- -- -- 17,645
Minority interest in
net loss of
subsidiary........... (797) -- (1,091) (2,080,975)
Changes in operating
assets and
liabilities:
Accounts receivable,
net................. 38,182 (64,611) (122,729) (4,337,310)
Due from related
physicians and
physician
organizations....... (221,800) 221,800 -- --
Prepaid expenses and
other assets........ 180,104 (93,682) (63,534) (1,981,142)
Accounts payable and
accrued expenses.... 219,745 660,986 (250,336) 3,650,555
----------- ----------- ----------- ------------
Net cash provided by
(used in) operating
activities......... 62,063 (1,802,661) (1,561,286) (5,774,156)
----------- ----------- ----------- ------------
Investing activities:
Purchases of busi-
nesses and related
intangibles.......... (1,325,787) (127,345) -- (19,488,272)
Purchases of property
and equipment........ (9,834) (342,008) (278,245) (341,213)
----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (1,335,621) (469,353) (278,245) (19,829,485)
----------- ----------- ----------- ------------
Financing activities:
Proceeds from issuance
of redeemable
preferred stock, net
of issuance costs.... 2,554,528 -- -- 12,897,964
Proceeds from issuance
of common stock, net
of issuance costs.... 1,067,172 1,061,641 683,076 1,398,451
Proceeds from issuance
of stock purchase
warrants............. 285,020 -- -- 1,717,106
Payments for loan
issuance costs for
credit facility...... -- (277,099) -- --
Proceeds from issuance
of long-term debt.... 378,595 -- -- 13,658,237
Repayment of notes
payable.............. -- (363,375) (367,020) (10,376)
----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 4,285,315 421,167 316,056 29,661,382
----------- ----------- ----------- ------------
Net change in cash and
cash equivalents...... 3,011,757 (1,850,847) (1,523,475) 4,057,741
Cash and cash
equivalents at
beginning of period... -- 3,011,757 3,011,757 1,160,910
----------- ----------- ----------- ------------
Cash and cash
equivalents at end of
period................ $ 3,011,757 $ 1,160,910 $ 1,488,282 $ 5,218,651
=========== =========== =========== ============
Supplemental
disclosures of cash
flow information:
Cash paid for
interest............. $ 6,870 $ 15,872 $ 6,412 $ 261,075
=========== =========== =========== ============
Cash paid for income
taxes................ $ -- $ 16,500 $ -- $ 13,720
=========== =========== =========== ============
Supplemental
disclosures of noncash
financing and
investing activity:
Carrying value of debt
issued in connection
with purchases of
businesses (Note 2).. $ -- $ -- $ -- $ 13,177,186
=========== =========== =========== ============
Common stock issued in
connection with
purchases of
businesses (Note 2).. $ -- $ -- $ -- $ 6,707,349
----------- ----------- ----------- ------------
Preferred stock
subscriptions issued
(Note 6)............. $ -- $ -- $ -- $ 6,210,000
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1995
DECEMBER 31, TO
1994 OCTOBER 31, 1995
------------ ----------------
<S> <C> <C>
Operating activities:
Net loss....................................... $ (63,294) $(364,276)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 58,266 106,584
Changes in operating assets and liabilities:
Accounts receivable, net................... (160,949) (310,138)
Prepaid expenses and other assets.......... (657,683) (133,495)
Accounts payable and accrued expenses...... 208,281 175,943
--------- ---------
Net cash used in operating activities.... (615,379) (525,382)
--------- ---------
Investing activities:
Purchases of property and equipment............ (77,589) (104,841)
--------- ---------
Net cash used in investing activities.... (77,589) (104,841)
--------- ---------
Financing activities:
Proceeds from issuance of common stock......... 500 --
Borrowings under line of credit--parent compa-
ny............................................ 756,756 565,935
--------- ---------
Net cash provided by financing activi-
ties.................................... 757,256 565,935
--------- ---------
Net change in cash and cash equivalents.......... 64,288 (64,288)
Cash and cash equivalents at beginning of peri-
od.............................................. -- 64,288
--------- ---------
Cash and cash equivalents at end of period....... $ 64,288 $ --
========= =========
Supplemental disclosures of cash flow informa-
tion:
Cash paid for interest......................... $ 24,033 $ 86,487
========= =========
Cash paid for income taxes..................... $ -- $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
PHC Merger Corporation (the "Company") was incorporated on August 29, 1995
as a Delaware corporation. On November 3, 1995, the Company acquired, in a
transaction accounted for as a purchase, all of the outstanding common stock
of Physician Health Corporation (the "Predecessor Company"), a wholly owned
subsidiary of Surgical Health Corporation, which was a wholly owned subsidiary
of HealthSouth Corporation. The purchase price was approximately $1,325,000.
The Predecessor Company commenced operations during 1994. Upon completion of
the merger, the Company changed its name to Physician Health Corporation (the
"Successor Company"). The Company is a physician management company focusing
on the integration of managed care contracting, network development and
administration, physician practice management and ancillary health care
services development in selected markets. The Company provides these services
to independent physician networks and Company sponsored physician networks and
to physicians who affiliate with the Company through practice management or
employment agreements. The Company currently provides services described above
in the following geographical markets: Virginia, Georgia, Texas, Alabama,
Tennessee, Florida, Missouri, and Arizona.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned and greater than 50%-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Minority Interests
Minority interests represents the minority shareholders' proportionate share
of the equity of three of the Company's subsidiaries. The Company owns 80% of
the capital stock of two of these subsidiaries with 20% owned by minority
interests. These two subsidiaries were acquired in 1997. The Company owns 51%
of another subsidiary with 49% owned by minority interests.
As of December 31, 1995 and 1996 and September 30, 1997, the minority
interests are recorded at zero as cumulative losses applicable to minority
interests exceeded the minority interests in the subsidiaries' capital. For
the period ended December 31, 1995, the year ended December 31, 1996, and the
nine months ended September 30, 1997, the minority interests' net loss was
recorded at $797, $0, and $2,080,975, respectively, and $20,100, $268,824, and
$451,963, respectively, of the net loss was absorbed by the Company.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net Loss Per Common and Common Equivalent Share
Net loss per common and common equivalent share is computed using the
weighted average number of shares of common stock and dilutive common stock
equivalent shares ("CSEs") from stock options using the treasury stock method.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common stock and CSEs issued at prices below the expected public offering
price during the 12-month period
F-11
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
prior to filing of the registration statement in connection with the Company's
planned Offering have been included in the calculation as if they were
outstanding for all periods presented prior to the Offering, regardless of
whether they are dilutive.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." SFAS No. 128 is designed to improve the
earnings per share information provided in the financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of earnings per share data.
SFAS No. 128 is effective for periods ending after December 15, 1997,
including interim periods. The Company will adopt SFAS No. 128 for the fiscal
and interim periods ending December 31, 1997. As of September 30, 1997, the
disclosure requirements of SFAS No. 128 would not require a different
presentation of earnings per share than currently presented due to the
antidilutive effect of all common stock equivalents.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information About Capital Structure." SFAS No. 129
requires companies to disclose descriptive information about an entity's
capital structure. It also requires disclosure of information about the
liquidation preference of preferred stock and redeemable stock. SFAS No. 129
is effective for the Company's fiscal year ending December 31, 1998. The
Company does not expect that SFAS No. 129 will require significant revision of
prior disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income." SFAS No. 130 is designed to improve the
reporting of changes in equity from period to period. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. The Company will
adopt SFAS No. 130 for fiscal 1998. Management does not expect SFAS No. 130 to
have a significant impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires that an enterprise disclose certain information about
operating segments. SFAS No. 131 is effective for financial statements for the
Company's fiscal year ending December 31, 1998. The Company does not expect
that SFAS No. 131 will require significant revision of prior disclosures.
The Emerging Issues Task Force of the FASB has recently issued its Consensus
Opinion 97-2 ("EITF 97-2"). EITF 97-2 addresses certain specific matters
pertaining to the physician practice management industry. EITF 97-2 would be
effective for the Company for its year ending December 31, 1998. EITF 97-2
addresses the ability of physician practice management companies to
consolidate the results of physician practices with which it has an existing
contractual relationship. The Company is still in the process of analyzing the
effect on all of its contractual relationships, but currently believes that
certain contracts would meet the criteria of EITF 97-2 for consolidating their
results of operations, which would require the Company to restate its
financial statements to reflect such consolidation. EITF 97-2 also has
addressed the accounting method for future combinations with individual
physician practices. The Company believes that, based upon the criteria, set
forth in EITF 97-2, that virtually all of its future acquisitions of
individual physician practices will continue to be accounted for under the
purchase method of accounting.
Interim Unaudited Financial Information
The financial statements for the nine months ended September 30, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
F-12
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior Year Reclassifications
Certain prior year and period amounts have been reclassified to conform with
the current year presentation.
Cash Equivalents
The Company considers cash on deposit with financial institutions and all
highly liquid investments with original maturities of three months or less to
be cash equivalents.
Revenue
The Company primarily generates management fee revenues from contracts for
providing management services to physician practices, for organizing and
managing capitated network contracts, and for providing administrative
services such as accounting, billing, and collections. The Company also
generates net patient revenues through employed physicians.
Revenue is recognized as services are performed. The Company had two
practices that represented 35% of total revenues for the year ended December
31, 1996 and three practices that represented 73% of total revenues for the
nine months ended September 30, 1997.
Net patient revenues are recorded based on standard charges applicable to
all patients. Under Medicare, Medicaid, and other reimbursement programs, each
practice is reimbursed for services rendered to covered program patients as
determined by reimbursement formulas. The differences between established
billing rates and the amounts reimbursable by the programs and patient
payments are recorded as contractual adjustments and deducted from revenues.
Accounts Receivable and Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the
estimated losses expected to be incurred in the collection of accounts
receivable.
Capitated Contracts
The Company establishes accruals for its capitated contracts reimbursements
based upon historical trends. Any contracts that would have a guaranteed loss
would be immediately accrued for and the loss would be charged to operations.
Industry Risks
The health care industry is subject to numerous laws and regulations at all
levels of government. These laws and regulations include, but are not
necessarily limited to, matters such as licensure, accreditation, government
health care program participation requirements, reimbursement for patient
services, and Medicare and Medicaid fraud and abuse. Recently, government
activity has increased with respect to investigations and allegations
concerning possible violations of fraud and abuse statutes and regulations by
health care providers. Violations of these laws could result in significant
fines and penalties as well as significant payments for services previously
billed. The Company is subject to similar regulatory reviews. A determination
of liability under any such laws could have a material effect on the Company's
financial position, results of operations, changes in stockholders' equity,
and cash flows.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets, which are
as follows:
<TABLE>
<S> <C>
Equipment............................................... Five years
Furniture and fixtures.................................. Five to seven years
Leasehold improvements.................................. Ten years
</TABLE>
F-13
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additions that extend the lives of the assets are capitalized, while repairs
and maintenance costs are expensed as incurred. When property and equipment is
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resulting gain or loss is recorded.
Intangible Assets
The Company's acquisitions involve the purchase of tangible and intangible
assets and the assumption of certain liabilities of the affiliated physician
groups. The Company allocates the purchase price to the tangible assets
acquired and liabilities assumed based on estimated fair market values. In
connection with each acquisition, the Company enters into long-term service
agreements with the affiliated physician groups. The service agreements are
for terms of 40 years and cannot be terminated by either party without cause,
primarily bankruptcy or material default. The service agreement intangible is
being amortized using a straight-line method over an average life of 25 years.
In connection with the allocation of the purchase price to identifiable
intangible assets, the Company analyzes the nature of each group with which a
service agreement is entered into, including the number of physicians in each
group, number of service sites, ability to recruit additional physicians, the
group's relative market position, the length of time the group has been in
existence, and the term and enforceability of the service agreement.
The physician groups continually recruit physicians and, as appropriate and
necessary, add qualified physicians to the group. This manner of operations
allows the physician group to perpetuate itself as individual physicians
retire or are otherwise replaced. Therefore, the Company believes that the
physician groups with which it has service agreements are entities with
indeterminable life.
Income Taxes
The Company is a corporation subject to federal and state income taxes.
Income taxes have been provided using the liability method in accordance with
the Statement of financial accounting standards ("SFAS") No. 109, "Accounting
for Income Taxes."
Impairment of Long-Lived Assets
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Under SFAS No. 121, intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. If this review indicates that the carrying amount of the
asset may not be recoverable, as determined based on the undiscounted cash
flows of the operations acquired over the remaining amortization period, the
carrying value of the asset is reduced to fair value. Among the factors that
the Company will continually evaluate are unfavorable changes in each
physician group's relative market share and local market competitive
environment, current period and forecasted operations, cash flow levels of the
physician group, and its impact on the management fee earned by the Company,
and legal factors governing the practice of medicine. In 1996, the Company
wrote off certain fixed assets for $195,236. In 1997, the Company wrote off
certain fixed assets and intangible assets for $714,665.
2. ACQUISITIONS
During the year ended December 31, 1996, the Company purchased the assets of
one physician practice ("Metropoliton Plastic & Reconstructive Surgery"). The
Company issued a note in the amount of $500,000 and issued 125,000 shares of
the Company's prime stock.
F-14
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the nine months ended September 30, 1997, the Company acquired
certain assets and assumed certain liabilities of eleven physician practices
located in Texas, Missouri, Georgia, Illinois and Arizona. These practices
were:
Surgical Group South Ream Optometry
Eye Medical and Surgical Tri-County Eye Center
The Heart Health Center Atlanta Center for Medicine
Jones Eye Center Southern Dependacare
Arlington Cancer Center Surgical Associates
Payson Family Care
Total tangible assets acquired were $9,188,823 and total liabilities assumed
were $2,000,762. To consummate these eleven 1997 acquisitions and reflect
entry into related practice management agreements, the Company paid
$18,325,928 in cash, issued debt in the aggregate amount of $13,177,187, and
issued 2,833,613 and 97,407 shares of the Company's prime and common stock
respectively. In addition, consideration was given in the form of a 20%
interest in two newly formed subsidiaries. This 20% minority interest in the
subsidiaries are convertible into 2,080,975 shares of common stock in the
Company. The aggregate value of common and prime stock issued was $6,155,553.
As a result of these acquisitions, the Company recorded intangibles of
approximately $17,000,000 (after purchased research and development), which is
being amortized over 25 years. These acquisitions were accounted for as
purchase transactions, and the acquired net assets and post acquisition
operating results are included in the September 30, 1997 consolidated
financial statements.
In connection with the acquisition of a physician practice during the nine
months ended September 30, 1997, the Company allocated $13,251,860 to
purchased research and development. Based on management's assessment of no
alternative future benefit to the Company, this amount was charged against
operations on the date of the acquisition.
3. PROPERTY AND EQUIPMENT
As of December 31, 1995 and 1996 and September 30, 1997 property and
equipment are comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
Equipment................................... $115,934 $362,824 $4,267,440
Furniture................................... 27,795 134,391 822,276
Leasehold improvements...................... 11,732 471,885 1,954,644
Construction in progress.................... -- -- 24,333
-------- --------- ----------
155,461 969,100 7,068,693
Less accumulated depreciation............... (5,641) (101,840) (569,190)
-------- --------- ----------
Net property and equipment.................. $149,820 $867,260 $6,499,503
======== ========= ==========
</TABLE>
During the period of inception (August 29, 1995) to December 31, 1995, the
year ended December 31, 1996, and the nine months ended September 30, 1997,
the Company recorded $5,641, $106,796, and $484,292 in depreciation expense,
respectively.
F-15
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT
At December 31, 1995 and 1996 and September 30, 1997, long-term debt
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
--------- -------- -------------
<S> <C> <C> <C>
Convertible subordinated note to
Metropolitan Plastic and Reconstructive
Surgery, Ltd.; principal and interest at
5% per annum due on demand or on November
26, 1999; note is convertible into common
stock 90 days immediately following the
effective date of a registration statement
under the Securities Act of 1933.......... $ -- $500,000 $ 500,000
Equipment note............................. -- 75,808 75,808
Promissory notes payable to stockholders of
the Company; interest and principal due on
demand.................................... -- -- 300,000
Promissory notes payable to officers and
stockholders; bearing interest at 10%..... 363,375 -- --
Secured promissory note to DVI Business
Credit Corporation; interest on unpaid
principal balance due monthly at the
publicly announced rate by Bank of America
plus 2 1/2% per annum; all unpaid
principal and interest due on July 1,
1999; secured by eligible accounts
receivable of the Company................. -- -- 2,236,186
Noninterest-bearing promissory note for
$6,210,000 to Metroplex
Hematology/Oncology Associates, LLP; im-
puted semiannual interest rate of 6.75%;
principal and interest due on April 1,
1998; .................................... -- -- 5,986,678
Noninterest-bearing promissory note for
$6,460,000 to Metroplex
Hematology/Oncology Associates, LLP; im-
puted semiannual interest rate of 7.36%
principal and interest due in four annual
installments, with final payment on April
1, 2002................................... -- -- 5,182,134
Secured promissory notes to DVI Financial
Services, Inc.; interest payable monthly
at 12.25% per annum; principal and
interest due on July 1, 2003; secured by
certain equipment of the Company.......... -- -- 8,000,000
Note payable to Southwest Bank; bearing
interest at an initial rate of prime
subject to change to prime plus 3%;
interest beginning October 10, 1997 and
payable monthly subsequent to initial
payment; principal due on demand or
January 10, 1998.......................... -- -- 3,000,000
Promissory notes payable to stockholders;
bearing interest at rates ranging from 7
to 8%, principal and interest due on
periods ranging from January 1, 1998
through September 12, 2000................ -- -- 2,194,692
Other...................................... 15,220 -- 30,000
--------- -------- -----------
Total Debt................................. 378,595 575,808 27,505,498
Less current maturities.................... (368,237) (75,808) (13,070,895)
--------- -------- -----------
Long-term debt............................. $ 10,358 $500,000 $14,434,603
========= ======== ===========
</TABLE>
On December 31, 1996, the Company entered into a credit agreement with
Nations Credit for working capital and acquisition financing. No draws were
made on the credit arrangement during the nine months ended September 30,
1997, and the credit arrangement was terminated. In connection with the
termination of the credit agreement, the Company wrote off $691,191 of the
remaining unamortized loan issuance costs during the nine months ended
September 30, 1997.
F-16
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Repayment of long-term debt as of September 30, 1997 is as follows:
<TABLE>
<S> <C>
December 31:
Three-months ended 1997....................................... $ 3,352,421
Year ended 1998............................................... 10,296,950
Year ended 1999............................................... 3,070,888
Year ended 2000............................................... 3,520,261
Year ended 2001............................................... 2,888,438
Thereafter.................................................... 4,376,540
-----------
Total $27,505,498
===========
</TABLE>
5. RELATED-PARTY TRANSACTIONS
At December 31, 1995, the Company had outstanding notes payable to officers
and shareholders totaling $363,375. The notes bear interest at 10%. The
proceeds from these notes were used to repay a portion of the line of credit
to Surgical Health Corporation. The notes payable were paid in full in January
1996. Interest paid to related parties was $5,874.
The Company had an intercompany line of credit with Surgical Health
Corporation prior to November 3, 1995 totaling $1,342,893. This line of credit
was paid in full on November 3, 1995, with the proceeds from the issuance of
shares of common stock and related party loans.
The Company maintains management services agreements to provide services to
and receive compensation from physicians that own stock in the Company or the
Company's subsidiaries and physicians that are on the Company's board of
directors. At September 30, 1997, the Company maintains eight management
service contracts that were initiated in connection with asset purchases in
which the Company issued common stock as consideration (Note 2). For the year
ended December 31, 1996 and the nine months ended September 30, 1997, the
Company recognized total management service fees from the contracts of
approximately $62,000 and $9,500,000, respectively. The Company also recorded
capitated contract fees of $140,000 between two of its subsidiaries, however,
amounts eliminate in consolidation.
The Company pays monthly consulting fees to affiliated investors and members
of the board for consulting services received. For the nine months ended
September 30, 1997, the Company paid approximately $1,410,000 in consulting
fees to affiliates.
At September 30, 1997, the Company has fourteen promissory notes due to
shareholders of the Company. The total amount due to shareholders is
$2,524,692.
In connection with the exercise of stock options during 1997, the Company
received a note in the amount of $443,750 from a stockholder of the Company.
6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Class A Redeemable Convertible Preferred Stock
During 1995, 200,000 shares of class A redeemable convertible preferred
stock were issued to certain investors of the Company. At any time prior to
December 29, 2005, each share of preferred stock is convertible into 3.01
common shares, as adjusted.
The conversion rate of the Class A stock shall be adjusted in the event that
the Company: (1) has a liquidity event, as defined, on or prior to December
31, 1997, (2) attains certain levels of profitability, (3) issues common
F-17
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stock, options, or preferred stock at a price less than the conversion rate
then in effect, (4) declares a stock dividend, (5) declares a stock split, or
(6) is recapitalized. Automatic conversion will occur upon the closing of a
liquidity event (including an initial public offering).
The holders of Class A stock are entitled to dividends on a converted basis,
if declared by the Company's board of directors, at a per share amount, if
any, of any dividend declared for the common stock during the period. In
addition, the stockholders are entitled to receive cumulative dividends of
$1.50 per share (subject to adjustment for any stock splits) per annum. Such
dividends began accruing on December 31, 1996 and are payable annually
beginning in 1998. Dividends have been accrued as of September 30, 1997.
The Class A holders have a liquidation preference of $15 per share plus 12%
per annum from the date of purchase. The 12% compounded annual rate of return
shall be in lieu of, not in addition to, the dividends paid or payable by the
Company. The Class A stock is senior to the common stock with respect to
liquidation and dividends.
After December 31, 2000, each share of Class A stock is redeemable at the
request of the holder. The redemption price is equal to the greater of $15 per
share plus any declared and unpaid dividends or the fair market value of the
Class A stock at the time of redemption. The Class A stock is required to be
redeemed, at the holders request if the principals, as defined, sell 20% or
more of the outstanding shares of capital stock of the Company, become
insolvent, have a breach of warranty under the purchase agreement, or have an
acceleration of debt in excess of $500,000 in the aggregate. No shares have
been redeemed as of September 30, 1997. At September 30, 1997, the Company
recorded accretion of preferred stock of $104,492. Accretion is being
calculated on a straight-line basis, which approximates the interest method.
Series B Redeemable Convertible Preferred Stock
The Company is authorized to issue 15,000,000 shares of Series B Redeemable
Convertible Preferred Stock at $.01 par value in one or more series. This type
of stock has been issued pursuant to several securities purchase agreements
among the Company, and certain other investors. Holders of Series B
Convertible Preferred Preferred Stock are generally entitled to (1) accrue a
dividend in an amount equal to 20% per annum, compounded annually, on $4,
beginning on the later of the original issue date or the date on which the
purchase price for such shares was first released from the applicable purchase
price escrow (holders will also receive a special contingent dividend upon the
consummation of a Liquidity Event), (2) liquidation preference over holders of
common and prime stock in the amount of $4 per share plus accrued and unpaid
dividends, and (3) vote as a single class with the holders of common stock
based on the number of shares of common stock into which the Series B
preferred stock may be converted. All regular dividends are forgiven upon the
occurrence of a Liquidity Event.
Under mandatory redemption, Series B Redeemable Convertible Preferred Stock
is redeemable at a price equal to $4 per share, as adjusted, plus accrued and
unpaid dividends. Mandatory redemption will commence in 2003.
Each share of Series B Redeemable Convertible Preferred Stock is convertible
at the option of the holder at any time into the number of shares of the
common stock of the Company obtained by dividing $4 by the then effective
conversion price of the Series B Redeemable Convertible Preferred Stock.
Provided that a liquidity event has not occurred prior to May 1, 2002, the
conversion price will be $4 per share, and after May 1, 2002, the conversion
price will be $3 per share. Automatic conversion will occur upon the closing
of a liquidity event (including an initial public offering).
The conversion rate of the Series B Redeemable Convertible Preferred Stock
shall be adjusted in the event (1) the Company issues additional shares of
common stock at a price that is less than the applicable conversion price in
effect on the date of, and immediately prior to, such issue, (2) stock is
issued as a dividend, (3) stock is subdivided or diluted, or (4) the
outstanding shares of common stock are combined or consolidated into a lesser
number of shares of common stock.
F-18
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the nine-month period ended September 30, 1997, the Company issued
3,824,493 shares of Series B Redeemable Convertible Preferred Stock to venture
capitalists in order to receive funding for current and future acquisitions.
The Company has recorded a subscription receivable of $6,210,000 (that has
been offset against the Series B Redeemable Convertible Preferred Stock) in
relation to the issuance of an additional 1,552,501 shares that will be
released to the venture capitalists upon payment of the subscription
receivable. At September 30, 1997, the Company recorded accretion of preferred
stock of $104,332.
Common Stock
On October 6, 1995, 706,500 shares of common stock were issued to certain
employees at a price of $.0025 per share of which 1,125,000 shares were vested
immediately. Subject to each stockholder maintaining full-time employment, the
unvested shares of common stock shall vest ratably over future periods. The
shares of the unvested stock have been placed in escrow. The holders of these
unvested shares have full voting rights through the escrow agent. All of the
common stock shall vest immediately in the event the Company: (1) achieves a
certain minimum market value and is merged with another company; (2)
consummates an initial public offering with a certain minimum level of
proceeds; or (3) is merged, consolidated, or reorganized resulting in a change
of control of the Company. These shares are subject to certain transfer
restrictions and may be forfeited if an employee leaves the Company for
reasons other than retirement, disability or death, absent a change in control
of the Company.
Through a private placement offering which closed on November 3, 1995, an
additional 345,400 shares of common stock were issued at a price of $3.18 per
share.
On February 26, 1996, the Company sold 113,040 shares of common stock at
$6.37 per share and issued a warrant to acquire an additional 83,524 shares at
$.01 per share on or before January 31, 2001. On November 26, 1996, the
Company sold 31,400 shares at $12.74 per share to a related party with whom
the Company has a management agreement.
During the nine-month period ended September 30, 1997, the Company issued
217,904 shares to various shareholders for cash of $2,611,464 and for the
final settlement to NationsCredit in the amount of $160,000 in connection with
the termination of the credit agreement.
Prime Common Stock
The Company has been authorized to issue 20 million shares of prime common
stock with a par value of $.0025 per share. Holders of prime common stock are
entitled to the following: (1) to vote one-tenth of one share with respect to
any matters voted upon by the stockholders of the Company, (2) the right to
receive dividends when declared by the Board of Directors of the Company,
provided that the per share amount is at least equal to the per share amount
declared for common stockholders, and (3) the right to receive a pro rata
share of distributions upon a "distribution event" by the Company after
payment of outstanding debt and other obligations, subject to the preferences
of Class A, Class B, and common stockholders. The fair market value of prime
common stock is determined periodically by outside appraisers. Outstanding
shares of prime common stock will convert to common stock, on a .314 to 1
basis, as adjusted, upon the Company's completion of a public offering in
which the sale of common stock results in net proceeds of $20 million or more.
On November 26, 1996, the Company issued 125,000 shares of prime common
stock at $1 per share in connection with the acquisition of the assets of
Metropolitan Plastic and Reconstructive Surgery, Ltd.
F-19
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the nine months ended September 30, 1997, the Company issued
3,385,518 shares of prime common stock in connection with the purchase of nine
physician practices (Note 2). The Company also issued 166,152 shares related
to exercise of stock options. The consideration for this exercise was in the
form of cash and issuance of notes receivable.
Employee Stock Option Plans and Investor Warrants
The Company has nonqualified and incentive stock option plans to provide key
employees and directors and consultants of the Company with an increased
incentive to work for the success of the Company. The Company also issues
investor warrants to investors of the Company. The option price for all stock
options and warrants is usually the market value at the date of grants and
thus, the plans are generally noncompensatory. The options and warrants expire
ten years after the dates of their respective grants.
The Company accounts for the stock options and warrants under APB Opinion
No. 25, which requires compensation costs to be recognized only when the
option price differs from the market price at the grant date. FASB Statement
No. 123 allows a company to follow APB Opinion No. 25 with an additional
disclosure that shows what the Company's pro forma net loss would have been
using the compensation model under FASB Statement No. 123. The pro forma loss
for the year ended December 31, 1996 and the nine-month period ended June 30,
1997 was $3,605,446 and $17,235,754, respectively. The Company used the
minimum value method to estimate the fair values of options and warrants for
the pro forma determination. For purposes of the minimum value method, the
Company used U.S. Treasury strip rates for its risk-free rates, assumed no
volatility or future dividends, and assumed the expected lives of the options
and warrants through the applicable expiration dates.
The Company reserved a total of approximately 9,000,000 shares of common
stock for issuance to holders of employee stock options and investor warrants.
Stock option activity (adjusting prime stock options for their common stock
conversion) from inception date, August 29, 1995 to September 30, 1997 is
summarized as follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTION
SHARES PRICE
-------- -------------
<S> <C> <C>
Outstanding at August 29, 1995....................... 0 $0
Granted............................................ 58,090 $ 0.64-$ 3.18
-------- -------------
Outstanding at December 31, 1995..................... 58,090 $ 0.64-$ 3.18
Granted............................................ 574,777 $ 3.18-$12.74
-------- -------------
Outstanding at December 31, 1996..................... 632,867 $ 0.64-$12.74
Granted............................................ 515,210 $ 3.50-$17.52
Exercised ......................................... (166,152) $ 3.66
Canceled........................................... (31,400) $12.74
--------
Outstanding at September 30, 1997.................... 950,525 $ 1.59-$17.52
========
Exercisable at September 30, 1997.................... 99,773
========
</TABLE>
During the nine months ended September 30, 1997, the Company issued
1,374,831 warrants to investors of the Company and 566,000 warrants were
canceled. Total outstanding warrants at December 31, 1996 and September 30,
1997 is 756,000 and 1,564,831, respectively. An additional 155,249 warrants
will be released to the venture capitalists upon payment of the $6,210,000
subscription receivable.
F-20
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and unused tax operating loss carryforwards.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows at December
31, 1995 and 1996 and September 30, 1997:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating losses................... $ 20,418 $ 1,196,565 $ 7,768,932
Other, net............................. 38,535 (50,069) (199,464)
-------- ----------- -----------
Total net deferred tax assets........ 58,953 1,146,496 7,569,468
Valuation allowance...................... (58,953) (1,146,496) (7,569,468)
-------- ----------- -----------
Net deferred tax assets.................. $ -- $ -- $ --
======== =========== ===========
</TABLE>
Based on uncertainties associated with the future realization of the
deferred tax assets, the Company established a valuation allowance of $58,953
and $1,146,496, at December 31, 1995 and 1996 and $6,377,142 at September 30,
1997, respectively.
A reconciliation from the statutory federal income tax rate to the income
tax expense is as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------ ------------------------------------------
JANUARY 1, AUGUST 29, 1995 NINE MONTH
YEAR ENDED 1995 TO TO YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996 1997
------------ ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Federal tax at statutory
rate................... $(21,520) $(123,854) $(56,762) $(974,823) $(5,723,752)
State income taxes, net
of federal tax
benefit................ (2,532) (14,571) (6,678) (114,685) (673,383)
Other................... 0 0 4,487 18,415 (12,117)
Change in valuation
allowance.............. 24,052 138,425 58,953 1,087,593 6,422,972
-------- --------- -------- --------- -----------
Income tax expense...... $ -- $ -- $ -- $ 16,500 $ 13,720
======== ========= ======== ========= ===========
</TABLE>
At September 30, 1997, the Company had net operating loss carryforwards of
approximately $20,000,000 which will begin to expire in the year 2010.
8. CONTINGENCIES
The Company and its affiliated physician groups are insured with respect to
medical malpractice risks on a claims-made basis. In the opinion of
management, the amount of potential liability with respect to these claims
will not materially affect the Company's financial position or results of
operations.
Under the terms of a management service agreement to provide medical service
to a managed care organization in Central Florida, the Company, through a 51%-
owned subsidiary, is required to place $250,000 in escrow after a minimum
number of members are assigned to the Company for medical care. The escrow
fund is to be used to fund quarterly losses, if any, for the provision of
medical care. The Company currently has $50,000
F-21
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in escrow, as the minimum number of participants has not been obtained. Losses
beyond the amount placed in escrow are the responsibility of the managed care
organization. If a quarterly profit exists for two consecutive quarterly
periods, any amounts remaining in escrow are paid to the Company. The
agreement does not require amounts withdrawn from escrow to be replenished.
9. COMMITMENTS
The Company leases office space and certain equipment under operating lease
agreements which expire at various years through 2002. Operating leases may be
renewed for periods ranging from three to five years. At September 30, 1997,
minimum annual rental commitments under capital leases and noncancellable
operating leases with terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997 (October 1997 to December 1997).......................... $ 706,066
1998.......................................................... 2,676,991
1999.......................................................... 2,103,024
2000.......................................................... 1,857,186
2001 and thereafter........................................... 3,406,988
-----------
Total....................................................... $10,750,255
===========
</TABLE>
Rent expense related to operating leases amounted to $43,490, $192,676,
$37,662, $447,794, and $860,115 for the year ended December 31, 1994, for the
period from January 1, 1995 to October 31, 1995, the period from inception
(August 29, 1995) to December 31, 1995, the year ended December 31, 1996, and
the nine months ended September 30, 1997, respectively.
10. SUBSEQUENT EVENTS
Since September 30, 1997, the Company purchased 18 physician practices
located in Atlanta, Cincinnati, Memphis, Orlando, and St. Louis. The total
purchase price for the acquisitions was approximately $42 million, which was
paid for through the issuance of common stock, debt, and payment of cash. The
practices will be accounted for as asset acquisitions by the Company under the
purchase method of accounting.
Subsequent to September 30, 1997, the Company entered into a line of credit
with a bank for a maximum amount of $62,500,000 to fund the acquisitions noted
above.
The board of directors has approved a .314 to 1 reverse stock split. This
reverse stock split is awaiting and will be effective upon receipt of
shareholder approval. Accordingly, the financial statements reflect the
reverse stock split as if it had occurred at the beginning of each period
presented.
F-22
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
Metroplex Hematology/Oncology Associates, L.L.P.
We have audited the accompanying balance sheets of Metroplex
Hematology/Oncology Associates, L.L.P. (the Partnership) as of December 31,
1995 and 1996, and the related statements of income and changes in partners'
capital and cash flows for each of the two years in the period ended December
31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metroplex
Hematology/Oncology Associates, L.L.P. at December 31, 1995 and 1996, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
April 9, 1997
F-23
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MAY 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 159,468 $ 32,721 $ --
Accounts receivable, net of allowance for
doubtful accounts and contractual ad-
justments of $1,602,512 in 1995 and
$2,242,429 in 1996...................... 3,446,421 5,205,867 5,761,766
Due from related party................... 79,855 101,574 119,674
Prepaid expenses and other............... 359,207 592,814 395,185
----------- ----------- ----------
Total current assets................... 4,044,951 5,932,976 6,276,625
PROPERTY AND EQUIPMENT, NET................ 4,266,967 3,449,698 3,431,516
OTHER ASSETS............................... 218,875 10,000 19,244
----------- ----------- ----------
Total assets........................... $ 8,530,793 $ 9,392,674 $9,727,385
=========== =========== ==========
LIABILITIES AND PARTNER'S CAPITAL
CURRENT LIABILITIES:
Accounts payable......................... $ 640,987 $ 1,206,294 $1,211,525
Accrued expenses:
Professional liability................. 469,470 344,250 344,250
Group health........................... 226,529 225,729 225,727
Other.................................. 290,204 486,605 406,159
Patient refunds payable.................. 401,674 628,289 612,304
Current portion of obligation to former
partner................................. 110,916 110,916 110,916
Current portion of long-term debt........ 1,088,546 1,007,366 950,358
----------- ----------- ----------
Total current liabilities.............. 3,228,326 4,009,449 3,613,984
LONG-TERM DEBT, LESS CURRENT PORTION....... 1,972,896 966,063 1,097,400
LONG-TERM OBLIGATION TO FORMER PARTNER,
LESS CURRENT PORTION...................... 250,691 139,764 93,545
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL.......................... 3,078,880 4,277,398 4,675,201
----------- ----------- ----------
Total liabilities and partners' capi-
tal................................... $ 8,530,793 $ 9,392,674 $9,727,385
=========== =========== ==========
</TABLE>
See accompanying notes.
F-24
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER
STATEMENTS OF INCOME AND CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED DECEMBER 31 MAY 31,
------------------------ ----------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Medical fees.............. $21,100,040 $23,296,897 $9,621,097 $9,832,048
Interest income and oth-
er....................... 184,698 141,858 14,619 13,564
----------- ----------- ---------- ----------
Total revenues.......... 21,284,738 23,438,755 9,635,716 9,845,612
EXPENSES:
Salaries and benefits..... 7,883,595 8,283,100 3,706,359 3,748,022
Medical supplies and
drugs.................... 5,114,932 5,905,328 2,148,469 2,727,741
Rent...................... 1,305,057 1,361,150 538,372 561,211
Occupancy................. 1,082,205 1,203,625 300,981 288,897
Provision for doubtful ac-
counts................... 225,070 380,030 109,805 173,569
Purchased services........ 401,482 627,406 188,902 317,562
Depreciation and amortiza-
tion..................... 1,096,267 1,008,758 414,066 316,234
Interest.................. 276,977 209,914 102,429 63,461
Other..................... 2,097,854 1,810,926 778,125 751,172
----------- ----------- ---------- ----------
Total expenses.......... 19,483,439 20,790,237 8,287,508 8,947,809
----------- ----------- ---------- ----------
NET INCOME.................. 1,801,299 2,648,518 1,348,208 897,803
PARTNERS' CAPITAL AT BEGIN-
NING OF PERIOD............. 2,727,581 3,078,880 3,078,880 4,277,398
DISTRIBUTIONS TO PARTNERS... (1,450,000) (1,450,000) (600,000) (500,000)
----------- ----------- ---------- ----------
PARTNERS' CAPITAL AT END OF
PERIOD..................... $ 3,078,880 $ 4,277,398 $3,827,088 $4,675,201
=========== =========== ========== ==========
Pro forma net income: (Note
11)
Net income................ $ 2,648,518 $ 897,803
Pro forma income taxes.... (1,032,922) (350,143)
----------- ----------
Pro forma net income........ $ 1,615,596 $ 547,660
=========== ==========
</TABLE>
See accompanying notes.
F-25
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED DECEMBER 31 MAY 31,
------------------------ ----------------------
1995 1996 1996 1997
----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................ $ 1,801,299 $ 2,648,518 $ 1,348,208 $ 897,803
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization........... 1,096,267 1,008,758 414,066 316,234
Changes in operating
assets and liabilities:
Accounts receivable,
net.................. (715,196) (1,759,446) (588,455) (555,899)
Prepaid expenses, due
from related party,
and other assets..... 149,331 (46,451) (117,933) 170,285
Accounts payable,
accrued liabilities
and patient refunds
payable.............. 302,917 862,303 (61,993) (91,200)
----------- ----------- ----------- ---------
Net cash provided by
operating
activities......... 2,634,618 2,713,682 993,893 737,223
INVESTING ACTIVITIES
Capital expenditures...... (1,050,346) (191,489) (35,511) (298,053)
----------- ----------- ----------- ---------
Net cash used in
investing
activities......... (1,050,346) (191,489) (35,511) (298,053)
FINANCING ACTIVITIES
Proceeds from notes
payable.................. 660,353 -- 360,000 74,329
Payments on notes
payable.................. (990,315) (1,088,013) (831,630) --
Distributions to
partners................. (1,450,000) (1,450,000) (600,000) (500,000)
Payments on obligation to
former partner........... (110,393) (110,927) (46,220) (46,220)
----------- ----------- ----------- ---------
Net cash used in
financing
activities......... (1,890,355) (2,648,940) (1,117,850) (471,891)
----------- ----------- ----------- ---------
Net decrease in cash and
cash equivalents......... (306,083) (126,747) (159,468) (32,721)
Cash and cash equivalents
at beginning of period... 465,551 159,468 159,468 32,721
----------- ----------- ----------- ---------
Cash and cash equivalents
at end of period......... $ 159,468 $ 32,721 $ -- $ --
=========== =========== =========== =========
</TABLE>
See accompanying notes.
F-26
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES L.L.P.
DBA ARLINGTON CANCER CENTER
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(INFORMATION AS OF MAY 31, 1997 AND FOR THE FIVE MONTHS ENDED MAY 31, 1996 AND
1997 IS UNAUDITED).
1. ORGANIZATION
Metroplex Hematology/Oncology Associates, L.L.P. (the Partnership) is a
Texas limited liability partnership formed in January 1980. The Partnership
operates and manages a medical practice in Arlington, Texas, specializing in
internal medicine, hematology, oncology, diagnostic radiology and
radiotherapy, and provides related laboratory and clinical services.
The Partnership has a term until December 31, 2050 or until a terminating
event (as defined) occurs. The formation as a limited liability partnership
during 1994 allows for a limitation to the partners on their exposure to
professional liability claims.
2. ACCOUNTING POLICIES
Partnership Basis of Presentation
The financial statements include only those assets, liabilities and results
of operations that relate to the business of the Partnership. The statements
do not include assets, liabilities or results of operations attributable to
the partners' individual activities.
Income Taxes
Income taxes are an obligation of the partners and, accordingly, are not
provided for in the financial statements. The partners include their
proportionate shares of Partnership net income or loss in their individual
income tax returns.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
of assets owned or under capital leases are computed using straight-line and
accelerated methods over estimated useful lives ranging from 5 to 31 years.
Cash and Cash Equivalents
Cash equivalents are highly liquid money market instruments with original
maturities of less than 90 days.
Concentration of Credit Risk
Cash and cash equivalents used in operations consist primarily of cash in
financial institutions in checking and money market accounts and investments
in short-term money market mutual funds.
Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors. The
Partnership performs ongoing credit evaluations of its payors and maintains
allowances for potential credit losses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
F-27
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
related notes. Actual results could differ from these estimates and
assumptions. The primary areas of estimation affecting the accompanying
financial statements include the determination of the allowance for doubtful
accounts, contractual adjustments and the liability for medical malpractice
risks.
Health Insurance Program Reimbursement
The Partnership operates and manages a medical practice in Arlington, Texas.
Revenues from the Medicare and Medicaid programs combined accounted for
approximately 22% of the Partnership's net medical fees for the years ended
December 31, 1995 and 1996. Laws and regulations governing the Medicare and
Medicaid programs are complex and subject to interpretation. The Partnership
believes that it is in compliance with all applicable laws and regulations and
is not aware of any pending or threatened investigations involving allegations
of potential wrongdoing. While no such regulatory inquires have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare and Medicaid programs.
Revenue Recognition
Patient revenues are recognized net of contractual adjustments related to
third-party payors and the Medicare and Medicaid programs. The amount paid by
the third-party payors is dependent upon the benefit included in the patient's
policy or amounts contractually established between the Partnership and the
third-party payors.
Interim Unaudited Financial Information
The financial statements as of May 31, 1997 and for the five months ended
May 31, 1996 and 1997 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these
interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Furniture and fixtures.............................. $ 1,298,966 $ 1,314,003
Leasehold improvements.............................. 1,328,889 1,356,895
Computer equipment.................................. 910,757 965,988
Medical equipment................................... 9,757,840 9,812,402
Automobiles......................................... 145,908 184,561
----------- -----------
13,442,360 13,633,849
Less accumulated depreciation and amortization...... 9,175,393 10,184,151
----------- -----------
$ 4,266,967 $ 3,449,698
=========== ===========
</TABLE>
F-28
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Note payable to a financial institution, secured by
medical equipment, bearing interest at 2.5% over
the U.S. Treasury rate (7.97% at December 31,
1996), payable in monthly installments to November
1999............................................... $ 755,534 $ 583,937
Notes payable to a bank secured by accounts receiv-
able and medical equipment, bearing interest at
prime (8.25% at December 31, 1996), payable in
monthly installments of $48,000 plus interest to
December 1998...................................... 1,664,609 1,078,109
Note payable to a bank, secured by medical
equipment, bearing interest at prime (8.25% at
December 31, 1996), payable in monthly installments
of $15,000 plus interest to January 1998........... $ 360,000 $ 195,000
Note payable to a bank, secured by medical
equipment, bearing interest at prime (8.25% at
December 31, 1996), payable in monthly installments
of $5,516 plus interest to September 1998.......... 189,583 116,383
Notes payable to partners, unsecured................ 91,716 --
---------- ----------
3,061,442 1,973,429
Less current portion of long-term debt.............. 1,088,546 1,007,366
---------- ----------
$1,972,896 $ 966,063
========== ==========
</TABLE>
The Partnership maintains a $250,000 revolving line of credit. There were no
borrowings outstanding at December 31, 1995 or 1996. Additionally, the note
agreements contain certain restrictive covenants that require the Partnership
to maintain minimum net worth, as defined in the note agreements, of
$1,500,000.
The Partnership's debt approximates fair value based on current incremental
borrowing rates for similar types of borrowing arrangements.
Maturities of long-term debt for the three years succeeding December 31,
1996, are as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,007,366
1998.............................................................. 767,767
1999.............................................................. 198,296
Thereafter........................................................ --
----------
$1,973,429
==========
</TABLE>
All property and equipment and accounts receivable at December 31, 1995 and
1996 have been pledged as security under long-term debt and capital lease
obligations.
The Partnership is contingently liable for certain debt of a related
partnership (see Note 7).
Cash paid for interest was approximately $276,000 in 1995 and $214,000 in
1996.
F-29
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. OPERATING LEASES
The Partnership leases office space and equipment under operating leases
expiring at various dates through 2004. Some of the office space lease
agreements include an escalation clause based on increases in the U.S.
Consumer Price Index (CPI). Such possible increases are not considered in
computing future minimum lease payments.
Future minimum annual rental payments under noncancelable operating leases
are as follows at December 31, 1996:
<TABLE>
<S> <C>
1997.............................................................. $1,357,624
1998.............................................................. 1,283,955
1999.............................................................. 1,124,959
2000.............................................................. 1,085,436
2001.............................................................. 1,056,000
Thereafter........................................................ 3,168,000
----------
$9,075,974
==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
The partners, individually, have invested in certain ventures outside of the
Partnership and are guarantors of the debt of such ventures.
The partners are also partners of R-M Medical Plaza I, L.P. (RM-I) and
certain partners are partners of R-M Medical Plaza II, L.P. (RM-II), which are
real estate partnerships whose sole purpose is to purchase and operate medical
office buildings. Included in rent expense is rent of $1,056,000 for 1995 and
1996 related to RM-I and $185,000 for 1995 and $202,000 for 1996 relating to
RM-II.
During the year, the Partnership advanced funds on behalf of RM-II. Amounts
owed the Partnership by RM-II were approximately $80,000 as of December 31,
1995 and $102,000 as of December 31, 1996.
7. COMMITMENTS AND CONTINGENCIES
The partnership agreement provides that partners terminating after December
31, 1995 with ten or more years of service to the Partnership will receive an
additional payment. The additional payment is determined by multiplying the
partner's interest in the Partnership by the profits of the Partnership for
the fiscal year preceding the terminating event and this amount is payable
over 60 months. At December 31, 1996, two of the seven partners were eligible
for this additional payment in the amount of $1,447,887. This amount is not
accrued in the financial statements and is unfunded.
During 1994, a partner retired from the practice and the Partnership
obligated itself to pay him $555,000 for consulting services to be performed.
The obligation bears no interest and is payable ratably over the next five
years regardless of when consulting services are requested by the Partnership.
Of the obligation, $304,000 has been paid through December 31, 1996. The
related asset has been amortized in full as of December 31, 1996.
An RM-II loan from a bank is secured by guarantees of certain partners and
of the Partnership who are each jointly and severally liable for the balance
of the loan ($1,791,410 at December 31, 1996). Additionally, the Partnership
has agreed to certain covenants in the loan agreement that, among other
things, require the
F-30
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
maintenance of certain financial ratios, restrict the issuance of new debt,
limit the amount of future investments, and restrict the amount of
distributions to the partners.
8. EMPLOYEE BENEFIT PLAN
The Partnership participates in a defined contribution plan, established in
May 1989. Employees who have completed one year of service and attained the
age of 21 are eligible to participate. Participants contribute a voluntary
amount that is matched by the Partnership at 50% of the employee's
contribution, up to 5% of the employee's salary. Participants are fully vested
in their voluntary contributions. Participants vest in the Partnership's
contributions 20% upon completion of two years of vesting service and 20% for
each of the next four years. The Partnership contributed to the plan
approximately $91,000 in 1995 and $98,000 in 1996, which amounts are included
in salaries and benefits in the accompanying statements of income.
9. LITIGATION
In the ordinary course of business, the partners and or the Partnership are
sometimes named as defendants in various legal proceedings although there are
no current matters pending. The results of litigation cannot be predicted with
certainty; however, the Partnership maintains claims-made insurance coverage
and historically litigation, when it arises, will be adequately covered by
insurance and will not have a material adverse effect on the Partnership's
financial statements.
10. AGREEMENT TO SELL CERTAIN ASSETS
Subsequent to December 31, 1996, the Partnership formally entered into an
agreement to sell certain assets of the Partnership, as well as, an agreement
whereby an independent company will manage the physicians' medical practice.
The agreements are contingent upon the closing of the transaction, which is
expected to include cash, notes and stock in the newly created company. The
Partnership is expected to continue operations after the transaction.
11. PRO FORMA INCOME TAXES (UNAUDITED)
The income taxes on earnings of the partnership is the responsibility of the
partners. The pro forma adjustments reflected on the statements of income
assume this partnership was subject to income taxes. Pro forma income tax
expense has been calculated using statutory federal and state tax rates,
estimated at 39%.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Greater Cincinnati Gastroenterology Associates, Inc.:
We have audited the accompanying balance sheet of GREATER CINCINNATI
GASTROENTEROLOGY ASSOCIATES, INC. (an Ohio corporation) as of December 31,
1996 and September 30, 1997 and the related statements of operations, owners'
equity, and cash flows for the year ended December 31, 1996 and the nine
months ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Greater Cincinnati
Gastroenterology Associates, Inc. as of December 31, 1996 and September 30,
1997 and the results of its operations and its cash flows for the year then
ended December 31, 1996 and the nine months ended September 30, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
November 20, 1997
F-32
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 9,901 $ 310,566
Accounts receivable, less allowance for
uncollectible accounts of $100,000 and $117,000
at December 31, 1996 and September 30, 1997,
respectively..................................... 986,258 1,265,536
Prepaid expenses and other........................ 2,546 23,369
---------- ----------
Total current assets............................ 998,705 1,599,471
Property and equipment, net (Note 3)................ 138,010 111,891
---------- ----------
Total assets.................................... $1,136,715 $1,711,362
========== ==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 150,054 $ 178,723
Other accrued liabilities......................... 78,476 208,091
Deferred taxes.................................... 294,907 412,873
---------- ----------
Total current liabilities....................... 523,437 799,687
---------- ----------
Deferred taxes.................................... 16,040 17,857
Commitments and contingencies (Note 6)
Owners' equity (Note 2):
Common stock, no par value; 500 shares authorized,
430 shares issued and outstanding at December 31,
1996 and September 30, 1997...................... 3,225 3,225
Additional paid in capital........................ 7,203 7,203
Retained earnings................................. 586,810 883,390
---------- ----------
Total owners' equity............................ 597,238 893,818
---------- ----------
Total liabilities and owners' equity............ $1,143,439 $1,711,362
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-33
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE-MONTH PERIOD
1996 ENDED SEPTEMBER 30
------------ ----------------------
1996 1997
----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net patient service revenues............ $6,097,350 $4,560,122 $4,393,872
---------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits......... 754,139 522,389 604,354
Compensation to owner physicians...... 4,230,815 2,763,334 2,449,314
General and administrative expenses... 1,038,713 791,180 807,732
Bad debt expense...................... 50,055 37,500 38,200
Depreciation.......................... 24,749 23,804 30,139
---------- ---------- ----------
6,098,471 4,138,207 3,929,739
---------- ---------- ----------
(Loss) income from operations........... (1,121) 421,915 464,133
Other income, net....................... 26,055 24,776 14,221
---------- ---------- ----------
Income before income taxes.............. 24,934 446,691 478,354
Provision for income taxes.............. 9,475 169,743 181,774
---------- ---------- ----------
Net income.............................. $ 15,459 $ 276,948 $ 296,580
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------- ADDITIONALPAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ----------------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1995..................... 430 $3,225 $7,203 $577,351 $587,779
Net income.............. -- -- -- 15,459 15,459
Dividends............... -- -- -- (6,000) (6,000)
--- ------ ------ -------- --------
Balance, December 31,
1996..................... 430 3,225 7,203 586,810 597,238
Net income ............. -- -- -- 296,580 296,580
--- ------ ------ -------- --------
Balance, September 30,
1997 .................... 430 $3,225 $7,203 $883,390 $893,818
=== ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY
ASSOCIATES, INC,
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash Flows from operating activities:
Net income................................ $ 15,459 $ 276,948 $296,580
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation............................ 24,749 18,586 30,139
Bad debt expense........................ 50,055 37,500 38,200
Changes in assets and liabilities:
Accounts receivable................... (142,467) (119,747) (311,477)
Prepaid expenses and other............ 9,348 (28,131) (20,823)
Accounts payable...................... (227) (57,015) (28,669)
Accrued liabilities................... 9,807 (74,983) 129,615
Deferred taxes........................ 9,475 169,743 119,783
--------- --------- --------
Total adjustments................... (39,260) (54,047) 14,106
--------- --------- --------
Net cash (used in) provided by
operating activities............... (23,801) 222,901 310,686
Cash flows from investing activities:
Additions to property and equipment, net.. (50,127) (2,689) (10,021)
Cash flows from financing activities:
Dividends paid............................ (6,000) -- --
--------- --------- --------
Net (decrease) increase in cash and cash
equivalent equivalents..................... (79,928) 220,212 300,665
Cash and cash equivalents, beginning of
period..................................... 89,829 89,829 9,901
--------- --------- --------
Cash and cash equivalents, end of period.... $ 9,901 $ 310,041 $310,566
========= ========= ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest.. $ 79 $ 79 $ --
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(INFORMATION FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS
Greater Cincinnati Gastroenterology Associates, Inc., an Ohio corporation,
(the "Company") was incorporated in 1968. The Company currently employs nine
physicians and over 30 employees. The physicians specialize in the diagnosis
and treatment of diseases of the digestive system. There are currently twelve
office locations throughout the Greater Cincinnati area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The financial statements for the nine months ended September 30, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Accounts Receivable
Accounts receivable principally represents receivable from patients and
third-party payers for medical services provided by physician-owners and
employees. Such amounts are recorded net of estimated contractual allowances.
Contractual adjustments result from the differences between the rates charged
by the physicians for services performed and the amounts allowed by the
Medicare and Medicaid programs and other public and private insurers.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method for financial reporting purposes and accelerated
methods for tax purposes.
The useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Equipment................................................. Five years
Furniture and fixtures.................................... Seven years
Leasehold improvements.................................... Life of the lease
</TABLE>
Maintenance and repairs are charged to expense as incurred. The cost of
renewals and betterments is capitalized and depreciated over the applicable
estimated useful lives.
F-37
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Owners' Equity
Owners' equity includes the respective capital stock owned by physician-
owners, additional paid-in capital, and retained earnings of the Company.
Various types of agreements exist among the owners which call for the transfer
of a physician's ownership interest to the continuing owners in the case of
certain events such as the owner's retirement or death.
Net Patient Service Revenues
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and
others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates.
Concentration of Credit Risk
The Company extends credit to patients covered by governmental programs such
as Medicare and Medicaid and by private insurers. The Company manages credit
risks with the various public and private insurance providers as appropriate.
Allowances for doubtful accounts have been made for potential losses where
appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 and September 30, 1997
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Leasehold improvements............................ $ 17,345 $ 17,345
Equipment......................................... 13,529 13,371
Furniture and fixtures............................ 174,386 183,063
-------- ---------
205,260 213,779
Less accumulated depreciation..................... (67,250) (101,888)
-------- ---------
$138,010 $ 111,891
======== =========
</TABLE>
4. INCOME TAXES
The provision for income taxes are based on net income reported for
financial reporting purposes. Deferred income taxes arise from temporary
differences between financial and income tax reporting of various items
(principally revenue recognition).
The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at December 31, 1996 and
September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accounts receivable, net.......................... $(374,778) $(480,904)
Depreciation...................................... (16,040) (17,857)
Accounts payable.................................. 31,710 47,634
Other accrued liabilities......................... 25,397 20,397
Net operating loss carryforwards.................. 22,764 --
--------- ---------
Net deferred tax liability........................ $(310,947) $(430,730)
========= =========
</TABLE>
F-38
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As reported on the balance sheet as of December 31, 1996 and September 30,
1997:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Current deferred tax liability....................... $(294,907) $(412,873)
Noncurrent deferred tax asset........................ (16,040) (17,857)
--------- ---------
$(310,947) $(430,730)
========= =========
</TABLE>
A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate for the year ended December 31, 1996
and the nine months ended September 30, 1997 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Provision at statutory rate.......................... $8,478 $162,640
State income taxes, net of federal benefit........... 997 19,134
------ --------
Provision for income taxes........................... $9,475 $181,774
====== ========
</TABLE>
5. EMPLOYEE BENEFIT PLAN
The Company sponsors a qualified profit-sharing plan for eligible employees.
Contributions to the plan, which are made at the discretion of the board of
directors, aggregated approximately $248,000 and $229,000 for the year ended
December 31, 1996 and for the nine months ended September 30, 1997.
6. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company leases facilities under operating leases which expire at various
dates through 2006. Future minimum lease payments under these operating leases
are as follows:
<TABLE>
<S> <C>
1998 (October 1997 through September 1998)......................... $152,387
1999............................................................... 134,552
2000............................................................... 131,856
2001............................................................... 123,856
2002............................................................... 107,856
Thereafter......................................................... 413,448
</TABLE>
Lease expense for the year ended December 31, 1996 and the nine months ended
September 30, 1997 totaled approximately $152,000 and $123,000, respectively.
Insurance
The Company is insured with respect to medical malpractice risks on a
claims-made basis. Accordingly, coverage relates only to claims made during
the policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
Employment Agreements
Certain management personnel and physician employees are covered by
employment agreements that may be terminated at any time in accordance with
the terms of the agreement. The agreement also includes terms for professional
conduct, salary, and benefits provisions.
F-39
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and third-party claims which
arise in the ordinary course of business. In the opinion of management, the
amount of potential liability with respect to these actions will not
materially affect the Company's financial position or results of operations.
8. RELATED-PARTY TRANSACTIONS
For the year ended December 31, 1996 and the nine months ended September 30,
1997, the Company expensed approximately $150,500 and $118,000, respectively,
in rent and maintenance for one of its locations in Cincinnati which is owned
by certain physician-owners.
The Company provides medical treatment of endoscopic patients for a clinical
research company owned by certain physician-owners. For the year ended
December 31, 1996, and the nine months ended September 30, 1997 the Company
recognized approximately $64,000 and $59,000, respectively, in fee income and
was reimbursed for approximately $208,000 and $142,000, respectively, for
specific operating expenses paid by the Company on behalf of the physician-
owners. These operating expenses primarily were specifically incurred by the
physician-owners with minimal allocation of expenses.
The Company shares certain operating costs with a surgical center owned by
an independent third party. During 1996 and the first nine months of 1997, the
Company was reimbursed approximately $31,000 and $18,800, respectivley, for
such specifically identifiable costs. In addition, certain patients received a
global charge for services performed by the Company and the surgical center.
The global fee is then paid to the Company. In 1996 and the nine months of
1997, the Company paid $27,000 and $2,300, respectively, to the surgical
center for its share of global fees received by the Company.
During the first five months of 1996, the Company leased office space from a
partnership owned by certain physician-owners. The Company expensed
approximately $16,000 in rent for this location for the year ended December
31, 1996.
F-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Internal Medicine Specialists, Inc.:
We have audited the accompanying balance sheet of INTERNAL MEDICINE
SPECIALISTS, INC., (a Florida corporation), as of December 31, 1996 and
September 30, 1997 and the related statements of operations, owners' equity,
and cash flows for the year ended December 31, 1996 and the nine months ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Internal Medicine
Specialists, Inc. as of December 31, 1996 and September 30, 1997 and the
results of its operations and its cash flows for the year ended December 31,
1996 and the nine months ended September 30, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 20, 1997
F-41
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 28,836 $ 336,904
Accounts receivable, less estimated allowances for
uncollectible accounts of $137,920 and $158,305
at December 31, 1996 and September 30, 1997, re-
spectively....................................... 679,160 988,739
Prepayments and other............................. 34,842 41,000
---------- ----------
Total current assets............................ 742,838 1,366,643
Property and equipment, net......................... 248,302 218,844
Deferred taxes...................................... 94,831 37,211
---------- ----------
Total assets.................................... $1,085,971 $1,622,698
========== ==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 85,037 $ 67,191
Accrued expenses.................................. 84,552 377,352
Notes payable line of credit...................... 292,646 437,654
Current portion of long term debt................. 19,362 25,864
Deferred taxes.................................... 251,412 266,746
---------- ----------
Total current liabilities....................... 733,009 1,174,807
---------- ----------
Long term debt...................................... 60,932 37,622
---------- ----------
Commitments and contingencies (Note 8)
Owners' equity:
Common stock, $10 par value, 500 shares
authorized, 280 shares issued, and 40 shares held
in treasury at December 31, 1996 and
September 30, 1997............................... 2,800 2,800
Additional paid in capital........................ 3,767 3,767
Retained earnings................................. 307,149 425,388
Treasury stock.................................... (21,686) (21,686)
---------- ----------
Total owners' equity............................ 292,030 410,269
---------- ----------
Total liabilities and owners' equity............ $1,085,971 $1,622,698
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-42
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net patient revenues.................... $6,166,927 $4,721,065 $5,310,453
---------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits......... 1,901,646 1,378,937 1,592,276
Compensation to owner physicians...... 2,628,951 1,984,685 2,230,343
General and administrative expenses... 1,312,409 1,124,885 1,124,383
Bad debt expense...................... 125,754 94,316 80,385
Depreciation.......................... 68,030 51,024 57,777
---------- ---------- ----------
6,036,790 4,633,847 5,085,164
---------- ---------- ----------
Income from operations.................. 130,137 87,218 225,289
Interest and other expense, net......... 25,953 17,340 34,095
---------- ---------- ----------
Income before income taxes.............. 104,184 69,878 191,194
Provision for income taxes.............. 38,120 25,132 72,955
---------- ---------- ----------
Net income.............................. $ 66,064 $ 44,742 $ 118,239
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID IN --------------- RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at, December 31,
1995................... 280 $2,800 $3,767 (40) $(21,686) $241,085 $225,966
Net income............ -- -- -- -- -- 66,064 66,064
--- ------ ------ --- -------- -------- --------
Balance at, December 31,
1996................... 280 2,800 3,767 (40) (21,686) 307,149 292,030
Net income............ -- -- -- -- -- 118,239 118,239
--- ------ ------ --- -------- -------- --------
Balance at, September
30, 1997............... 280 $2,800 $3,767 (40) $(21,686) $425,388 $410,269
=== ====== ====== === ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 66,064 $ 44,746 $ 118,239
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................... 68,030 51,024 57,777
Bad debt expense....................... 125,754 94,316 80,385
Change in assets and liabilities:
Accounts receivable.................. (248,822) (199,327) (389,964)
Prepayments and other................ (8,543) 26,299 (6,185)
Accounts payable and accrued liabili-
ties................................ 42,263 256,277 274,954
Deferred taxes, net.................. 38,120 25,132 72,955
--------- --------- ---------
Total adjustments.................. 16,802 253,724 89,949
--------- --------- ---------
Net cash provided by operating ac-
tivities.......................... 82,866 298,470 208,188
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant, and equip-
ment.................................... (124,061) (120,612) (28,320)
--------- --------- ---------
Cash flows from financing activities:
Principal payments of debt............... (165,773) (124,330) (16,808)
Proceeds from line of credit............. 232,434 180,851 145,008
--------- --------- ---------
Net cash provided by financing ac-
tivities.......................... 66,661 56,521 128,200
--------- --------- ---------
Net increase in cash and cash equivalents.. 25,466 234,379 308,068
Cash and cash equivalents at beginning of
period.................................... 3,370 3,370 28,836
--------- --------- ---------
Cash and cash equivalents at end of peri-
od........................................ $ 28,836 $ 237,749 $ 336,904
========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................... $ 25,953 $ 17,340 $ 34,095
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(INFORMATION FOR THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS
Internal Medicine Specialists, Inc. (the "Company") was incorporated in the
state of Florida on October 27, 1971. The Company currently has 14 physicians,
7 nephrologists, and 7 gastroenterologists. The physicians within the group
primarily focus on kidney and stomach surgery. There are currently three
office locations in Orlando and Ocoee, Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The financial statements for the nine months ended September 30, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
Accounts Receivable
Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances
and bad debts. Contractual adjustments result from the differences between the
rates charged by the physicians for services performed and the amounts allowed
by the Medicare and Medicaid programs and other public and private insurers.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated service lives of depreciable
assets (five years for equipment, five to seven years for furniture and
fixtures, and ten years for leasehold improvements). Maintenance and repairs
are charged to expense as incurred. The cost of renewals and betterments is
capitalized and depreciated over the applicable estimated useful lives. The
cost and accumulated depreciation of assets sold, retired, or otherwise
disposed of are removed from the accounts, and the related gain or loss is
credited or charged to income.
Owners' Equity
Owners' equity includes the respective capital stock owned by 12 physician-
owners and treasury stock repurchased by the Company from two terminated
physician-owners, recorded at cost. Various types of
F-46
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
agreements exist among the owners which call for the repurchase of a
physician's ownership interest by the Company in the case of certain events,
such as the owner's termination, retirement, or death.
Net Patient Service Revenues
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and
others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates or for capitated payments.
Concentration of Credit Risk
The Company extends credit to patients covered by insurance programs,
including governmental programs, such as Medicare and Medicaid, and private
insurers. The Company manages credit risk with the various public and private
insurance providers, as appropriate. Allowances for doubtful accounts have
been made for potential losses, where appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and September 30, 1997 consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Leasehold improvements............................... $ 111,517 $ 112,744
Equipment............................................ 473,837 498,814
Furniture and fixtures............................... 439,793 441,908
---------- ----------
1,025,147 1,053,466
Less accumulated depreciation........................ (776,845) (834,622)
---------- ----------
$ 248,302 $ 218,844
========== ==========
</TABLE>
4. NOTES PAYABLE--LINES OF CREDIT
The notes payable consist of two lines of credit with a bank. One of the
lines of credit allows total borrowings of up to $200,000 with principal and
interest due monthly at a rate of 8.5%, due on demand or January 3, 1997. The
Company has another line of credit with the same bank that allows maximum
borrowing of up to $300,000 with principal and interest due monthly at a rate
of 8.25%, due on demand or October 4, 1997. Both lines of credit are secured
by certain assets of the Company. As of December 31, 1996 and September 30,
1997, the outstanding balance on the lines of credit was $292,646 and
$437,654, respectively.
F-47
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 and September 30, 1997 is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Note payable to a terminated physician-owner of
the Company for stock repurchased by the Company;
principal and interest of 9% per annum due in 84
monthly installments beginning March 1, 1993..... $ 9,562 $ 4,914
Note payable to a terminated physician-owner of
the Company as compensation for past services;
principal and imputed interest of 8.5% payable in
84 monthly installments beginning March 1, 1993.. 40,116 31,682
Note payable to a terminated physician-owner of
the Company as compensation for past services;
principal and 30,616imputed interest of 8.5%
payable in 84 monthly installments beginning
August 1, 1994................................... 30,616 26,890
-------- -------
Total 80,294 63,486
Less current portion.............................. (19,362) (25,864)
-------- -------
Long-term debt.................................... $ 60,932 $37,622
======== =======
</TABLE>
The aggregate maturities of long-term debt at September 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998................................................................. $25,864
1999................................................................. 23,050
2000................................................................. 9,896
2001 and thereafter.................................................. 4,676
-------
$63,486
=======
</TABLE>
6. INCOME TAXES
The provision for income taxes is based on net income reported for financial
reporting purposes. Deferred income taxes arise from temporary differences
between financial and income tax reporting of various items (principally
revenue recognition).
The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at December 31, 1996 and
September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accounts receivable, net........................... $(258,321) $(374,723)
Depreciation....................................... (4,533) 126
Accounts payable................................... 20,006 123,389
Other accrued liabilities.......................... 26,595 20,275
Net operating loss carryforwards................... 72,769 16,810
Other.............................................. (13,097) (15,412)
--------- ---------
Net deferred tax liability......................... $(156,581) $(229,535)
========= =========
</TABLE>
As reported on the balance sheet as of December 31, 1996 and September 30,
1997:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 31,
1996 1997
------------ -------------
<S> <C> <C>
Current deferred tax liability..................... $(251,412) $(266,746)
Noncurrent deferred tax asset...................... 94,831 37,211
--------- ---------
$(156,581) $(229,535)
========= =========
</TABLE>
F-48
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate for the year ended December 31, 1996
and for the nine months ended September 30, 1997 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Provision at statutory rate.......................... $35,423 $65,006
State income taxes, net of federal benefit........... 2,697 7,949
------- -------
Provision for income taxes........................... $38,120 $72,955
======= =======
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan under Section 401(k) of the
Internal Revenue Code that covers substantially all employees. The plan is
contributory with respect to employees only. The Company does not contribute
to the plan.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases facilities under operating leases which expire at various
dates through December 2010. Future minimum lease payments under these leases
as of September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998 (October 1, 1997 through December 31, 1998)................... $226,893
1999............................................................... 17,896
2000............................................................... 18,408
2001............................................................... 18,912
2002 & Thereafter.................................................. 52,870
</TABLE>
Rent expense for the year ended December 31, 1996 and the nine months ended
September 30, 1997 was $273,600 and $224,441, respectively.
Insurance
The Company is insured with respect to medical malpractice risks on a
claims-made basis. Accordingly, coverage relates only to claims made during
the policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
Employment Agreements
Physician-owners of the Company are covered by employment agreements that
may be terminated at any time in accordance with terms of the agreement. The
agreement also includes terms for professional conduct, salary, and benefits
provisions.
9. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect
the Company's financial position or results of operations.
10. RELATED-PARTY TRANSACTIONS
As of December 31, 1996 and September 30, 1997, the Company has outstanding
receivables of $8,423 and $90,000, respectively from two physicians of the
Company.
The Company has outstanding notes payable to two terminated physicians of
the Company for consideration of deferred compensation and the repurchase of
common stock. The total outstanding notes payable to these physicians are
$80,294 and $63,486 at December 31, 1996 and September 30, 1997, respectively.
F-49
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Parkcrest Surgical Associates, Inc.:
We have audited the accompanying balance sheet of PARKCREST SURGICAL
ASSOCIATES, INC. (a Missouri corporation) as of March 31, 1997 and September
30, 1997 and the related statements of operations, owners' equity, and cash
flows for the year ended March 31, 1997 and the six months ended September 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parkcrest Surgical
Associates, Inc. as of March 31, 1997 and the results of its operations and
its cash flows for the year ended March 31, 1997 and the six months ended
September 30, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 9, 1997
F-50
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
---------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 76,263 $ 2,973
Accounts receivable, less estimated allowances for
uncollectible accounts of $299,077 and $302,195 as
of March 31, 1997 and September 30, 1997,
respectively...................................... 1,644,928 1,662,075
Receivable from physicians......................... 53,394 28,393
Prepaid expenses and other......................... 264,228 179,697
---------- ----------
Total current assets............................. 2,038,813 1,873,138
Property and equipment, net (Note 3)................. 521,470 561,571
Deferred Taxes....................................... 48,115 141,320
Other noncurrent assets.............................. 15,518 13,651
---------- ----------
Total assets..................................... $2,623,916 $2,589,680
========== ==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Note payable line of credit (Note 4)............... $ 200,000 $ 300,000
Current maturities of long term debt (Note 5)...... 153,842 62,613
Accounts payable................................... 232,677 388,525
Accrued liabilities................................ 168,207 109,656
Deferred taxes..................................... 602,419 611,417
---------- ----------
Total current liabilities........................ 1,357,145 1,472,211
---------- ----------
Long term debt (Note 5).............................. 52,992 41,080
---------- ----------
Other long term liabilities.......................... 164,000 164,000
---------- ----------
Commitments and contingencies (Note 8)
Owners' equity:
Common stock, $1 par value; 3,000 shares
authorized, 1,300 shares issued (1,040 shares
outstanding and 260 shares held in treasury)...... 1,300 1,300
Additional paid in capital......................... 67,210 67,210
Retained earnings.................................. 994,971 857,581
Treasury stock, at cost............................ (13,702) (13,702)
---------- ----------
Total owners' equity............................. 1,049,779 912,389
---------- ----------
Total liabilities and owners' equity............. $2,623,916 $2,589,680
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-51
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
MARCH 31, ----------------------
1997 1996 1997
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net patient service revenues.............. $10,515,243 $5,182,617 $5,465,726
----------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits........... 2,222,021 945,252 1,180,034
Compensation to owner physicians........ 4,693,182 2,270,598 2,801,529
Bad debt expense........................ 43,887 26,052 30,518
General and administrative expenses..... 3,195,313 1,505,490 1,634,635
Depreciation and amortization........... 48,201 21,695 28,141
----------- ---------- ----------
10,202,604 4,769,087 5,674,857
----------- ---------- ----------
Income (loss) from operations............. 312,639 413,530 (209,131)
Other income (expense), net............... 26,776 39,442 (12,466)
----------- ---------- ----------
Income (loss) before taxes................ 339,415 452,972 (221,597)
Provision (benefit) for income taxes (Note
7)....................................... 128,978 172,125 (84,207)
----------- ---------- ----------
Net income (loss)......................... $ 210,437 $ 280,847 $ (137,390)
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-52
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID IN RETAINED ---------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- --------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1996................... 1,300 $1,300 $67,210 $ 784,534 -- $ -- $ 853,044
Purchase of treasury
stock................ -- -- -- -- (260) (13,702) (13,702)
Net income............ -- -- -- 210,437 -- -- 210,437
----- ------ ------- --------- ---- -------- ----------
Balance, March 31,
1997................... 1,300 1,300 67,210 994,971 (260) (13,702) 1,049,779
Net income............ -- -- -- (137,390) -- -- (137,390)
----- ------ ------- --------- ---- -------- ----------
Balance, September 30,
1997................... 1,300 $1,300 $67,210 $ 857,581 (260) $(13,702) $ 912,389
===== ====== ======= ========= ==== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-53
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
MARCH 31, ---------------------
1997 1996 1997
---------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 210,437 $ 280,847 $(137,390)
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by (used for) operating ac-
tivities:
Loss on disposal of fixed assets......... 75,979 -- --
Depreciation and amortization............ 48,201 21,695 28,141
Bad debt expense......................... 43,887 26,052 30,518
(Increase) in accounts receivable........ (285,272) (169,337) (47,665)
(Increase) decrease in receivable from
physicians.............................. (53,394) -- 25,001
Decrease in prepaid expenses and other... 88,164 149,857 84,531
(Increase) decrease in other noncurrent
assets.................................. (1,757) (517) 1,867
Increase in accounts payable............. 169,488 10,053 155,848
Decrease in accrued liabilities.......... (41,239) (81,749) (58,551)
Increase in current taxes payable........ -- 132,358 --
Increase (decrease) in net deferred tax
liabilities............................. 128,978 39,771 (84,207)
--------- --------- ---------
Total adjustments...................... 173,035 128,183 135,483
--------- --------- ---------
Net cash provided by (used in) operat-
ing activities........................ 383,472 409,030 (1,907)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment........ (259,807) (111,543) (68,242)
Proceeds from sale of fixed assets......... 37,400 -- --
--------- --------- ---------
Net cash used in investing activities.. (222,407) (111,543) (68,242)
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt................. (134,402) (9,665) (103,141)
Purchase of treasury stock................. (13,702) -- --
Net proceeds (payments) under line of cred-
it........................................ -- (170,000) 100,000
--------- --------- ---------
Net cash used in financing activities.. (148,104) (179,665) (3,141)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 12,961 117,822 (73,290)
Cash and cash equivalents at beginning of
period...................................... 63,302 63,302 76,263
--------- --------- ---------
Cash and cash equivalents at end of period... $ 76,263 $ 181,124 $ 2,973
========= ========= =========
Supplemental disclosure of cash flows
information:
Cash paid during the period for interest... $ 43,038 $ 22,146 $ 17,824
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-54
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND SEPTEMBER 30, 1997
(INFORMATION FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS
Parkcrest Surgical Associates, Inc. (the "Company") was incorporated in
1969. The Company operates a medical practice at various locations and
provides surgical and other health care services to individuals in the St.
Louis Metropolitan Area. The physicians within the group specialize in general
surgery, spinal surgery, colo-rectal surgery, vascular surgery, sports
medicine, orthopedic surgery, surgical oncology, plastic and reconstructive
surgery, hand surgery, podiatric surgery, and physical medicine and
rehabilitation. There are currently 17 physicians and 5 physician assistants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The financial statements for the six months ended September 30, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
Property and Equipment
Equipment and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed using straight-line and accelerated
methods. Equipment and furniture and fixtures are depreciated over periods
ranging from 3 to 5 years. Leasehold improvements are amortized over periods
ranging from 3 to 40 years.
Accounts Receivable
Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances.
Contractual adjustments result from the differences between the rates charged
by the physicians for services performed and the amounts allowed by the
Medicare and Medicaid programs and other public and private insurers.
Net Patient Service Revenues
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations),
F-55
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates.
Owners' Equity
Owners' equity includes the respective capital stock owned by various
physician-owners and treasury stock repurchased by the Company from terminated
physician-owners, recorded at cost. Various types of agreements exist among
the owners which call for the repurchase of a physician's ownership interest
by the Company in the case of certain events, such as the owner's termination,
retirement, or death.
Concentration of Credit Risk
The Company extends credit to patients covered by insurance programs such as
governmental programs like Medicare and Medicaid and private insurers. The
Company manages credit risk with the various public and private insurance
providers, as appropriate. Allowances for doubtful accounts have been made for
potential losses, where appropriate.
3. PROPERTY AND EQUIPMENT
Equipment and leasehold improvements as of March 31, 1997 and September 30,
1997 consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
---------- -------------
<S> <C> <C>
Medical and laboratory equipment...................... $ 338,324 338,122
Furniture and fixtures................................ 351,737 371,210
Leasehold improvements................................ 367,150 416,121
---------- ---------
1,057,211 1,125,453
Less accumulated depreciation and amortization........ (535,741) (563,882)
---------- ---------
$ 521,470 $ 561,571
========== =========
</TABLE>
Certain leases in which the Company is lessee are considered to be
equivalent to installment purchases for purposes of accounting presentation.
Equipment under capital leases in the amount of $12,805 at March 31, 1997 and
$59,411 at September 30, 1997 is capitalized using interest rates appropriate
at the inception of the related leases.
Depreciation and amortization expense was $48,201 for the year ended March
31, 1997 and $28,141 for the six months ended September 30, 1997.
4. NOTE PAYABLE -- LINE OF CREDIT
The note payable consists of a line of credit with a bank that allows for
borrowings of up to $250,000 at March 31, 1997 and $350,000 at September 30,
1997. The borrowings are secured by accounts receivable, furniture and
equipment and are due on demand or September 30, 1998. Interest on the
borrowings is payable monthly at the prime rate. As of March 31, 1997 and
September 30, 1997, outstanding borrowings were $200,000 and $300,000,
respectively.
F-56
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
Long-term debt at March 31, 1997 and September 30, 1997 consists of the
following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Note payable-bank secured by equipment and personal
guarantees of stockholders and employees, payable in
monthly installments of $16,834 including principal
and interest of 7.5%, with the final installment due
December 1997........................................ $141,409 $44,282
Capitalized lease obligations, secured by equipment,
payable in monthly installments of $1,527 including
principal and interest at 9.858%, with final install-
ment due October 2001................................ 65,425 59,411
-------- -------
206,834 103,693
Less current maturities............................... 153,842 62,613
-------- -------
$ 52,992 $41,080
======== =======
</TABLE>
The scheduled maturities of long-term debt as of September 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998 (October 1997 through September 1998)......................... $ 62,613
1999............................................................... 18,331
2000............................................................... 18,331
2001............................................................... 16,803
--------
116,078
Less amounts representing interest................................. 12,385
--------
$103,693
========
</TABLE>
Interest paid amounted to $43,038 for the year ended March 31, 1997 and
$17,824 for the six months ended September 30, 1997.
6. DEFERRED COMPENSATION PLANS
The Company has a qualified, noncontributory, trusteed pension plan covering
eligible full-time employees. The Company's policy is to contribute into the
Plan at a fixed percentage of salaries.
The Company also has a qualified, noncontributory, trusteed profit sharing
plan covering eligible full-time employees. The plan provides for
contributions by the Company in such amounts as the board of directors may
annually determine.
Contributions to the plans for the year ended March 31, 1997 and the six
months ended September 30, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Pension plan......................................... $366,815 $231,938
Profit sharing plan.................................. 283,182 156,777
-------- --------
$649,997 $388,715
======== ========
</TABLE>
F-57
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The provision for income taxes is based on net income reported for financial
reporting purposes. Deferred income taxes arise from temporary differences
between financial and income tax reporting of various items (principally
revenue recognition).
The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at March 31, 1997 and
September 30, 1997:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Accounts receivable, net.......................... $(625,072) $(632,773)
Depreciation...................................... (22,585) (52,279)
Accounts payable.................................. 38,989 27,819
Other accrued liabilities......................... 117,084 94,835
Net operating loss carryforwards.................. 8,380 131,279
Other............................................. (71,100) (38,978)
--------- ---------
Net deferred tax liability........................ $(554,304) $(470,097)
========= =========
As reported on the balance sheet as of March 31,
1997 and September 30, 1997:
Current deferred tax liability.................. $(602,419) $(611,417)
Noncurrent deferred tax asset................... 48,115 141,320
--------- ---------
$(554,304) $ 470,097
========= =========
</TABLE>
A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Provision (benefit) at statutory rate................ $115,401 $(75,343)
State income taxes, net of federal benefit........... 13,577 (8,864)
-------- --------
Provision (benefit) for income taxes................. $128,978 $(84,207)
======== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under a long-term lease expiring December 31, 1999
for one office at an annual rental of $280,911. The Company is obligated under
a lease expiring September 30, 2000 for a second office at a base annual
rental of $25,024 to be adjusted each October 1 based on the Consumer Price
Index. The Company rents additional office space at five locations on a month-
to-month basis.
Rent expense for all leases amounted to $375,546 for the year ended March
31, 1997 and $136,673 for the six months ended September 30, 1997.
The approximate future minimum rental commitments required under the
noncancellable operating leases are as follows:
<TABLE>
<S> <C>
1998 (October 1997 through March 1998)............................. $140,456
1999............................................................... 280,911
2000............................................................... 210,684
</TABLE>
F-58
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Insurance
The Company is insured with respect to medical malpractice risks on a claims
made basis. Accordingly, coverage relates only to claims made during the
policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
Employment Agreements
Certain management personnel and physician employees are covered by
employment agreements that may be terminated at any time in accordance with
the terms of the agreement. The agreement also includes terms for professional
conduct, salary, and benefits provisions.
9. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and third party claims which
arise in the ordinary course of business. In the opinion of management, the
amount of potential liability with respect to these actions will not
materially affect the Company's financial position or results of operations.
10. RELATED PARTY TRANSACTIONS
The Company has a receivable due from four physicians totaling $53,394 at
March 31, 1997 and from three physicians totaling $28,393 at September 30,
1997 which will be repaid over the next year.
F-59
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Dependacare, Inc.:
We have audited the accompanying balance sheet of SOUTHERN DEPENDACARE, INC.
(an Alabama corporation) as of December 31, 1996 and August 31, 1997 and the
related statements of operations, owner's equity, and cash flows for the year
ended December 31, 1996 and the eight months ended August 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Dependacare, Inc.
as of December 31, 1996 and August 31, 1997 and the results of its operations
and its cash flows for the year ended December 31, 1996 and the eight months
ended August 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
December 5, 1997
F-60
<PAGE>
SOUTHERN DEPENDACARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $107,594 $ 117,261
Accounts receivable, less estimated allowances for
uncollectible accounts of $200,000................. 665,915 1,269,172
-------- ----------
773,509 1,386,433
-------- ----------
Property and equipment, net (Note 3).................. 17,458 14,888
-------- ----------
Total assets...................................... $790,967 $1,401,321
======== ==========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Current portion of notes payable (Note 4)........... $ 33,854 $ 78,458
Accounts payable.................................... 103,162 640,153
Accrued compensation to owner....................... 265,759 655,675
Other accrued liabilities........................... 303,067 11,067
-------- ----------
705,842 1,385,353
-------- ----------
Notes payable, long-term (Note 4)..................... 69,157 --
-------- ----------
Commitments and contingencies (Note 6)
Owners' Equity:
Common stock, $1 par value; 10,000 shares
authorized; 1,000 shares issued and outstanding.... 1,000 1,000
Additional paid-in capital.......................... 14,968 14,968
Retained earnings................................... -- --
-------- ----------
Total owner's equity.............................. 15,968 15,968
-------- ----------
Total liabilities and owner's equity.............. $790,967 $1,401,321
======== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-61
<PAGE>
SOUTHERN DEPENDACARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT-MONTH PERIOD
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net patient service revenues................ $3,096,194 $1,777,698 $2,803,765
---------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits............. 1,026,917 475,452 630,253
Compensation to owner physician........... 574,042 272,991 316,146
General and administrative expenses....... 1,406,767 972,676 1,812,643
Bad debt expense.......................... 50,000 40,000 35,500
Depreciation and amortization............. 20,091 14,494 6,832
---------- ---------- ----------
3,077,817 1,775,613 2,801,374
---------- ---------- ----------
Income from operations...................... 18,377 2,085 2,391
Interest expense............................ 18,377 2,085 2,391
---------- ---------- ----------
Net income.................................. $ -- $ -- $ --
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-62
<PAGE>
SOUTHERN DEPENDACARE, INC.
STATEMENTS OF OWNER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995........... 1,000 $1,000 $14,968 $-- $15,968
Net income......................... -- -- -- -- --
----- ------ ------- ---- -------
Balance, December 31, 1996........... 1,000 1,000 14,968 -- 15,968
Net income......................... -- -- -- -- --
----- ------ ------- ---- -------
Balance, August 31, 1997............. 1,000 $1,000 $14,968 $-- $15,968
===== ====== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-63
<PAGE>
SOUTHERN DEPENDACARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT-MONTH PERIOD
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, --------------------
1996 1996 1997
------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ -- $ -- $ --
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 20,091 14,494 6,832
Bad debt expense........................ 50,000 40,000 35,500
Change in assets and liabilities:
Accounts receivable................... 170,144 256,832 (638,757)
Accounts payable...................... 7,483 (35,800) 536,991
Accrued liabilities................... (3,771) (49,182) 97,917
-------- -------- --------
Total adjustments................... 243,947 226,344 38,483
-------- -------- --------
Net cash provided by operating
activities......................... 243,947 226,344 38,483
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....... (9,815) (5,087) (4,263)
Proceeds from disposals of fixed assets... 109,807 100,807 --
-------- -------- --------
Net cash provided by (used in)
investing activities............... 99,992 9,572 (4,263)
-------- -------- --------
Cash flows from financing activities:
Principal payments on line of credit...... (50,000) (50,000) --
Principal payments on notes payable....... (318,187) (212,125) (24,553)
Borrowings under notes payable............ 115,050 115,050 --
-------- -------- --------
Net cash used in financing
activities......................... (253,137) (147,075) (24,553)
-------- -------- --------
Net increase in cash and cash equivalents... 90,802 174,989 9,667
Cash and cash equivalents at beginning of
period..................................... 16,792 16,792 107,594
-------- -------- --------
Cash and cash equivalents at end of period.. $107,594 $191,781 $117,261
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest.. $ 18,377 $ 2,085 $ 2,391
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE>
SOUTHERN DEPENDACARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND AUGUST 31, 1997
(INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996 IS UNAUDITED)
1. THE ORGANIZATION AND OPERATIONS
Southern Dependacare, Inc., an Alabama corporation, (the "Company") was
organized in 1990. The Company currently has 4 physicians, specializing in
oncology and cancer care. There are 3 rural networks of clinics located in
Carbondale, Illinois; Natchez, Mississippi; and Abbington, Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The financial statements for the eight months ended August 31, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
Accounts Receivable
Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances
and bad debts. Contractual adjustments result from the differences between the
rates charged by the physicians for services performed and the amounts allowed
by the Medicare and Medicaid programs and other public and private insurers.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on the
straight-line method over the estimated service lives of depreciable assets
(five to seven years for equipment, and seven years for furniture and
fixtures). Maintenance and repairs are charged to expense as incurred. The
cost of renewals and betterments is capitalized and depreciated over the
applicable estimated useful lives. The cost and accumulated depreciation of
assets sold, retired, or otherwise disposed of are removed from the accounts,
and the related gain or loss is credited or charged to income.
Owner's Equity
Owner's equity includes the respective capital stock, partnership capital
and retained earnings of the Company. The capital stock of the Company is
wholly-owned by one physician.
F-65
<PAGE>
SOUTHERN DEPENDACARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net Patient Service Revenues
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and
others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates or for capitated payments.
Concentration of Credit Risk
The Company extends credit to patients covered by insurance programs such as
governmental programs like Medicare and Medicaid and private insurers. The
Company manages credit risk with the various public and private insurance
providers, as appropriate. Allowances for doubtful accounts have been made for
potential losses, where appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and August 31, 1997 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Equipment............................................... $ 253,023 $257,285
Furniture and fixtures.................................. 20,557 20,557
--------- --------
273,580 277,842
Less accumulated depreciation........................... (256,122) (262,954)
--------- --------
$ 17,458 $ 14,888
========= ========
</TABLE>
4. NOTES PAYABLE
The Company's notes payable at December 31, 1996 and August 31, 1997 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Note payable to bank, due February 28, 2000, payable
in equal monthly installments at a fixed rate of 8%,
secured by checking account at the bank(1)........... $ 96,188 $78,458
Note payable to bank dated February 4, 1997, payable
in equal monthly installments at a fixed rate of 9%,
secured by property and equipment.................... 6,823 --
-------- -------
103,011 78,458
Less current portion.................................. 33,854 78,458
-------- -------
Notes payable due after one year...................... $ 69,157 $ --
======== =======
</TABLE>
- --------
(1) The outstanding balance of $78,458 was paid in full in September 1997.
During 1996, the Company entered into a line of credit agreement with a
maximum borrowing amount of $500,000 with a local bank. Interest is charged at
a fixed rate of 8.25% based on outstanding borrowings. As of December 31, 1996
and June 30, 1997, there were no borrowings outstanding under this financing
agreement.
F-66
<PAGE>
SOUTHERN DEPENDACARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
The Company has elected to be taxed as an S corporation as permitted by the
Internal Revenue Code. As an S corporation, the Company is not a taxable
entity, and separately stated items of income, loss, deduction, and credit are
passed through to and taken into account by the individual stockholder in
computing the federal and state individual income tax liabilities.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases facilities under operating leases which expire at various
dates through February 2001. Future minimum lease payments under these leases
as of August 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................. $81,330
1999................................................................. 52,947
2000................................................................. 17,033
2001................................................................. 1,893
</TABLE>
Insurance
The Company is insured with respect to medical malpractice risks on claims
made basis. Accordingly, coverage relates only to claims made during the
policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
Employment Agreements
Certain physician employees are covered by employment agreements that vary
in length from two to five years, which include, among other terms, salary and
benefits provisions. Future minimum payments under these agreements as of
August 31, 1997 are approximately:
<TABLE>
<S> <C>
1998................................................................ $412,506
1999................................................................ 337,500
</TABLE>
7. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect
the Company's financial position or results of operations.
8. SALE OF NET ASSETS
Effective September 1, 1997, the Company completed the sale of certain of
its net assets to Physician Health Corporation ("PHC"). The Company has also
entered into an agreement with PHC to manage the physician's medical practice.
F-67
<PAGE>
APPENDIX A
The following table identifies, as of December 31, 1997, each Affiliated
Network, PHC Network and PHC Practice, as well as the date on which the
Company began providing services to the network or acquired or began managing
the PHC Practice. The table also indicates the number of physicians in each
PHC practice. Those physicians practicing with owned PHC Practices are Company
employees. Physicians practicing with managed PHC Practices under long term
management contracts are not employed by the Company.
<TABLE>
<CAPTION>
NETWORKS (AFFILIATED
UNLESS INDICATED AS PHC) PHC PRACTICES
- -------------------------------- --------------------------------------------------------------
SERVED SPECIALTY OWNED/ SERVED
NAME SINCE NAME (NO. PHYSICIANS) MANAGED SINCE
- ------------------------ ------ ------------------------ ----------------- ----------- ------
<S> <C> <C> <C> <C> <C>
ATLANTA REGIONAL MARKET
Resurgeons and 1-95 Atlanta Center for Internal Medicine Managed 9-97
Affiliated Medicine II, P.C. (8)
Orthopaedists, Inc.
Georgia Multi-Specialty 4-96 NSOB II, P.C. OB/GYN (1) Managed 11-97
Group
Georgia Neuroscience 6-94 SCWH II, P.C. OB/GYN (5) Managed 10-97
Associates
Georgia Urology 8-94 SRL OB-GYN, P.C. OB/GYN (4) Managed 10-97
Associates
OBNet Women's 7-96
HealthCare
Network, LLC
Primary Care 7-96
Specialists of
Georgia, Inc. (a PHC
Network)
DALLAS/FT. WORTH,
REGIONAL MARKET
ABS Healthcare Company 3-97 Arlington Cancer Center Oncology (6); Managed 6-97
Arlington Cancer Center 6-97 Radiology (2);
North Texas Urologists 11-94 Radiation
Oncology (2)
Texas G.I. Associates, 11-96
P.C.
MEMPHIS, REGIONAL MARKET
MidSouth Physician Bryant Medical Services, Family Practice
12-97 P.C. (5) Managed 11-97
Alliance I.P.A. Foundation Medical Internal Medicine Managed 11-97
Group, PLLC (10)
Memphis Childrens Pediatrics (17) Managed 11-97
Clinic, PLLC
ORLANDO REGIONAL MARKET
AOI Network, Inc. 2-96 Alberto S. Bustamante OB/GYN (1) Managed 11-97
Jr. P.A.
PHC-Physician Network 9-94 Allergy Immunology Allergy (2) Managed 11-97
of Orlando, Specialists, P.A.
Inc. (a PHC Network) Gastroenterology GI (2) Managed 11-97
Associates of Osceola,
P.A.
Mid-Florida Women's Gilmer, Cox, and Bott, GI (2); Managed 11-97
Health Services P.A. Orthopaedics (4)
Internal Medicine GI (8); Owned 11-97
Specialists, Inc. Nephrology (7)
Larach, Williamson & Colonrectal Owned 11-97
Ferrara, Inc. Surgery (4)
Primary Care Primary Care (22) Owned 11-97
Specialists, Inc.
ST. LOUIS, REGIONAL
MARKET
Bi-State Multispecialty 2-97 GMB Medical Center, Ltd. Opthalmology (1) Managed 10-97
Physicians
Network, L.L.C. D.I. Medical Group, Inc. Internal Medicine Managed 11-97
(3)
Eye Care Services of Opthalmology (1) Owned (80%) 5-97
Missouri, Inc.
G.H. Kursar Eye Care Opthalmology (1) Owned 10-97
Services, Inc.
Hanish Eye Institute Opthalmology (1) Managed 3-97
P.C.
Heart Health Medical Cardiology (5) Managed 4-97
Group, P.C.
InternaCare, Inc. Primary Care (1) Owned 9-97
John W. Daake, Inc. Surgery (3) Owned 1-97
Metropolitan Plastic & Plastic Surgery Managed 10-96
Reconstructive Surgery, (1)
Ltd.
PSA Medical Group, Inc. Surgery (10); Managed 11-97
Orthopaedics (2);
Podiatry (1);
Physiatry (1)
Pulmonary Sleep
Consultants, Inc. Internal Medicine Managed 11-97
(5)
Rames Medical Center, Orthopaedics (1) Managed 11-97
Inc.
Ream Optometry, Ltd. Optometry (2) Owned 8-97
Tri-County Eye Center, Opthalmology (1) Owned 8-97
Inc.
Michael G. Vranich, General Surgery Managed 9-97
D.O., P.C. (1)
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
NETWORKS (AFFILIATED
UNLESS INDICATED AS PHC) PHC PRACTICES
- -------------------------------- -----------------------------------------------------------
SERVED SPECIALTY OWNED/ SERVED
NAME SINCE NAME (NO. PHYSICIANS) MANAGED SINCE
- ------------------------ ------ ------------------------ ------------------ ------- ------
<S> <C> <C> <C> <C> <C>
TUSCON/PHOENIX, AREA
REGIONAL MARKET
Central Arizona IPA, 12-97 Payson Family Care Family Practice Managed 8-97
LLC Associates, P.C. (2);
Gambro Healthcare Renal 7-96 General Surgery
Services Organization, (1)
Inc.
OUTREACH ONCOLOGY PRACTICES
Southern Dependacare, Hematology/ Managed 9-97
Inc. and affiliated Oncology (4)
practices
CINCINNATI, REGIONAL
MARKET
GCGA Physicians, Inc. GI (9) Managed 10-97
Louisville Cardiology Cardiology (3) Managed 10-97
Medical Group, PSC
BIRMINGHAM, REGIONAL MARKET
Cardiology Associates 2-96
CMS-CTS 10-97
Digestive Health 9-96
Network
Orthopaedic Provider 12-97
Network of Alabama, LLC
Urology Network of 9-96
Alabama
CHATTANOOGA, REGIONAL MARKET
Specialty Surgical 4-95
Services of Tennessee
HOUSTON REGIONAL MARKET 12-97
Texas Alliance for
Digestive Disease
</TABLE>
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by the Company (other
than underwriting compensation expected to be incurred) in connection with the
offering described in this Registration Statement. All amounts are estimates,
except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $20,910
NASD Filing Fee..................................................... 7,400
Nasdaq National Market Listing Fee.................................. *
Blue Sky Fees and Expenses.......................................... *
Printing Costs...................................................... *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Transfer Agent and Registrar Fees and Expenses...................... *
Premiums for D&O Insurance.......................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in
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<PAGE>
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in Section
145. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Certificate of Incorporation
The Certificate of Incorporation provides that a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided for in Section 174 of the DGCL. If the DGCL is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any
II-2
<PAGE>
repeal or modification of such provision of the Certificate of Incorporation
by the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.
Bylaws
The Bylaws of the Company provide that the Company will indemnify and hold
harmless any director or officer of the Company to the fullest extent
permitted by applicable law, as in effect as of the date of the adoption of
the Bylaws or to such greater extent as applicable law may thereafter permit,
from and against all losses, liabilities, claims, damages, judgments,
penalties, fines, amounts paid in settlement and expenses (including
attorneys' fees) whatsoever arising out of any event or occurrence related to
the fact that such person is or was a director or officer of the Company and
further provide that the Company may, but is not required to, indemnify and
hold harmless any employee or agent of the Company or a director, officer,
employee or agent of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise who is or was serving in such
capacity at the written request of the Company; provided, however, that the
Company is only required to indemnify persons serving as directors, officers,
employees or agents of the Company for the expenses incurred in a proceeding
if such person has met the standards of conduct that make it permissible under
the laws of the State of Delaware for the Company to indemnify the claimant
for the amount claimed, but the burden of proving such defense will be on the
Company. The Bylaws further provide that, in the event of any threatened, or
pending action, suit or proceeding in which any of the persons referred to
above is a party or is involved and that may give rise to a right of
indemnification under the Bylaws, following written request by such person,
the Company will promptly pay to such person amounts to cover expenses
reasonably incurred by such person in such proceeding in advance of its final
disposition upon the receipt by the Company of (i) a written undertaking
executed by or on behalf of such person providing that such person will repay
the advance if it is ultimately determined that such person is not entitled to
be indemnified by the Company as provided in the Bylaws and (ii) satisfactory
evidence as to the amount of such expenses.
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.
Insurance
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued its first securities on October 5, 1995 and has issued
unregistered securities to (a) founders, investors and employees and (b) to
physicians and others in connection with the affiliation transactions with the
medical practices (the "Affiliation Transactions"). Each such issuance was
made in reliance upon the exemption from the registration requirements of the
Securities Act of 1933, as amended, contained in Section 4(2) or Rule 701
promulgated under the Securities Act on the basis that such transactions did
not involve a public offering. The securities issuances below consider the
.314 to 1 reverse stock split for the Common Stock. Prime Stock, Class A
Stock, Series B Stock will be adjusted through their revised conversion rates.
1. On October 5, 1995, the Company issued an aggregate of 706,500 shares of
Common Stock, par value $.0025 per share (the "Common Stock"), to the
following individuals in connection with the organization and initial
capitalization of the Company for an aggregate purchase price of $5,625: Sarah
C. Garvin, H. Thomas Scott, Julie Rawls Moore, Howard E. Fagin and Shamus M.
Holt.
2. Since October 26, 1995, pursuant to the Company's 1995 Amended and
Restated Stock Option Plan, the Company has granted options to purchase up to
an aggregate of 1,659,237 shares of Common Stock to certain Company employees,
physicians and consultants with exercise prices varying between $1.59 and
$31.85.
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<PAGE>
3. On November 3, 1995, the Company issued an aggregate of 345,400 shares of
Common Stock to the following individuals, in connection with a private
placement of stock to raise funds for the acquisition of the Company's
predecessor, for an aggregate purchase price of $1,100,000: Dean G. Anderson,
Don Buswell Charkow, Stephen & Susan Cooper, David Ellis, Howard E. Fagin,
Sarah C. Garvin, Shamus M. Holt, Jack C. Keane, Julie Rawls Moore, NationsBank
of Georgia, Trustee U/A Howard & Mary Morrison for Howard J. Morrison, Paine
Webber FBO Thomas M. Rodgers, Jr., Carl J. Schramm, H. Thomas Scott, Laura
Scott, Larry B. Stanely, sep, City Bank & Trust Company custodian, Robert F.
Stonerock, Jr. and Ira L. Snider.
4. On December 29, 1995, pursuant to a Securities Purchase Agreement and in
connection with a venture capital financing, the Company issued an aggregate
of 104,300 shares of Series 1 Class A Stock, par value $.01 per share (the
"Series 1 Class A Stock"), and 95,700 shares of Series 2 Class A Stock, par
value $.01 per share (the "Series 2 Class A Stock"), to the following
investors for an aggregate purchase price of $3,000,000: Larry Gerdes, William
Eason, Edward H. Bowman, Jr., Martin Lamaison, Orville R. Gordon, Howard F.
Elkins, Richard V. Lawry, Guaranty & Trust Co. c/o David O. Ellis, Kathleen E.
J. Ellis, Jeremy Ellis, Karen Ellis, Gemma Ellis, Rowan Nominees c/o Mercury
Asset Management Ltd., and NatWest Ventures Investments, Ltd. The same
investors were also granted contingent warrants to purchase up to an aggregate
of 200,000 shares of Class A Stock, in the event of a redemption of the
outstanding shares of Class A Stock, at an exercise price of $15.00 per share.
In connection with the Securities Purchase Agreement, the Company also issued
to EGL Holdings, Inc. a warrant to purchase up to an aggregate of 59,660
shares of Common Stock with an exercise price of $.03 per share, for an
aggregate purchase price of $1,900.
5. On December 12, 1995, pursuant to a consulting agreement relating to the
provision of financial consulting services to the Company by Thomas M.
Rodgers, the Company granted to Thomas M. Rodgers an option to purchase an
aggregate of 134,000 shares of Prime Common Stock at an exercise price of
$0.20 per share.
6. On February 26, 1996, the Company issued an aggregate of 113,040 shares
of Common Stock and a warrant to purchase 83,524 shares of Common Stock to
Healthmark Partners, LLC for an aggregate purchase price of $720,000.
7. On November 25, 1996, pursuant to an Undertaking Agreement relating to
the employment of J. Michael Ribaudo, M.D. as an officer of the Company the
Company issued an aggregate of 31,400 shares of Common Stock to J. Michael
Ribaudo for an aggregate purchase price of $400,000 and granted Dr. Ribaudo
options to purchase an aggregate of 141,300 shares of Common Stock at an
exercise price of $12.74 per share.
8. On November 26, 1996, pursuant to an Asset Purchase Agreement, the
Company issued to Metropolitan Plastic and Reconstructive Surgery, Ltd. an
aggregate of 125,000 shares of Prime Common Stock, par value $.0025 per share
(the "Prime Common Stock") and a $500,000 note that is convertible into 39,250
shares of Common Stock, in Metropolitan Plastic and Reconstructive Surgery,
Ltd.
9. On January 27, 1997, the Company issued an aggregate of 15,700 shares of
Common Stock to Sarah C. Garvin for an aggregate purchase price of $200,000.
10. On January 27, 1997, the Company issued an aggregate of 35,717 shares of
Common Stock to following individuals for an aggregate purchase price of
$455,000: Julie Rawls Moore, Peggy S. Block, Doris Boye Mintz, Peter Charman,
Dan Epstein, Henry Harrison Culver Trust, Elizabeth Jenny Culver Trust, Martha
C. Mathews, Churchill Matthews, Jr. and Elizabeth Culver.
11. On January 31, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger John W. Daake, Inc. and all
the capital stock of John W. Daake, Inc. were converted into shares of Prime
Common Stock, the Company issued an aggregate of 151,905 shares of Prime
Common Stock to the following individuals: John W. Daake, M.D., Robert F.
Beckman, M.D. and Kent L. Kossoy, M.D.
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<PAGE>
12. On June 16, 1997, pursuant to an Amended and Restated Letter Agreement,
the Company issued an aggregate of 400,000 shares of Prime Common Stock to the
following individuals at the request of Ira L. Snider in consideration for Dr.
Snider's provision of development services for the Company: Ira L. Snider,
Joan M. Snider Custodian for Elise P. Snider, Joan M. Snider Custodian for
Julie A. Snider and Barry Dewar.
13. On March 5, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger of Eye Medical Surgical Associates,
Inc. and all the capital stock of Eye Medical Surgical Associates, Inc. were
converted into shares of Prime Common Stock, the Company issued an aggregate
of 598,500 shares of Prime Common Stock to Sidney Hanish, M.D.
14. On March 26, 1997, the Company issued an aggregate of 27,632 shares of
Common Stock to the following purchasers for an aggregate purchase price of
$352,000: Health Solutions, Inc. Profit Sharing Plan, Howard Fagin, Trustee
Fagin Advisory Services, Inc. Profit Sharing Plan, Harold A. Fuselier, Jr.,
John Daake, Shamus Holt, Galtney Group, Inc. and Elliot Baker.
15. On April 11, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger The Heart Health Center, P.C. and all
the capital stock of The Heart Health Center, P.C. were converted into shares
of Prime Common Stock, the Company issued an aggregate of 1,048,812 shares of
Prime Common Stock to the following individuals: Allen D. Soffer, M.D.,
Robert G. Kopitsky, M.D., Steven J. Pieper, M.D. and Patricia L. Cole, M.D.
16. On May 7, 1997, pursuant to a consulting agreement, the Company issued
to Thomas M. Rodgers an option to purchase an aggregate of 350,000 shares of
Prime Common Stock at an exercise price of $1.15 per share.
17. On May 14, 1997, the Company issued an aggregate of 5,887 shares of
Common Stock to the following individuals for an aggregate purchase price of
$75,000: Garth F. Fort and Christopher Gilson.
18. On May 20,1997 pursuant to a Contribution Agreement entered into in
connection with the acquisition of an 80% interest in the assets of the
medical practice of Robert M. Jones, M.D. Dr. Jones, was issued an aggregate
of 200 shares of prime common stock, par value $0.01 per share, in a
subsidiary of the Company which are convertible into 173,006 shares of Common
Stock.
19. On May 28, 1997, the Company issued an aggregate of 1,962 shares of
Common Stock to Thomas E. Douglas for an aggregate purchase price of $25,000.
20. On June 16, 1997, pursuant to the terms of a Loan Agreement, the Company
issued a warrant to purchase up to an aggregate of 15,700 shares of Common
Stock, with an exercise price of $15.92 per share to DVI Financial Services,
Inc. for an aggregate purchase price of $500 and in consideration of making
such loans.
21. On June 16, 1997 and July 31, 1997, pursuant to a Securities Purchase
Agreement entered into in connection with a venture capital financing, the
Company issued an aggregate of 2,906,679 shares of Series B Redeemable
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock") and 917,814 shares of Series B Non-Voting Redeemable Convertible
Preferred Stock, par value $.01 per share (the "Series B Non-Voting Preferred
Stock"), to the following investors for an aggregate purchase price of
$13,552,512: Weston Presidio Capital II, L.P., NatWest Ventures Investments,
Ltd., St. Paul Venture Capital IV, LLC, Mercury Asset Management, plc on
behalf of Rowan Nominees, Ltd., Partech U.S. Partners III C.V., U.S. Growth
Fund Partners C.V., Axa U.S. Growth Fund LLC, Double Black Diamond II, LLC,
Almanori Limited, Multinvest Limited, BancBoston Investments, Inc. and
National City Venture Corporation. In connection with the Securities Purchase
Agreement, the Company also issued warrants to the same investors to purchase
up to an aggregate of 304,149 shares of Common Stock and up to 96,064 shares
of Non-Voting Common Stock, par value $.025 per share (the "Non-Voting Common
Stock"), with an exercise price of $.01 per share, for an aggregate purchase
price of $1,269.
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<PAGE>
22. On June 16, 1997, pursuant to a letter agreement terminating and
settling an earlier consulting agreement, the Company granted to Thomas M.
Rodgers an option to purchase an aggregate of 7,648 shares of Prime Common
Stock at an exercise price of $0.011 per share, an option to purchase an
aggregate of 37,500 shares of Prime Common Stock at an exercise price of $1.10
per share and an option to purchase 76,302 shares of Common Stock at an
exercise price of $12.74 per share.
23. On June 16, 1997, the Company issued an aggregate of 529,148 shares of
Prime Common Stock to Thomas M. Rodgers upon exercise of stock options in
exchange for $27,853 in cash and $442,781 in notes.
24. On June 16, 1997, pursuant to the terms of an Asset Purchase and
Contribution Agreement pursuant to which the Company acquired substantially
all of the assets of the Arlington Cancer Center, Metroplex
Hematology/Oncology LLPC received a 20% equity interest in a Company
subsidiary that is exchangeable into 480,420 shares of Common Stock.
25. On July 31, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger Ream Optometry, Ltd. and all the
capital stock of Ream Optometry, Ltd. were converted into shares of Prime
Common Stock, the Company issued an aggregate of 206,773 shares of Prime
Common Stock to the following individuals: Ann C. Ream and Scott R. Ream.
26. On August 8, 1997, the Company issued an aggregate of 21,038 shares of
Common Stock to Karel A. Dicke for an aggregate purchase price of $268,000.
27. On August 8, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger Tri-County Eye Care Center and all the
capital stock of Tri-County Eye Care Center were converted into shares of
Common Stock, the Company issued 97,407 shares of Common Stock to Howard N.
Short.
28. On August 13, 1997, pursuant to an Amended and Restated Stock Purchase
Agreement pursuant to which the Company acquired all of the outstanding
capital stock of Payson Family Care Associates, Inc., the Company issued an
aggregate of 95,250 shares of Prime Common Stock to the following
individuals: Timothy A. Shaw, Mark Ivey, Jr. and Jim L. Burke.
29. On August 29, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger Surgical Associates, Inc. and all the
capital stock of Surgical Associates, Inc. were converted into shares of Prime
Common Stock, the Company issued 200,000 shares of Prime Common Stock to
Michael Vranich.
30. On September 2, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Atlanta Center for Medicine,
Inc. and all the capital stock of Atlanta Center for Medicine, Inc. were
converted into shares of Prime Common Stock, the Company issued an aggregate
of 144,278 shares of Prime Common Stock to the following individuals: Revati
Alturi, M.D., D. Timothy Daughterty, M.D., Shelly Carter Davis, M.D., Alan O.
Feingold, M.D., Robert A. Kirkland, M.D. and Paul H. Krissman, M.D.
31. On September 12, 1997, pursuant to an Asset Purchase Agreement, pursuant
to which the Company acquired substantially all of the assets of Southern
Dependacare, Inc., the Company issued an aggregate of 432,000 shares of Prime
Common Stock to Southern Dependacare, Inc. and issued 108,000 shares of Prime
Common Stock to Donnie E. McDaniel.
32. On September 12, 1997, October 12, 1997 and November 5, 1997, pursuant
to a Warrant and Stock Purchase Commitment the Company issued to the following
investors warrants to purchase up to 26,840 shares of Common Stock with an
exercise price of $.03 per share, in exchange for their Agreement to guaranty
a loan to the Company from Southwest Bank: Weston Presidio Capital II, L.P.,
Mercury Asset Management, plc on behalf of Rowan Nominees, Ltd., Natwest
Ventures Investments, Limited, St. Paul Venture Capital IV, LLC,
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<PAGE>
Banc Boston Investments, Inc., Partech U.S. Partners III C.V., U.S. Growth
Fund Partners, C.V., Axa U.S. Growth Fund LLC, Double Black Diamond II, LLC,
Almanon Limited, Multinvest Limited, and National City Venture Corporation.
33. On September 19, 1997, the Company issued 12,560 shares of Common Stock
to NationsCredit Commercial Corporation in exchange for the termination of a
Loan Agreement.
34. On September 30, 1997, pursuant to the terms of an Employment Agreement,
the Company issued an aggregate of 45,000 shares of Prime Common Stock to
William W. Benedict.
35. On October 3, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger Louisville Cardiology, Inc. and all
the capital stock of Louisville Cardiology, Inc. were converted into shares of
Prime Common Stock, the Company issued an aggregate of 750,000 shares of Prime
Common Stock to the following individuals:: Rudolph Licandro, M.D. and Michael
J. Imburgia, M.D.
36. On October 14, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger George M. Bohigan, Ltd. and
all the capital stock of George M. Bohigan, Ltd. were converted into shares of
Prime Common Stock, the Company issued 121,238 shares of Prime Common Stock to
George M. Bohigan, M.D.
37. On October 17, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger G.H. Kursar, M.D., Inc. and
all the capital stock of G.H. Kursar, M.D., Inc. were converted into shares of
Common Stock, the Company issued 51,843 shares of Common Stock to G.H. Kursar.
38. On October 21, 1997, the Company issued 314 shares of Common Stock to
Christie Bohigan for an aggregate purchase price of $5,000.
39. On October 27, pursuant to a Credit Agreement and Loan Agreement, the
Company issued 553,683 shares of Series B Voting Preferred Stock to Paribas
Principal Incorporated, Inc. for an aggregate purchase price of $2,214,732.
40. On October 27, 1997, pursuant to a Credit Agreement and Loan Agreement,
the Company issued warrants to purchase up to an aggregate 434,752 shares of
Common Stock with an exercise price of $.03 per share, for an aggregate
purchase price of $13,845.61 to Paribas Capital Funding, LLC and Paribas
Principal Incorporated.
41. On October 29, 1997, the Company issued 83,524 shares of Common Stock to
Healthmark Partners, LLC for an aggregate purchase price of $655 upon the
exercise of warrants with an exercise price of $.0025 per share.
42. On November 7, 1997, pursuant to an Agreement and Plan of Reorganization
pursuant to which the Company acquired by merger Southern Crescent Women's
Healthcare, Inc. and all of the outstanding capital stock of Southern Crescent
Women's Healthcare, Inc. were converted into the right to receive shares of
Common Stock, the Company issued an aggregate of 137,375 shares of Common
Stock to W. Darrel Martin, M.D. and Elizabeth W. Killebrew, M.D.
43. On November 7, 1997, pursuant to an Agreement and Plan of Reorganization
pursuant to which the Company acquired by merger Eagles Landing OB-GYN
Associates, P.C. and all of the outstanding capital stock of Eagles Landing
OB-GYN Associates, P.C. were converted into the right to receive shares of
Common Stock, the Company issued an aggregate of 97,340 shares of Common Stock
to the following individuals: John P. Schilling, M.D., Shoba C. Rao, M.D. and
Jeffrey D. Lovinger.
44. On November 7, 1997, pursuant to an Agreement and Plan of Reorganization
pursuant to which the Company acquired by merger Northside OB-GYN, Inc. and
all of the outstanding capital stock of Northside OB-
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<PAGE>
GYN, Inc. were converted into the right to receive shares of Common Stock, the
Company issued an aggregate of 25,512 shares of Common Stock to Alan Joffe,
M.D.
45. On November 10, 1997, pursuant to an Asset Purchase Agreement pursuant
to which the Company acquired substantially all of the assets of National
Sleep Dynamics, Inc. and HomeCare for Sleep Disorders, Inc., the Company
issued an aggregate of 35,168 shares of Common Stock Scott Sauerman.
46. On November 12, 1997, the Company granted to Bi-State Network options to
purchase up to an aggregate of 31,400 shares of Common Stock with an exercise
price of $12.74 per share in exchange for entering into a contract
administration agreement with the Company.
47. On November 10, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Internal Medicine
Specialists, Inc. and all of the outstanding capital stock of Internal
Medicine Specialists, Inc. were converted into the right to receive shares of
Common Stock, the Company issued an aggregate of 329,259 shares of Common
Stock to the following individuals: Alex Menendez, C. Raymond Cottrell,
Antonio Caos, Kenneth R. Feuer, Robert T. Baker, Robert F. Stonerock, Thomas
C. Marbury, Timothy L. Prance, Lionel C. Abbott, Mark Williams and Jeffrey M.
Cohen. In connection with the Agreement and Plan of Merger, the Company issued
an aggregate of 22,608 shares of Common Stock to Avanish Aggarwal in
consideration for his execution and performance of an employment agreement
with Internal Medicine Specialists, Inc.
48. On November 10, 1997, pursuant to a Stock Purchase Agreement pursuant to
which the Company acquired all of the outstanding capital stock of Primary
Care Specialists, Inc., the Company issued an aggregate of 85,878 shares of
Common Stock to the following individuals: Don Buswell-Charkow, Thomas
Wentzell, John M. Cappleman, Christopher Edwards and Allen Castello.
49. On November 12, 1997, pursuant to an Agreement and Plan of
Reorganization pursuant to which the Company acquired by merger Greater
Cincinnati Gastroenterology, Inc. and all of the outstanding capital stock of
Greater Cincinnati Gastroenterology, Inc. were converted into the right to
receive shares of Common Stock, the Company issued an aggregate of 409,819
shares of Common Stock to the following individuals: George D. Waissbluth,
Ronald C. Schnieder, Michael A. Safdi, Alan V. Safdi, Michael D. Kreines, Kris
Ramprasad, Kim R. Jurell, David G. Magels, Pradeep K. Bekal and Daniel G.
Walker Trust, u/a/d July 1, 1997 Alan V. Safdi, Trustee.
50. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger LaRach & Williamson, M.D.,
P.A. and all of the outstanding capital stock of LaRach & Williamson, M.D.,
P.A. were converted into the right to receive shares of Common Stock, the
Company issued an aggregate of 123,457 shares of Common Stock to the following
individuals: Sergio W. LaRach, Paul R. Williamson and Andrea Ferrara. In
connection with the Agreement and Plan of Merger, the Company issued an
aggregate of 17,191 shares of Common Stock to Michael F. Trevisani in
consideration for his execution of an employment agreement with LaRach &
Williamson, Inc.
51. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger MidSouth Medical Management,
Inc. and all of the outstanding capital stock of MidSouth Medical Management,
Inc. were converted into the right to receive shares of Common Stock,
warrants, the Company issued an aggregate of 272,521 shares of Common Stock to
the following individuals: A. Cary Cox, Robert A. Frist, Jack D. Furst, R.
Ellis Godshall, Sr., Robert Ellis Godshall, Jr., Douglas J. Marchant, Dale
Menard, Medical Practice Partners, L.P., Herbert L. Thomas, Jr., Robert Bruce
Thompson, Dean Witter Custodian FBO R. Bruce Thompson, Daniel Caldwell,
Memphis Children's Clinic, PLLC , William C. Stewart, Jr., M.D., Beau B.
Pittman, M.D., David B. Wright, M.D., Michael Steffan, M.D., Lynda Freeland,
M.D., Martha N. Taylor, M.D., Ann D. Brown, M.D., Mark Vlasak, M.D. and James
W. Bryant, M.D. In addition, the Company granted to Petra Capital warrants to
purchase up to an aggregate of 35,230 shares of Common Stock with an exercise
price of $.03 per share in exchange for warrants it held to purchase MidSouth
stock and granted to Daniels J.
II-8
<PAGE>
Caldwell, Betty Nichols and William C. Stewart, M.D. options to purchase up to
an aggregate of 56,991 shares of Common Stock at an exercise price of the
greater of $19.90 a share or 125% of any per share initial public offering
price and granted to the preferred shareholders of MidSouth Practice
Management, Inc. and Delta Capital Partners, L.L.C. warrants to purchase up to
an aggregate of 56,991 shares of Common Stock with an exercise price per share
equal to the greater of $31.85 and 125% of the initial public offering price.
52. On November 12, 1997, pursuant to a Stock Purchase Agreement pursuant to
which the Company acquired all of the capital stock of Physician Alliance,
Inc. and its subsidiary, Physicians Strategic Alliance of Orlando, Inc., the
Company issued an aggregate of 88,862 shares of Common Stock to the following
individuals in exchange for each of their interest in Physician Strategic
Alliance, Inc.: Calver Fund, Inc., Jack R. Anderson, Rose Marie Garcia
Anderson, Leslie B. Daniels, The Daniels Family Trust and Gastroenterology
Associates Osceola, P.A. In connection with the Stock Purchase Agreement, the
Company issued to certain of such individuals warrants to purchase up to an
aggregate of 15,700 shares of Common Stock at an exercise price of the greater
of $31.85 a share or 125% of any per share initial public offering price.
53. On November 12, 1995, pursuant to an Interest Purchase Agreement, the
Company issued 78,500 shares of Common Stock to each of the following
individuals in exchange for each of their interests in Persch Family Practice,
L.P.: Hirsch Family, L.P., Michael A. Noble, Ben Tischler, Mark Goran, Monte
Sandler and Michael Gerling.
54. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Pulmonary Sleep Consultants,
Inc. and all of the outstanding capital stock of Pulmonary Sleep Consultants,
Inc. were converted into the right to receive shares of Common Stock, the
Company issued 94,227 shares of Common Stock to Myron Jacobs, M.D.
55. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Diagnostic Internists, Inc.
and all of the outstanding capital stock of Diagnostic Internists, Inc. were
converted into the right to receive shares of Common Stock, the Company issued
108,000 shares of Prime Common Stock to the following individuals: James A.
Reynolds, M.D., Mark A. Novack, M.D. and Jeffrey Zohner, M.D.
56. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Parkcrest Surgical
Associates, Inc. and all of the outstanding capital stock of Parkcrest
Surgical Associates, Inc. were converted into the right to receive shares of
Common Stock, the Company issued 406,418 shares of Common Stock to the
following individuals: Donald R. Bassman, M.D., David A. Caplin, M.D.,
Patricia A. McGuire, M.D., Alan M. Londe, M.D., Charles R. Nathan, M.D.,
Marlys E. Schub, M.D., Stanley L. London, M.D., Kenneth J. Bennett, M.D.,
James P. Emanuel, M.D., Kurt W. Kaufman, D.P.M., Mark A. Ludwig, M.D., Glen E.
Johnson, M.D., Cesar A. Gomez, M.D., Sondra L. Tate, M.D. and Diane M.
Radford, M.D.
57. On November 12, 1997, pursuant to an Asset Purchase Agreement pursuant
to which the Company acquired substantially all of the assets of used in the
medical practice of Richard Rames, M.D., Richard Rames, M.D. received 200
shares of prime common stock, par value $.01 per share, in a subsidiary of the
Company which are convertible into 40,181 shares of Common Stock of the
Company.
58. On November 12, 1997, the Company issued an aggregate of 56,520 shares
of Common Stock to the following individuals for an aggregate purchase price
of $900,000: R.L. Wolfson, Andrew S. Wolfson, Ethel Wolfson, Erwin Barry
Hyman, Stephen A. Hyman, Martin Isenberg, and Stephen M. Mintz and Doris Boye
Mintz.
II-9
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fourth Amended and Restated Certificate of Incorporation of Physician
Health Corporation.(1)
3.2 Second Amended and Restated Certificate of Designation, Preferences
and Rights of the Series B Redeemable Convertible Preferred Stock of
Physician Health Corporation.(1)
3.3 Amended and Restated Bylaws of Physician Health Corporation.(1)
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Jackson Walker, L.L.P.(2)
9.1 Second Amended and Restated Stockholders' Agreement, dated as of June
16, 1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., the Weston Investors, the EGL Investors and other
shareholders added from time to time.(1)
9.2 Amendment and Joinder to Second Amended and Restated Stockholders'
Agreement, dated as of October 27, 1997, among Physician Health
Corporation, Paribas Principal, Inc., Paribas Capital Funding, LLC and
certain other stockholders of Physician Health Corporation.(2)
10.1 Asset Purchase and Contribution Agreement dated June 16, 1997, by and
among Metroplex Hematology/Oncology Associates, L.L.P., the
Shareholders of Metroplex Hematology/Oncology Associates, L.L.P., each
Physician's wholly owned professional association and Physician Health
Corporation.(1)
10.2 Management Services Agreement, by and among Metroplex Hematology/
Oncology Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health
Corporation and the Metroplex Providers.(1)
10.3 Supplemental Agreement by and among Metroplex Hematology/Oncology
Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health Corporation
and the Metroplex Providers.(1)
10.4 Agreement and Plan of Reorganization by and among Physician Health
Corporation, Greater Cincinnati Gastroenterology Associates, Inc. and
the Shareholders of Greater Cincinnati Gastroenterology Associates,
Inc.(1)
10.5 Practice Management Agreement by and among PHC Ohio, Inc. and GCGA
Physicians, Inc.(1)
10.6 Agreement and Plan of Merger by and among Physician Health
Corporation, PHC-Orlando Acquisition Subsidiary II, Inc., Internal
Medicine Specialists, Inc. and the Shareholders of Internal Medicine
Specialists, Inc.(2)
10.7 Form of Employment Agreement by and among Internal Medicine
Specialists, Inc. and each of the Shareholders of Internal Medicine
Specialist, Inc.(1)
10.8 Option Agreement by and among Central Florida Surgical Centers, Inc.,
C. Raymond Cottrell, M.D., Antonio Caos, M.D., Kenneth R. Feuer, M.D.,
Robert T. Baker, M.D. and PHC Holding Corporation.(1)
10.9 Option Agreement by and among Oakwater Surgical Center, Inc., C.
Raymond Cottrell, M.D., Antonio Caos, M.D., Alex Menendez, M.D.,
Kenneth R. Feuer, M.D., Robert T. Baker, M.D. and PHC Holding
Corporation.(1)
10.10 Agreement and Plan of Merger, dated as of September 4, 1997, among
Physician Health Corporation, PHC-Midwest, Inc. and the Shareholders
of Parkcrest Surgical Associates, Inc.(2)
10.11 Practice Management Agreement among Physician Health Corporation, PHC-
Midwest, Inc. and P.S.A. Medical Group, Inc.(2)
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.12 Asset Purchase Agreement by and among Physician Health Corporation,
PHC Regional Oncology Care, Inc., Southern Dependacare, Inc. and Jack
G. Hilton, M.D.(2)
10.13 Practice Management Agreement, by and among Physician Health
Corporation, PHC Regional Oncology Care, Inc., PHC Illinois 1, S.C.
and PHC-Mississippi, P.L.L.C.(1)
10.14 Agreement and Plan of Merger by and among Physician Health
Corporation, MidSouth Practice Management, Inc. and PHC Tennessee
Acquisition Subsidiary I, Inc.(2)
10.15 Management Services Agreement, dated as of September 22, 1997, by and
among MidSouth Practice Management, Inc., Foundation Medical Group,
PLLC and the Physicians named therein.(2)
10.16 Management Services Agreement, dated as of September 22, 1997, by and
between Memphis Children's Clinic and the Physicians named therein.(2)
10.17 Management Services Agreement, dated as of November 10, 1997, by and
between MidSouth Management Inc. and Bryant Medical Services, P.C.(2)
10.18 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Foundation
Medical Group, PLLC and the Physicians named therein.(1)
10.19 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Memphis
Children's Clinic, PLLC and the Physicians named therein.(1)
10.20 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Bryant
Medical Services, P.C. and James W. Bryant, M.D.(1)
10.21 Physician Health Corporation Amended and Restated 1995 Stock Option
Plan.(1)
10.22 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and Sarah C. Garvin.*
10.23 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and Tom Rodgers.*
10.24 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and J. Michael Ribouds, M.D.*
10.25 Letter Agreement, dated November , 1997, by and between Thomas
Rodgers and Physician Health Corporation.*
10.26 General Undertakings Agreement, dated as of October 1996, by and among
Physician Health Corporation, PHC St. Louis Acquisition Subsidiary I,
Inc., Metropolitan Plastic and Reconstructive Surgery, Ltd. and J.
Michael Ribaudo, M.D.(1)
10.27 Amendment to General Undertakings Agreement.(2)
10.28 Employment Agreement by and between Physician Health Corporation and
William Stewart, M.D.*
10.29 Stock and Warrant Purchase Agreement, dated December 29, 1995, among
Physician Health Corporation, Sarah C. Garvin, Howard E. Fagin, Ph.D.,
H. Thomas Scott, Julie Rawls Moore, Shamus Holt, EGL Holdings, Inc.,
Mercury Asset Management, Plc, NatWest Ventures Investments Limited
and certain individuals and custodians.(1)
10.30 Form of Contingent Share Warrant to Purchase Shares of Class A
Preferred Stock pursuant to the EGL Stock and Warrant Purchase
Agreement.(1)
10.31 Warrant, dated December 29, 1995, issued to EGL Holdings, Inc. to
purchase 190,000 shares of Common Stock.(1)
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.32 Securities Purchase Agreement, dated as of June 16, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited and NatWest Ventures Investments Limited.(1)
10.33 Amendment No. 1 to Securities Purchase Agreement, dated as of July 31,
1997, among Physician Health Corporation, Weston Presidio Capital II,
L.P., Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.(1)
10.34 Amendment No. 2 to Securities Purchase Agreement, dated as of October
27,1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., BancBoston Investments, Inc., Mercury Asset Management, plc,
on behalf of Rowan Nominees Limited, NatWest Ventures Investments
Limited, St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III,
C.V., U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double
Black Diamond II LLC, Almanori Limited, Multinvest Limited, National
City Venture Corporation and Paribas Principal Incorporated.(1)
10.35 Equity Call Agreement, dated as of June 16, 1997, among Physician
Health Corporation, Weston Presidio Capital II, L.P., Metroplex
Hematology/Oncology Associates, L.L.P, BancBoston Investments, Inc.,
Mercury Asset Management, plc, on behalf of Rowan Nominees Limited,
NatWest Ventures Investments Limited.(1)
10.36 Amendment No. 1 to Equity Call Agreement, dated as of July 31, 1997,
among Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology, Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.(1)
10.37 Joinder to Equity Call Agreement, dated as of October 27, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited, National City Venture
Corporation and Paribas Principal Incorporated.(1)
10.38 Escrow Agreement, dated as of June 16, 1997, among Physician Health
Corporation, Weston Presidio Capital II, L.P., BancBoston Ventures,
Inc., Mercury Asset Management, plc, on behalf of Rowan Nominees
Limited and NatWest Ventures Investments, Limited.(2)
10.39 Amendment No. 1 to Escrow Agreement, dated as of July 31, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited and National City
Venture Corporation.(1)
10.40 Amendment No. 2 to Escrow Agreement, dated as of October 27, 1997,
among Physician Health Corporation, Weston Presidio Capital III, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners 111, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited, National City
Venture Corporation and Paribas Principal Incorporated.(1)
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.41 Weston Presidio--Form of Common Stock Warrant.(1)
10.42 Credit Agreement, dated as of October 27, 1997, among Physician Health
Corporation, PHC Holding Company, Various Banks and Banque Paribas, as
Agent.(2)
10.43 Securities Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Principal
Incorporated.(1)
10.44 Warrant, dated October 12, 1997, issued by Physician Health
Corporation to Paribas Principal Incorporated.(1)
10.45 Senior Subordinated Loan Agreement, dated as of October 27, 1997,
among Physician Health Corporation, PHC Holding Corporation, the
financial institutions from time to time party thereto and Paribas
Capital Funding, LLC, as Agent.(2)
10.45a Amendment No. 1 to the Senior Subordinated Loan Agreement among
Physician Health Corporation, PHC Holding Corporation, the Lenders
party thereto and Paribas Capital Funding LLC, as Agent.(2)
10.46 Warrant Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Capital Funding,
LLC.(1)
10.47 Warrant Certificate, dated as of October 27, 1997, issued by Physician
Health Corporation to Paribas Capital Funding, LLC.(1)
10.48 Warrant Agreement, dated as of October 27, 1997, by and between
Physical Health Corporation and Paribas Capital Funding, L.L.C.(1)
10.49 Restated and Amended Stockholder Agreement, dated November 1, 1997, by
and among Physician Health Corporation, Sarah, C. Garvin, Howard E.
Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore, and Shamus Holt.(2)
10.50 Amendment to Restated and Amended Stockholder Agreement, dated
February 1997, by and among Physician Health Corporation, Sarah, C.
Garvin, Howard E. Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore,
and Shamus Holt.(2)
10.51 Non-Competition and Non-Disclosure Form of Agreement executed by each
Founder of Physician Health Corporation.(2)
10.52 Amended and Restated Registration Rights Agreement by and among
Physician Health Corporation and the stockholders named therein.(1)
10.53 Joinder to Amended and Restated Registration Rights Agreement, dated
October 1997, by Thomas M. Rodgers.(1)
10.54 Letter Agreement, dated September 16, 1997, by and between
NationsCredit Settlement Agreement and Physician Health
Corporation.(1)
10.55 Warrant, dated June 16, 1997, issued by Physician Health Corporation
to DVI Financial Services, Inc.(1)
10.56 Loan and Security Agreement No. 1 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.57 Loan and Security Agreement No. 2 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.58 Loan and Security Agreement No. 3 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.59 Loan and Security Agreement No. 4 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.60 Loan and Security Agreement No. 5 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.61 Loan and Security Agreement No. 6 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.62 Loan and Security Agreement, dated as of June 16, 1997, among MHOA
Texas I, L.L.C. and DVI Business Credit Corporation.(1)
10.63 Warrant and Preferred Stock Commitment, dated September 12, 1997, by
and among Physician Health Corporation, Weston Presidio Capital II,
L.P. and the holders of Series B Preferred Stock or Common Stock named
therein.(1)
10.64 Warrant, dated September 12, 1997, issued by Physician Health
Corporation to Weston Presidio Capital II, L.P.(1)
21.1 Subsidiaries.(1)
23.1 Consent of Arthur Andersen LLP.(1)
23.2 Consent of Ernst & Young LLP.(1)
24.1 Power of Attorney (contained on the signature page of this
Registration Statement).(1)
27 Financial Data Schedule(2)
99.1 Consent of Director nominee William C. Stewart, Jr., M.D.(2)
</TABLE>
- --------
* To be filed by amendment.
(1) Previously filed
(2) Filed herewith
II-14
<PAGE>
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payments
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) That, for the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Physician Health
Corporation has duly caused this Amendment No. 1 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Atlanta, State of Georgia, on January , 1998.
Physician Health Corporation
/s/ Sarah C. Garvin
By: _________________________________
SARAH C. GARVIN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities indicated and on January , 1998.
SIGNATURE TITLE
/s/ Sarah C. Garvin Chairman of the Board, President
- ------------------------------------- and Chief Executive Officer
SARAH C. GARVIN (Principal Executive Officer)
/s/ Thomas M. Rodgers
- ------------------------------------- Director, Executive Vice
THOMAS M. RODGERS President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial and
Accounting Officer)
Director
*
- -------------------------------------
MURALI ANANTHARAMAN
Director
*
- -------------------------------------
MICHAEL F. CRONIN
* Director, Chief Executive Officer
- ------------------------------------- of Arlington Cancer Center
ALFRED DISTEFANO, M.D. Division
Director
*
- -------------------------------------
CARL J. SCHRAMM, PH.D., J.D.
* Director, President of Ancillary
- ------------------------------------- Division
J. MICHAEL RIBAUDO, M.D.
/s/ Sarah C. Garvin
*By: ____________________________
SARAH C. GARVIN
ATTORNEY-IN-FACT PURSUANT TO POWER
OF ATTORNEY GRANTED IN REGISTRATION
STATEMENT (NO. 333-40073) AS FILED
ON NOVEMBER 12, 1997
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fourth Amended and Restated Certificate of Incorporation of Physician
Health Corporation.(1)
3.2 Second Amended and Restated Certificate of Designation, Preferences
and Rights of the Series B Redeemable Convertible Preferred Stock of
Physician Health Corporation.(1)
3.3 Amended and Restated Bylaws of Physician Health Corporation.(1)
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Jackson Walker, L.L.P.(2)
9.1 Second Amended and Restated Stockholders' Agreement, dated as of June
16, 1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., the Weston Investors, the EGL Investors and other
shareholders added from time to time.(1)
9.2 Amendment and Joinder to Second Amended and Restated Stockholders'
Agreement, dated as of October 27, 1997, among Physician Health
Corporation, Paribas Principal, Inc., Paribas Capital Funding, LLC and
certain other stockholders of Physician Health Corporation.(2)
10.1 Asset Purchase and Contribution Agreement dated June 16, 1997, by and
among Metroplex Hematology/Oncology Associates, L.L.P., the
Shareholders of Metroplex Hematology/Oncology Associates, L.L.P., each
Physician's wholly owned professional association and Physician Health
Corporation.(1)
10.2 Management Services Agreement, by and among Metroplex Hematology/
Oncology Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health
Corporation and the Metroplex Providers.(1)
10.3 Supplemental Agreement by and among Metroplex Hematology/Oncology
Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health Corporation
and the Metroplex Providers.(1)
10.4 Agreement and Plan of Reorganization by and among Physician Health
Corporation, Greater Cincinnati Gastroenterology Associates, Inc. and
the Shareholders of Greater Cincinnati Gastroenterology Associates,
Inc.(1)
10.5 Practice Management Agreement by and among PHC Ohio, Inc. and GCGA
Physicians, Inc.(1)
10.6 Agreement and Plan of Merger by and among Physician Health
Corporation, PHC-Orlando Acquisition Subsidiary II, Inc., Internal
Medicine Specialists, Inc. and the Shareholders of Internal Medicine
Specialists, Inc.(2)
10.7 Form of Employment Agreement by and among Internal Medicine
Specialists, Inc. and each of the Shareholders of Internal Medicine
Specialist, Inc.(1)
10.8 Option Agreement by and among Central Florida Surgical Centers, Inc.,
C. Raymond Cottrell, M.D., Antonio Caos, M.D., Kenneth R. Feuer, M.D.,
Robert T. Baker, M.D. and PHC Holding Corporation.(1)
10.9 Option Agreement by and among Oakwater Surgical Center, Inc., C.
Raymond Cottrell, M.D., Antonio Caos, M.D., Alex Menendez, M.D.,
Kenneth R. Feuer, M.D., Robert T. Baker, M.D. and PHC Holding
Corporation.(1)
10.10 Agreement and Plan of Merger, dated as of September 4, 1997, among
Physician Health Corporation, PHC-Midwest, Inc. and the Shareholders
of Parkcrest Surgical Associates, Inc.(2)
10.11 Practice Management Agreement among Physician Health Corporation, PHC-
Midwest, Inc. and P.S.A. Medical Group, Inc.(2)
</TABLE>
<PAGE>
<TABLE>
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<C> <S>
10.12 Asset Purchase Agreement by and among Physician Health Corporation,
PHC Regional Oncology Care, Inc., Southern Dependacare, Inc. and Jack
G. Hilton, M.D.(2)
10.13 Practice Management Agreement, by and among Physician Health
Corporation, PHC Regional Oncology Care, Inc., PHC Illinois 1, S.C.
and PHC-Mississippi, P.L.L.C.(1)
10.14 Agreement and Plan of Merger by and among Physician Health
Corporation, MidSouth Practice Management, Inc. and PHC Tennessee
Acquisition Subsidiary I, Inc.(2)
10.15 Management Services Agreement, dated as of September 22, 1997, by and
among MidSouth Practice Management, Inc., Foundation Medical Group,
PLLC and the Physicians named therein.(2)
10.16 Management Services Agreement, dated as of September 22, 1997, by and
between Memphis Children's Clinic and the Physicians named therein.(2)
10.17 Management Services Agreement, dated as of November 10, 1997, by and
between MidSouth Management Inc. and Bryant Medical Services, P.C.(2)
10.18 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Foundation
Medical Group, PLLC and the Physicians named therein.(1)
10.19 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Memphis
Children's Clinic, PLLC and the Physicians named therein.(1)
10.20 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Bryant
Medical Services, P.C. and James W. Bryant, M.D.(1)
10.21 Physician Health Corporation Amended and Restated 1995 Stock Option
Plan.(1)
10.22 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and Sarah C. Garvin.*
10.23 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and Tom Rodgers.*
10.24 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and J. Michael Ribouds, M.D.*
10.25 Letter Agreement, dated November , 1997, by and between Thomas
Rodgers and Physician Health Corporation.*
10.26 General Undertakings Agreement, dated as of October 1996, by and among
Physician Health Corporation, PHC St. Louis Acquisition Subsidiary I,
Inc., Metropolitan Plastic and Reconstructive Surgery, Ltd. and J.
Michael Ribaudo, M.D.(1)
10.27 Amendment to General Undertakings Agreement.(2)
10.28 Employment Agreement by and between Physician Health Corporation and
William Stewart, M.D.*
10.29 Stock and Warrant Purchase Agreement, dated December 29, 1995, among
Physician Health Corporation, Sarah C. Garvin, Howard E. Fagin, Ph.D.,
H. Thomas Scott, Julie Rawls Moore, Shamus Holt, EGL Holdings, Inc.,
Mercury Asset Management, Plc, NatWest Ventures Investments Limited
and certain individuals and custodians.(1)
10.30 Form of Contingent Share Warrant to Purchase Shares of Class A
Preferred Stock pursuant to the EGL Stock and Warrant Purchase
Agreement.(1)
10.31 Warrant, dated December 29, 1995, issued to EGL Holdings, Inc. to
purchase 190,000 shares of Common Stock.(1)
</TABLE>
<PAGE>
<TABLE>
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<C> <S>
10.32 Securities Purchase Agreement, dated as of June 16, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited and NatWest Ventures Investments Limited.(1)
10.33 Amendment No. 1 to Securities Purchase Agreement, dated as of July 31,
1997, among Physician Health Corporation, Weston Presidio Capital II,
L.P., Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.(1)
10.34 Amendment No. 2 to Securities Purchase Agreement, dated as of October
27,1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., BancBoston Investments, Inc., Mercury Asset Management, plc,
on behalf of Rowan Nominees Limited, NatWest Ventures Investments
Limited, St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III,
C.V., U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double
Black Diamond II LLC, Almanori Limited, Multinvest Limited, National
City Venture Corporation and Paribas Principal Incorporated.(1)
10.35 Equity Call Agreement, dated as of June 16, 1997, among Physician
Health Corporation, Weston Presidio Capital II, L.P., Metroplex
Hematology/Oncology Associates, L.L.P, BancBoston Investments, Inc.,
Mercury Asset Management, plc, on behalf of Rowan Nominees Limited,
NatWest Ventures Investments Limited.(1)
10.36 Amendment No. 1 to Equity Call Agreement, dated as of July 31, 1997,
among Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology, Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.(1)
10.37 Joinder to Equity Call Agreement, dated as of October 27, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited, National City Venture
Corporation and Paribas Principal Incorporated.(1)
10.38 Escrow Agreement, dated as of June 16, 1997, among Physician Health
Corporation, Weston Presidio Capital II, L.P., BancBoston Ventures,
Inc., Mercury Asset Management, plc, on behalf of Rowan Nominees
Limited and NatWest Ventures Investments, Limited.(2)
10.39 Amendment No. 1 to Escrow Agreement, dated as of July 31, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited and National City
Venture Corporation.(1)
10.40 Amendment No. 2 to Escrow Agreement, dated as of October 27, 1997,
among Physician Health Corporation, Weston Presidio Capital III, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners 111, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited, National City
Venture Corporation and Paribas Principal Incorporated.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
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<C> <S>
10.41 Weston Presidio--Form of Common Stock Warrant.(1)
10.42 Credit Agreement, dated as of October 27, 1997, among Physician Health
Corporation, PHC Holding Company, Various Banks and Banque Paribas, as
Agent.(2)
10.43 Securities Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Principal
Incorporated.(1)
10.44 Warrant, dated October 12, 1997, issued by Physician Health
Corporation to Paribas Principal Incorporated.(1)
10.45 Senior Subordinated Loan Agreement, dated as of October 27, 1997,
among Physician Health Corporation, PHC Holding Corporation, the
financial institutions from time to time party thereto and Paribas
Capital Funding, LLC, as Agent.(2)
10.45a Amendment No. 1 to the Senior Subordinated Loan Agreement among
Physician Health Corporation, PHC Holding Corporation, the Lenders
party thereto and Paribas Capital Funding LLC, as Agent.(2)
10.46 Warrant Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Capital Funding,
LLC.(1)
10.47 Warrant Certificate, dated as of October 27, 1997, issued by Physician
Health Corporation to Paribas Capital Funding, LLC.(1)
10.48 Warrant Agreement, dated as of October 27, 1997, by and between
Physical Health Corporation and Paribas Capital Funding, L.L.C.(1)
10.49 Restated and Amended Stockholder Agreement, dated November 1, 1997, by
and among Physician Health Corporation, Sarah, C. Garvin, Howard E.
Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore, and Shamus Holt.(2)
10.50 Amendment to Restated and Amended Stockholder Agreement, dated
February 1997, by and among Physician Health Corporation, Sarah, C.
Garvin, Howard E. Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore,
and Shamus Holt.(2)
10.51 Non-Competition and Non-Disclosure Form of Agreement executed by each
Founder of Physician Health Corporation.(2)
10.52 Amended and Restated Registration Rights Agreement by and among
Physician Health Corporation and the stockholders named therein.(1)
10.53 Joinder to Amended and Restated Registration Rights Agreement, dated
October 1997, by Thomas M. Rodgers.(1)
10.54 Letter Agreement, dated September 16, 1997, by and between
NationsCredit Settlement Agreement and Physician Health
Corporation.(1)
10.55 Warrant, dated June 16, 1997, issued by Physician Health Corporation
to DVI Financial Services, Inc.(1)
10.56 Loan and Security Agreement No. 1 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.57 Loan and Security Agreement No. 2 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.58 Loan and Security Agreement No. 3 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.59 Loan and Security Agreement No. 4 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.60 Loan and Security Agreement No. 5 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
</TABLE>
<PAGE>
<TABLE>
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<C> <S>
10.61 Loan and Security Agreement No. 6 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.62 Loan and Security Agreement, dated as of June 16, 1997, among MHOA
Texas I, L.L.C. and DVI Business Credit Corporation.(1)
10.63 Warrant and Preferred Stock Commitment, dated September 12, 1997, by
and among Physician Health Corporation, Weston Presidio Capital II,
L.P. and the holders of Series B Preferred Stock or Common Stock named
therein.(1)
10.64 Warrant, dated September 12, 1997, issued by Physician Health
Corporation to Weston Presidio Capital II, L.P.(1)
21.1 Subsidiaries.(1)
23.1 Consent of Arthur Andersen LLP.(1)
23.2 Consent of Ernst & Young LLP.(1)
24.1 Power of Attorney (contained on the signature page of this
Registration Statement).(1)
27 Financial Data Schedule(2)
99.1 Consent of Director nominee William C. Stewart, Jr., M.D.(2)
</TABLE>
- --------
* To be filed by amendment.
(1) Previously filed
(2) Filed herewith
<PAGE>
EXHIBIT 5.1
January 7, 1998
Physician Health Corporation
One Lakeside Commons, Suite 300
990 Hammond Drive
Atlanta, Georgia 30328
Re: Registration Statement on Form S-1 of Physician Health Corporation
------------------------------------------------------------------
Ladies and Gentlemen:
We are acting as counsel for Physician Health Corporation, Inc., a Delaware
Corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of the offering and sale of up
to 3,000,000 shares (and up to an additional 450,000 shares to cover
Underwriters' overallotments) of the Company's Common Stock, par value $0.0025
per share (the "Shares"), which Shares are issuable in connection with the
Company's initial public offering. A Registration Statement (as amended, the
"Registration Statement") on Form S-1 (No. 333-40073) covering the offering and
sale of the Shares was filed with the Securities and Exchange Commission (the
"Commission") on November 12, 1997.
In reaching the conclusions expressed in this opinion, we have examined and
relied upon originals or certified copies of all documents, certificates, and
instruments as we have deemed necessary to the opinions expressed herein. In
making the foregoing examinations, we have assumed the genuineness of all
signatures on original documents, the authenticity of all documents submitted
to us as originals and the conformity to original documents to all copies
submitted to us.
Based solely upon the foregoing, subject to the comments hereinafter
stated, and limited in all respects to the laws of the State of Texas, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America, it is our opinion that the Shares, when sold in
accordance with the terms of the Underwriting Agreement, the form of which forms
an exhibit to the Registration Statement, will be validly and legally issued,
fully paid and nonassessable.
You should be aware that we are not admitted to practice law in the State
of Delaware. Accordingly, any opinion herein as to the laws of the State of
Delaware is based solely upon the latest generally available compilation of the
statutes and case law of such state.
<PAGE>
Physician Health Corporation
January 1, 1998
Page 2
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Jackson Walker L.L.P.
<PAGE>
EXHIBIT 9.2
AMENDMENT AND JOINDER TO THE SECOND AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT
AGREEMENT (this "Agreement") dated as of October 27, 1997 by and among
PHYSICIAN HEALTH CORPORATION (the "Company"), PARIBAS PRINCIPAL INCORPORATED
("PPI"), PARIBAS CAPITAL FUNDING LLC ("PCF') and certain other shareholders of
the Company. Capitalized terms herein which are not otherwise defined herein
shall have the meanings set forth in the Stockholders Agreement described below.
W I T N E S S E T H:
-------------------
WHEREAS, on June 16, 1997, the Company and certain of the stockholders of
the Company entered into the Second Amended and Restated Stockholders Agreement
(the "Stockholders Agreement");
WHEREAS, simultaneously with the execution and delivery of this Agreement,
PPI and the Company have entered into a Securities Purchase Agreement (the "New
Securities Purchase Agreement") pursuant to which the Company will issue, and
PPI will subscribe for, certain shares of Series B Preferred Stock, par value
$.01 per share, of the Company (the "Series B Preferred Stock") and certain
purchase warrants (the " PPI Purchase Warrants") exercisable into Common Stock
of the Company;
WHEREAS, simultaneously with the execution and delivery of this Agreement,
PCF and the Company have entered into a Warrant Purchase Agreement (the "PCF
Warrant Purchase Agreement") pursuant to which the Company will issue, and PCF
will subscribe for certain purchase warrants (the "PCF Purchase Warrants", and
together with the PPI Purchase Warrants, the "Purchase Warrants") exercisable
into Common Stock of the Company;
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to (i) PPI's obligation to purchase the Series B Preferred Stock and
the PPI Purchase Warrants pursuant to the New Securities Purchase Agreement and
(ii) PCF's obligation to purchase the PCF Purchase Warrants pursuant to the PCF
Warrant Purchase Agreement.
NOW, THEREFORE, IT IS AGREED:
(S)1.0 Amendment and Joinder. (a) For purposes of the Stockholders
---------------------
Agreement, (i) each of PPI and PCF shall be deemed to be "Weston Investors" , as
such term is defined in the Stockholders Agreement and Schedule A of the
----------
Stockholders Agreement shall be deemed to be amended to include each of PPI and
PCF, (ii) each of the New Securities Purchase Agreement and the PCF Warrant
Purchase Agreement shall be deemed to be included in the definition of the
"Purchase Agreement" as such term is defined in the Stockholders Agreement;
(iii) the Purchase Warrants and any contingent warrants issued in respect of the
Preferred Stock shall be deemed to be included in the definition of "Warrants"
as such term is defined in the Stockholders Agreement and (iv) the Series B
Preferred Stock issuable pursuant to the New Securities Agreement shall be
deemed to be included in the definition of "Preferred Stock" as such term is
defined in the Stockholders Agreement.
(b) The Stockholders Agreement is hereby amended to delete Sections 7.,3
and 7.4 thereof, in their entirety, and insert the following new Sections 7.3
and 7.4 in lieu thereof;
"(S)7.3 Amendments, Waiver and Consents. Any provision in this Agreement
-------------------------------
to the contrary notwithstanding, changes in or additions to this Agreement
may he made, and compliance with any covenant or provision herein set forth
maybe omitted or waived, only by written agreement signed by (a) the
Company and (b) Stockholders holding an aggregate of at least
1
<PAGE>
a majority of the shares of Common Stock held by the Stockholders, on an as
converted/exercised basis and if, in each such case, copies of such
modification are delivered to any parties who did nor execute the same;
provided, however, that no such modification adversely affecting any
-------- -------
Stockholder shall be made without the prior written consent of such
Stockholder.
(S)7.4 Binding Effect, Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the personal representatives, successors and
assigns of the respective parties hereto. The Company shall not have the
right to assign its rights or obligations hereunder or any interest herein
without obtaining the prior Written consent of the Stockholders holding an
aggregate of at least a majority of the shares of Common Stock held by the
Stockholders, on an as converted/exercised basis. The Stockholders and the
Investors may assign or transfer their rights under this Agreement to the
extent permitted herein and by the other agreements between the respective
parties and the Company."
___________________________________
Julie Rawls Moore
990 Hammond Drive, Suite 300
Atlanta, GA 30328
___________________________________
Howard E. Fagin, Ph.D.
990 Hammond Drive, Suite 300
Atlanta, GA 30328
___________________________________
H. Thomas Scott
990 Hammond Drive, Suite 300
Atlanta, GA 30328
___________________________________
J. Michael Ribaudo, M.D.
CEO, PHC MidWest, Inc.
450 North New Ballas Road, Suite 250
St. Louis, MO 63141-6835
2
<PAGE>
ST. PAUL VENTURE CAPITAL IV, LLC
___________________________________
By:
Title:
NATIONAL CITY VENTURE CORPORATION
___________________________________
By:
Title:
BANCBOSTON INVESTMENTS INC.
___________________________________
By:
Title:
___________________________________
Sarah C. Garvin
990 Hammond Drive, Sutie 300
Atlanta, GA 30328
___________________________________
Thomas Rodgers, Jr.
990 Hammond Drive, Suite 300
Atlanta, GA 30328
___________________________________
Shamus Holt
3885 Oakwater Circle
Orlando, FL 32806
3
<PAGE>
The undersigned have executed this Agreement as of the date written next t
their signatures.
PHYSICIAN HEALTH CORPORATION
___________________________________
By:
Title:
PARIBAS PRINCIPAL INCORPORATED
___________________________________
By:
Title:
PARIBAS CAPITAL FUNDING LLC
___________________________________
By:
Title:
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
___________________________________
By:
Title:
4
<PAGE>
EX. 10.6
AGREEMENT AND PLAN OF MERGER
by and among
PHYSICIAN HEALTH CORPORATION
a Delaware corporation,
PHC-ORLANDO ACQUISITION SUBSIDIARY II, INC.
a Georgia corporation,
INTERNAL MEDICINE SPECIALISTS, INC.
a Florida corporation
and
THE SHAREHOLDERS OF INTERNAL MEDICINE SPECIALISTS, INC.
Dated October 29, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C> <C>
ARTICLE I MERGER, EFFECT OF MERGER........................................................1
------------------------
1.1 Effect of Merger................................................................1
----------------
1.2 Surviving Corporation...........................................................2
---------------------
1.3 Name............................................................................2
----
1.4 Articles of Incorporation.......................................................2
-------------------------
1.5 Bylaws..........................................................................2
------
1.6 Directors and Officers..........................................................2
----------------------
1.7 Conversion of Shares............................................................2
--------------------
1.8 Procedure for Exchange..........................................................4
----------------------
1.9 Status of Target Shares After Effective Date....................................4
--------------------------------------------
1.10 Closing.........................................................................4
-------
1.11 Risk of Loss....................................................................4
------------
1.12 Tax and Accounting Treatment....................................................4
----------------------------
ARTICLE II REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER AND
------------------------------------------------------
TARGET..........................................................................5
------
2.1 Organization, Standing and Authority of Target..................................5
----------------------------------------------
2.2 Absence of Conflicting Agreements or Required Consents Relating to Each
-----------------------------------------------------------------------
Shareholder's and Target's Respective Obligations...............................5
-------------------------------------------------
2.3 Licenses and Authorizations.....................................................6
---------------------------
2.4 Lease Agreements................................................................6
----------------
2.5 Financial Statements............................................................6
--------------------
2.6 Absence of Changes..............................................................6
------------------
2.7 Litigation and Claims...........................................................8
---------------------
2.8 No Undisclosed Liabilities......................................................8
--------------------------
2.9 No Violation of Law, Generally..................................................8
------------------------------
2.10 Properties......................................................................9
----------
2.11 Indebtedness...................................................................10
------------
2.12 Employee Contracts, Union Agreements and Benefit Plans.........................11
------------------------------------------------------
2.13 Labor Relations................................................................11
---------------
2.14 Contracts and Commitments......................................................12
-------------------------
2.15 Environmental Protection.......................................................13
------------------------
2.16 Filing of Reports..............................................................13
-----------------
2.17 Insurance Policies.............................................................13
------------------
2.18 Accounts Receivable............................................................14
-------------------
2.19 Accounts Payable...............................................................14
----------------
2.20 Inventory......................................................................14
---------
2.21 Inspections and Investigations.................................................14
------------------------------
2.22 Ownership of Medical Service Practice(s).......................................15
----------------------------------------
2.23 Agreements in Full Force and Effect............................................15
-----------------------------------
2.24 Taxes..........................................................................15
-----
</TABLE>
1
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<TABLE>
<S> <C> <C> <C>
2.25 Capitalization; Title to Shares................................................15
-------------------------------
2.26 Corporate Documents............................................................16
-------------------
2.27 Statements True and Correct....................................................16
---------------------------
2.28 Delivery and Acceptance of Schedules...........................................16
------------------------------------
2.29 Investment Intent..............................................................16
-----------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PHC AND ACQUISITION
-----------------------------------------------------
SUBSIDIARY.....................................................................17
----------
3.1 Organization, Standing and Authority of PHC....................................17
-------------------------------------------
3.2 Absence of Conflicting Agreements or Required Consents Relating to PHC's
------------------------------------------------------------------------
Obligations....................................................................17
-----------
3.3 Financial Statements...........................................................18
--------------------
3.4 Litigation and Claims..........................................................18
---------------------
3.5 No Undisclosed Liabilities.....................................................18
--------------------------
3.6 No Violation of Law............................................................18
-------------------
3.7 Filing of Reports..............................................................19
-----------------
3.8 Capitalization; Title to Shares................................................19
-------------------------------
3.9 Statements True and Correct....................................................19
---------------------------
3.10 Acquisition Subsidiary.........................................................19
----------------------
3.11 Organization, Standing and Authority of Acquisition Subsidiary.................20
--------------------------------------------------------------
3.12 Common Stock of Acquisition Subsidiary.........................................20
--------------------------------------
3.13 PPM............................................................................20
---
ARTICLE IV ADDITIONAL AGREEMENTS..........................................................20
---------------------
4.1 Access and Inspection..........................................................20
---------------------
4.2 Cooperation in Meeting Filing Requirements.....................................20
------------------------------------------
4.3 Post Closing Audit of Target...................................................21
----------------------------
4.4 Further Assurances.............................................................21
------------------
4.5 Appointment of Attorney-in-Fact................................................21
-------------------------------
4.6 Acceptance of Appointment......................................................21
-------------------------
4.7 Power of Attorney Irrevocable, Etc.............................................22
----------------------------------
4.8 Successor Attorney-in-Fact.....................................................22
--------------------------
4.9 Limitation of Liability and Indemnity..........................................22
-------------------------------------
4.10 PHC Disclosure; Limited Right of Termination...................................23
--------------------------------------------
4.12 Formation and Operation of Compliance Committee................................24
-----------------------------------------------
4.13 ASC Purchase Option............................................................24
-------------------
4.14 Delivery and Acceptance of Schedules...........................................24
------------------------------------
ARTICLE V CONDUCT OF BUSINESS OF TARGET AND EACH SHAREHOLDER
--------------------------------------------------
PENDING CLOSING................................................................24
---------------
5.1 Disposition of Assets..........................................................25
---------------------
5.2 Sale of Shares.................................................................25
--------------
5.3 Contracts......................................................................25
---------
5.4 Condition of Assets............................................................25
-------------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
5.5 Liens; Encumbrances............................................................25
-------------------
5.6 Access and Inspection..........................................................25
---------------------
ARTICLE VI CONDITIONS TO OBLIGATIONS OF PHC AND ACQUISITION
------------------------------------------------
SUBSIDIARY.....................................................................25
----------
6.1 Necessary Approvals............................................................26
-------------------
6.2 Representations and Warranties.................................................26
------------------------------
6.3 Performance; Covenants.........................................................26
----------------------
6.4 PHC Due Diligence..............................................................27
-----------------
ARTICLE VII CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND
-------------------------------------------------
TARGET.........................................................................27
------
7.1 Representations and Warranties.................................................27
------------------------------
7.2 Performance; Covenants.........................................................28
----------------------
7.3 Target Due Diligence...........................................................28
--------------------
ARTICLE VIII INDEMNIFICATION................................................................29
---------------
8.1 Indemnification by Each Shareholder and Target.................................29
----------------------------------------------
8.2 Indemnification by PHC.........................................................30
----------------------
8.3 Definition of Losses...........................................................30
--------------------
8.4 Offset.........................................................................30
------
8.5 Notice and Opportunity to Defend...............................................31
--------------------------------
8.6 Effect of Investigation by PHC.................................................32
------------------------------
8.7 Effect of Investigation by Target and Shareholders.............................32
--------------------------------------------------
8.8 Dispute Resolution.............................................................32
------------------
ARTICLE IX MISCELLANEOUS PROVISIONS.......................................................33
------------------------
9.1 Notices........................................................................33
-------
9.2 Successors and Assigns.........................................................34
----------------------
9.3 Entire Agreement...............................................................34
----------------
9.4 Governing Law; Severability....................................................34
---------------------------
9.5 No Brokers.....................................................................34
----------
9.6 Schedules and Exhibits.........................................................35
----------------------
9.7 Waivers........................................................................35
-------
9.8 Headings.......................................................................35
--------
9.9 Counterparts...................................................................35
------------
9.10 Confidentiality................................................................35
---------------
9.11 Expenses.......................................................................35
--------
9.12 No Third Party Beneficiaries...................................................36
----------------------------
9.13 Survival.......................................................................36
--------
9.14 Attorney Fees..................................................................36
-------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LIST OF EXHIBITS
----------------
<S> <C>
Exhibit A List of Shareholders
Exhibit B [Reserved]
Exhibit C Insert to Bylaws
Exhibit D Disclosure Documents
Exhibit E ASC Purchase Option Agreements
Exhibit F Form of Employment Agreement
Exhibit G Opinion of Counsel of Target
Exhibit H Investment Agreement
Exhibit I Registration Rights Agreement
Exhibit J Practice Repurchase Agreement
Exhibit K Opinion of Counsel of PHC
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
LIST OF SCHEDULES
-----------------
<S> <C>
Schedule 2.2 Required Consents Relating to Each Shareholder's and Target's Obligations
- ------------
Schedule 2.3 Licenses and Authorizations
- ------------
Schedule 2.4 Lease and License Agreements
- ------------
Schedule 2.5 Financial Statements of Target
- ------------
Schedule 2.6 Absence of Changes
- ------------
Schedule 2.7 Litigation and Claims
- ------------
Schedule 2.8 Undisclosed Liabilities
- ------------
Schedule 2.9 Violations of Law
- ------------
Schedule 2.10(a) Properties
- ----------------
Schedule 2.10(b) Leased/Licensed Equipment
- ----------------
Schedule 2.10(c) Equipment, Utility and Other Deposits
- ----------------
Schedule 2.10(d) Exceptions to Title to Assets
- ----------------
Schedule 2.11 Indebtedness
- -------------
Schedule 2.12(a) Employment Contracts, Union Agreements and Benefit Plans
- ----------------
Schedule 2.13 Exceptions to Compliance with Employment and Labor Laws
- -------------
Schedule 2.14 Contracts and Commitments
- -------------
Schedule 2.15 Environmental Protection
- -------------
Schedule 2.17 Insurance Policies
- -------------
Schedule 2.18 Accounts Receivable
- -------------
Schedule 2.19 Accounts Payable
- -------------
Schedule 2.21 Inspections and Investigations
- -------------
Schedule 2.22 Ownership of Medical Service Practice(s)
- -------------
Schedule 2.24 Taxes
- -------------
Schedule 2.25 Capitalization of Target
- -------------
Schedule 3.1 Organization, Standing and Authority of PHC
- ------------
Schedule 3.2 Absence of Conflicting Agreements or Required Consents Relating to PHC's
- ------------ Obligations
Schedule 3.5 Financial Statements
- ------------
Schedule 3.6 Absence of Changes
- ------------
Schedule 3.7 Litigation and Claims
- ------------
Schedule 3.9 No Violation of Law
- ------------
</TABLE>
7
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of this 29/th/ day of October, 1997, by and among Physician Health
Corporation, a Delaware corporation ("PHC"), PHC-Orlando Acquisition Subsidiary
II, Inc., a Georgia corporation ("Acquisition Subsidiary"), Internal Medicine
Specialists, Inc., a Florida corporation ("Target") and each of the Shareholders
of Target listed on Exhibit A attached hereto (each a "Shareholder" and
---------
collectively the "Shareholders"). (The parties hereto agree that Jeffrey M.
Cohen, M.D. may be included as an additional party to this Agreement, and within
the definition of "Shareholders" as used herein, as provided in Section 4.10.)
R E C I T A L S:
---------------
PHC desires to acquire Target in a reverse triangular merger qualifying
as a tax-free reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"). As
consideration for the acquisition of Target, Shareholders shall acquire stock of
PHC in the merger.
A G R E E M E N T S:
-------------------
For and in consideration of the premises and the mutual covenants,
agreements, representations and warranties contained herein, the parties hereto,
intending to be legally bound, covenant and agree as follows:
ARTICLE I
MERGER, EFFECT OF MERGER
------------------------
On the Effective Date (as defined in Section 1.1 hereof), Acquisition
Subsidiary shall merge with and into Target, and Target shall survive the Merger
as the surviving corporation (Target shall sometimes be referred to herein as
the "Surviving Corporation").
I.1 Effect of Merger.
----------------
The Merger shall become effective the date (the "Effective Date") on
which the duly executed Articles of Merger are filed with the Secretary of State
of Georgia and the Department of State of Florida in accordance with the
applicable legal requirements of the State of Georgia and the State of Florida.
On the Effective Date, and as a result of the Merger: (a) the separate existence
of Acquisition Subsidiary will cease; (b) title to all assets and properties, or
any interest therein, owned by Acquisition Subsidiary will be vested in the
Surviving Corporation without reversion or impairment; (c) the Surviving
Corporation will thenceforth be responsible and liable for all the liabilities
and obligations of Acquisition Subsidiary and (d) neither the rights of
creditors nor any liens upon the property of Acquisition Subsidiary will be
impaired by the Merger.
<PAGE>
I.2 Surviving Corporation.
---------------------
Following the Merger, the existence of the Surviving Corporation shall
continue unaffected and unimpaired by the Merger, with all the rights,
privileges, immunities and powers, and subject to all the duties and
liabilities, of a corporation organized under the laws of the State of Florida.
I.3 Name.
----
As a result of the Merger, the Surviving Corporation's corporate name
shall be unchanged.
I.4 Articles of Incorporation.
-------------------------
The Articles of Incorporation of Surviving Corporation, as in effect on
the Effective Date, shall remain the Articles of Incorporation of Surviving
Corporation thereafter from and after the Effective Date, subject to the right
of Surviving Corporation thereafter to amend its Articles of Incorporation in
accordance with Florida law.
I.5 Bylaws.
------
The Bylaws of Surviving Corporation, as in effect on the Effective
Date, shall be amended to include the provision set forth in Exhibit C, to the
---------
extent permitted under Florida law, and such Bylaws, as amended, shall remain
the Bylaws of Surviving Corporation from and after the Effective Date, subject
to the right of Surviving Corporation thereafter to amend its Bylaws in
accordance with its Articles of Incorporation and with Florida law.
I.6 Directors and Officers.
----------------------
Until the proper election and qualification of their successors, the
members of the Board of Directors and the officers of Acquisition Subsidiary in
office on the Effective Date shall be the Board of Directors and officers of
Surviving Corporation.
I.7 Conversion of Shares.
--------------------
(a) On the Effective Date, all of the then outstanding shares
of capital stock of Target (the "Target Shares") shall be converted into a total
of four hundred thousand eight hundred and sixty eight dollars ($429,865) in
cash and 786,098 shares of the Voting Common Stock of PHC (the "PHC Shares"),
and all outstanding certificates evidencing shares of capital stock of Target
shall be canceled.
Page 2
<PAGE>
(b) In addition to the shares to be issued by PHC to the
Shareholders pursuant to Section 1.7(a) above, PHC shall issue and deliver to
the Shareholders additional shares of its Voting Common Stock (the "Contingent
Shares") pursuant to the terms and conditions set forth in Section 1.7(c) below;
provided, however, in no event shall the number of Contingent Shares to be
issued to the Shareholders under this Section 1.7(b) exceed the number of PHC
Shares initially issued to the Shareholders pursuant to Section 1.7(a) above.
(c) The determination of the amount, if any, of the Contingent
Shares that shall be issued to the Shareholders, shall be made pursuant to the
terms and conditions set forth in this Section 1.7(c) as follows:
(i) The parties hereby acknowledge and agree that a
portion of the PHC Shares to be issued to the Shareholders pursuant to Section
1.7(a) hereof was determined by reference to an amount equal to one hundred
percent (100%) of the "Adjusted Accounts Receivable" (as defined below) of
Target as of the Closing Date. The "Adjusted Accounts Receivable" of Target
shall be determined by taking the actual amount of accounts receivable on
Target's books and records as of the Closing Date, less any of Target's accounts
receivable that, in the aggregate (1) are more than one (1) year old with no
payments having been made to Target during the twelve (12) consecutive months
ending on the Closing Date, or (2) were turned over to a collection agency, an
attorney or a third party for collection prior to such date, and multiplying
such remainder by Target's accounts receivable collection ratio (as determined
by dividing Target's total collections by Target's total charges) for the twelve
(12) consecutive month period preceding the Closing Date.
(ii) On the one hundred eightieth (180th) day following
the Closing Date, the Adjusted Accounts Receivable shall be compared to the
actual collections during said one hundred eighty (180) day period of those
accounts receivable on the books and records of Target on the Closing Date. In
the event that the actual collections during said one hundred eighty (180) day
period exceeds the Adjusted Accounts Receivable, PHC shall issue to the
Shareholders (on a pro rata basis) that number of Contingent Shares under this
Section 1.7(c) (based on a value of Four Dollars ($4.00) per share) necessary to
equal such excess amount. In the event that the Adjusted Accounts Receivable
exceeds the actual collections during said one hundred eighty (180) day period
of those accounts receivable on the books and records of Target on the Closing
Date, the Shareholders, on a pro rata basis, shall return to PHC that number of
PHC Shares (based on a value of Four Dollars ($4.00) per share) necessary to
equal such excess amount.
(d) The parties hereby acknowledge and agree that the
Contingent Shares shall not be issued by PHC, and shall not be considered
outstanding stock, until such time as the certificates for any Contingent Shares
hereunder are actually delivered to the Shareholders in accordance with this
Section 1.7, that no party shall have any voting rights with respect to the
Contingent Shares until actually issued to the Shareholders in accordance with
this Section 1.7, and that the Shareholders' rights to receive the Contingent
Shares shall be nontransferable and nonassignable.
Page 3
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of this 29th day of October, 1997, by and among Physician Health
Corporation, a Delaware corporation ("PHC"), PHC-Orlando Acquisition Subsidiary
II, Inc., a Georgia corporation ("Acquisition Subsidiary"), Internal Medicine
Specialists, Inc., a Florida corporation ("Target") and each of the Shareholders
of Target listed on Exhibit A attached hereto (each a "Shareholder" and
---------
collectively the "Shareholders"). (The parties hereto agree that Jeffrey M.
Cohen, M.D. may be included as an additional party to this Agreement, and within
the definition of "Shareholders" as used herein, as provided in Section 4.10.)
R E C I T A L S:
---------------
PHC desires to acquire Target in a reverse triangular merger qualifying as
a tax-free reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"). As
consideration for the acquisition of Target, Shareholders shall acquire stock of
PHC in the merger.
A G R E E M E N T S:
-------------------
For and in consideration of the premises and the mutual covenants,
agreements, representations and warranties contained herein, the parties hereto,
intending to be legally bound, covenant and agree as follows:
ARTICLE I
MERGER, EFFECT OF MERGER
------------------------
On the Effective Date (as defined in Section 1.1 hereof), Acquisition
Subsidiary shall merge with and into Target, and Target shall survive the Merger
as the surviving corporation (Target shall sometimes be referred to herein as
the "Surviving Corporation").
1.1 Effect of Merger.
----------------
The Merger shall become effective the date (the "Effective Date') on which
the duly executed Articles of Merger are filed with the Secretary of State of
Georgia and the Department of State of Florida in accordance with the applicable
legal requirements of the State of Georgia and the State of Florida. On the
Effective Date, and as a result of the Merger: (a) the separate existence of
Acquisition Subsidiary will cease; (b) title to all assets and properties, or
any interest therein, owned by Acquisition Subsidiary will be vested in the
Surviving Corporation without reversion or impairment; (c) the Surviving
Corporation will thenceforth be responsible and liable for all the liabilities
and obligations of Acquisition Subsidiary and (d) neither the rights of
creditors nor any liens upon the property of Acquisition Subsidiary will be
impaired by the Merger.
Page 1
<PAGE>
1.2 Surviving Corporation.
---------------------
Following the Merger, the existence of the Surviving Corporation shall
continue unaffected and unimpaired by the Merger, with all the rights,
privileges, immunities and powers, and subject to all the duties and
liabilities, of a corporation organized under the laws of the State of Florida.
1.3 Name.
----
As a result of the Merger, the Surviving Corporation's corporate name shall
be unchanged.
1.4 Articles of Incorporation.
-------------------------
The Articles of Incorporation of Surviving Corporation, as in effect on the
Effective Date, shall remain the Articles of Incorporation of Surviving
Corporation thereafter from and after the Effective Date, subject to the right
of Surviving Corporation thereafter to amend its Articles of Incorporation in
accordance with Florida law.
1.5 Bylaws.
------
The Bylaws of Surviving Corporation, as in effect on the Effective Date,
shall be amended to include the provision set forth in Exhibit C, to the extent
---------
permitted under Florida law, and such Bylaws, as amended, shall remain the
Bylaws of Surviving Corporation from and after the Effective Date, subject to
the right of Surviving Corporation thereafter to amend its Bylaws in accordance
with its Articles of Incorporation and with Florida law.
1.6 Directors and Officers.
----------------------
Until the proper election and qualification of their successors, the
members of the Board of Directors and the officers of Acquisition Subsidiary in
office on the Effective Date shall be the Board of Directors and officers of
Surviving Corporation.
1.7 Conversion of Shares.
--------------------
(a) On the Effective Date, all of the then outstanding shares of
capital stock of Target (the "Target Shares") shall be converted into a total of
four hundred thousand eight hundred and sixty eight dollars ($429,865) in cash
and 786,098 shares of the Voting Common Stock of PHC (the "PHC Shares"), and all
outstanding certificates evidencing shares of capital stock of Target shall be
canceled.
Page 2
<PAGE>
(b) In addition to the shares to be issued by PHC to the Shareholders
pursuant to Section 1.7(a) above, PHC shall issue and deliver to the
Shareholders additional shares of its Voting Common Stock (the "Contingent
Shares") pursuant to the terms and conditions set forth in Section 1.7(c) below;
provided, however, in no event shall the number of Contingent Shares to be
issued to the Shareholders under this Section 1.7(b) exceed the number of PHC
Shares initially issued to the Shareholders pursuant to Section 1.7(a) above.
(c) The determination of the amount, if any, of the Contingent Shares
that shall be issued to the Shareholders, shall be made pursuant to the terms
and conditions set forth in this Section 1.7(c) as follows:
(i) The parties hereby acknowledge and agree that a portion of the
PHC Shares to be issued to the Shareholders pursuant to Section 1.7(a) hereof
was determined by reference to an amount equal to one hundred percent (100%) of
the "Adjusted Accounts Receivable" (as defined below) of Target as of the
Closing Date. The "Adjusted Accounts Receivable" of Target shall be determined
by taking the actual amount of accounts receivable on Target's books and records
as of the Closing Date, less any of Target's accounts receivable that, in the
aggregate (1) are more than one (1) year old with no payments having been made
to Target during the twelve (12) consecutive months ending on the Closing Date,
or (2) were turned over to a collection agency, an attorney or a third party for
collection prior to such date, and multiplying such remainder by Target's
accounts receivable collection ratio (as determined by dividing Target's total
collections by Target's total charges) for the twelve (12) consecutive month
period preceding the Closing Date.
(ii) On the one hundred eightieth (180th) day following the
Closing Date, the Adjusted Accounts Receivable shall be compared to the actual
collections during said one hundred eighty (180) day period of those accounts
receivable on the books and records of Target on the Closing Date. In the event
that the actual collections during said one hundred eighty (180) day period
exceeds the Adjusted Accounts Receivable, PHC shall issue to the Shareholders
(on a pro rata basis) that number of Contingent Shares under this Section 1.7(c)
(based on a value of Four Dollars ($4.00) per share) necessary to equal such
excess amount. In the event that the Adjusted Accounts Receivable exceeds the
actual collections during said one hundred eighty (180) day period of those
accounts receivable on the books and records of Target on the Closing Date, the
Shareholders, on a pro rata basis, shall return to PHC that number of PHC Shares
(based on a value of Four Dollars ($4.00) per share) necessary to equal such
excess amount.
(d) The parties hereby acknowledge and agree that the Contingent
Shares shall not be issued by PHC, and shall not be considered outstanding
stock, until such time as the certificates for any Contingent Shares hereunder
are actually delivered to the Shareholders in accordance with this Section 1.7,
that no party shall have any voting rights with respect to the Contingent Shares
until actually issued to the Shareholders in accordance with this Section 1.7,
and that the Shareholders' rights to receive the Contingent Shares shall be
nontransferable and nonassignable.
Page 3
<PAGE>
(e) On the Effective Date, PHC shall pay the cash consideration set
forth in Section 1.7 to the Shareholders (the "Cash Consideration"). The Cash
Consideration and the PHC Shares are referred to herein as the " Merger
Consideration."
I.8 Procedure for Exchange.
----------------------
At the Closing, each Shareholder shall surrender to PHC his or her
respective certificates representing the Target Shares owned or held by each
said Shareholder, and each said Shareholder shall receive a certificate
evidencing the PHC Shares owned by such Shareholder.
I.9 Status of Target Shares After Effective Date.
--------------------------------------------
From and after the Effective Date and until surrendered and exchanged,
each outstanding certificate formerly representing Target Shares shall be deemed
for all purposes to represent only the right to receive the PHC Shares specified
in Section 1.7 hereof. From and after the Effective Date, the stock transfer
books of Target shall be closed, and no transfer of shares on the books of
Target shall be made or recorded.
I.10 Closing.
-------
The Closing shall occur at such time as all the conditions precedent to
Closing as set forth in this Agreement and the Signing Agreement of even date
herewith are satisfied, but in no event later than November 15, 1997 (the
"Closing Date"), at 10:00 a.m. local time, at the offices of Maguire, Voorhis &
Wells, P.A., Orlando, Florida, or at such other place and time as the parties
hereto shall mutually agree.
I.11 Risk of Loss.
------------
Risk of loss to the assets of Target, however caused (other than by
Acquisition Subsidiary or those duly authorized to act on behalf of Acquisition
Subsidiary) shall shift to Surviving Corporation at the beginning (viz.,
12:00:01 a.m.) of the day immediately following the Closing Date.
I.12 Tax and Accounting Treatment.
----------------------------
The merger of Acquisition Subsidiary with and into Target is intended
to qualify as a tax-free reorganization within the meaning of (S)(S)
368(a)(1)(A) and 368(a)(2)(E) of the Code. Immediately following the Merger
contemplated hereunder, Target will hold substantially all of its properties and
substantially all of Acquisition Subsidiary's properties (except for any assets
of Acquisition Subsidiary distributed to the Shareholders pursuant to the Merger
and any cash of Acquisition Subsidiary used to pay Target's reorganization
expenses as set forth in Section 9.11 hereof). Notwithstanding any other
provision contained in this Agreement to the contrary, the PHC Shares to be
issued to the Shareholders pursuant to the Merger shall in no event constitute
less than eighty percent (80%) of the total consideration to be exchanged
pursuant to the Merger for the Target Shares owned by the Shareholders. Any
adjustment required to be made by this Section 1.12 to the amount of PHC Shares
Page 4
<PAGE>
and other consideration to be issued in the Merger or otherwise pursuant to this
Agreement shall be effected through an amendment to this Agreement, which shall
be prepared by counsel to PHC, agreed to by all the parties and, after agreed to
by all the parties, executed by the parties hereto prior to Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER AND TARGET
-------------------------------------------------------------
As a material inducement to PHC and Acquisition Subsidiary to enter
into this Agreement, the Shareholders and Target hereby, jointly, severally and
unconditionally, represent and warrant to each of PHC and Acquisition Subsidiary
as follows:
II.1 Organization, Standing and Authority of Target.
----------------------------------------------
Target is a corporation duly organized and validly existing under the
laws of the State of Florida and qualified to do business in all locations where
the nature of its business or the ownership of its assets or properties requires
such qualification. Target has the full requisite power and authority to (a) own
all its assets and properties and to operate its business of operating a medical
practice in the specialties of gastroenterology and nephrology care in the
greater metropolitan Orlando, Florida area (the "Practice") as conducted on the
date hereof, (b) execute and deliver this Agreement and each other document or
instrument contemplated hereby (collectively, the "Transaction Agreements") and
perform its obligations hereunder and thereunder according to their respective
terms, and (c) carry on and operate the Practice as now being conducted. Target
is not a participant in any joint venture, partnership, association or similar
business arrangement with any other person or party. The Attorney-in-Fact (as
defined in Section 4.5 hereof) has the requisite power and authority to execute
and deliver each of the Transaction Agreements and perform his obligations
hereunder and thereunder according to their respective terms.
II.2 Absence of Conflicting Agreements or Required Consents
------------------------------------------------------
Relating to Each Shareholder's and Target's Respective Obligations.
- ------------------------------------------------------------------
The execution, delivery and performance by each Shareholder and Target
respectively, of the Transaction Agreements (with or without the giving of
notice, the lapse of time, or both): (a) except as expressly set forth on
Schedule 2.2, do not require the consent of any governmental or regulatory
- ------------
authority or any other third party; (b) will not conflict with any provision of
Target's Articles of Incorporation, Bylaws or other organizational documents;
(c) will not conflict with, result in a breach of, or constitute a default under
any law, ordinance, regulation, ruling, judgment, order or injunction of any
court or governmental instrumentality to which any Shareholder or Target is a
party or by which any Shareholder or Target or their respective properties are
bound; (d) will not conflict with, constitute grounds for termination of, result
in a breach of, constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which any
Shareholder or Target is a party or by
Page 5
<PAGE>
which any Shareholder or Target or their respective properties are bound; and
(e) will not create any claim, lien, charge or encumbrance upon any of the
assets or properties of Target.
II.3 Licenses and Authorizations.
---------------------------
Each Shareholder and Target hold all valid licenses, permits and other
rights and authorizations required by any federal, state or local law,
ordinance, regulation or ruling of any governmental regulatory authority
necessary to operate the Practice at each of its current locations as it is
currently being operated including, without limitation, the right to receive
Medicare and Medicaid reimbursements. A correct and complete list of all such
licenses, permits and other authorizations is set forth in Schedule 2.3 hereto.
------------
None of such licenses has been revoked or suspended or is the subject of any
proceeding or action for revocation or suspension.
II.4 Lease Agreements.
----------------
Schedule 2.4 hereto contains a current list of all the lease agreements
------------
and license and sublicense agreements to which Target is a party and pursuant to
which Target leases (whether as lessor or lessee) or licenses (whether as
licensor or licensee) any real or personal property related to the operation of
the Practice (the "Lease Agreements"). Target has delivered to PHC true and
complete copies of all of the Lease Agreements. Each of the Lease Agreements is
valid and effective in accordance with its terms, and there is not under any of
such Lease Agreements (a) any existing or claimed material default by Target or
event of default or event which with notice or lapse of time, or both, would
constitute a default by Target, or (b) any existing material default by any
other party under any of the Lease Agreements or any event of material default
or event which with notice or lapse of time, or both, would constitute a
material default by any such party.
II.5 Financial Statements.
--------------------
Attached hereto as Schedule 2.5 are Target's unaudited financial
------------
statements for the fiscal years ending December 31, 1995 and 1996 and unaudited
interim financial statements for the period ending September 30, 1997 the
("Interim Financials Date") (collectively, the "Interim Financial Statements"),
reflecting the results of the operations and financial condition of Target and
the Practice at such dates which have been prepared in accordance with the
federal income tax basis of accounting (cash method) consistently applied
(collectively, the "Financial Statements"). The Financial Statements: (i)
present fairly the financial position of Target and the Practice as of the dates
indicated and present fairly the results of Target's operations for the periods
then ended; and (ii) are in accordance with the books and records of Target, as
the case may be, which have been properly maintained and are complete and
correct. To Target's and each of the Shareholder's knowledge, each of the
Financial Statements is auditable for purposes of determining its conformity to
generally accepted accounting principles.
Page 6
<PAGE>
II.6 Absence of Changes.
------------------
Except as expressly set forth in Schedule 2.6 hereto and as permitted
------------
or contemplated by this Agreement, since the Interim Financials Date, Target has
conducted the Practice only in the ordinary course of business consistent with
past practices, and has not:
(a) Suffered any material adverse change in its working
capital, condition (financial or otherwise), assets, liabilities, reserves,
business or operations (such change being referred to herein as a "Material
Adverse Effect");
(b) Paid, discharged or satisfied any material liability other
than the payments, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) Written off as uncollectible any receivable, except for
write-offs in the ordinary course of business;
(d) Except in the ordinary course of business and consistent
with past practices, canceled or compromised any debts or waived or permitted to
lapse any claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets;
(e) Entered into any commitment or transaction not in the
ordinary course of business or made any capital expenditure or commitment in
excess of Five Thousand and No/100 Dollars ($5,000.00);
(f) Made any change in any method of accounting or accounting
practice for financial or income tax purposes;
(g) Incurred any liabilities or obligations (absolute, accrued
or contingent) in excess of Five Thousand and No/100 Dollars ($5,000.00), except
for trade payables incurred in the ordinary course of business;
(h) Mortgaged, pledged, subjected or agreed to subject, any of
its assets, tangible or intangible, to any lien, claim or encumbrance, except
for liens of current personal property taxes not yet due and payable;
(i) Sold or otherwise transferred any ownership interest in
Target;
(j) Increased any salaries, wages or any employee benefits for
any employee except in the ordinary course of business;
(k) Hired, committed to hire or terminated any employee except
in the ordinary course of business; or
Page 7
<PAGE>
(l) Agreed, whether in writing or otherwise, to take any
action particularly described in this Section 2.6.
II.7 Litigation and Claims.
---------------------
Except as expressly set forth in Schedule 2.7 hereto, there are no
------------
claims, lawsuits, counterclaims, proceedings, or investigations pending, and to
each Shareholder's and Target's knowledge (which for purposes of this Agreement
shall mean the conscious awareness of facts or other information) threatened,
against or affecting any Shareholder, Target, the Practice or any licensed
professional or other individual employed by or under contract with the Practice
in any court or before any arbitrator or governmental authority or agency, and
to each Shareholder's and Target's knowledge, there is no basis for any such
action or any state of facts or occurrence of any event which is reasonably
expected to give rise to the foregoing, which has or is reasonably expected to
have an adverse effect on the financial condition of assets or properties of
Target, on any Shareholder's or Target's performance hereunder, or on the
continued operation of the Practice by Surviving Corporation. There are no
unsatisfied judgments against any Shareholder, Target, the Practice, or any
licensed professional or other individual affiliated with the Practice, or any
consent decrees to which any of the foregoing are subject which would have a
Material Adverse Effect on the financial condition of assets or properties of
Target, on Target's or any Shareholder's performance hereunder, or on the
continued operation of the Practice by Surviving Corporation.
II.8 No Undisclosed Liabilities.
--------------------------
To the best knowledge of each of Shareholder and Target, except as and
to the extent reflected in the Financial Statements or as expressly shown in
Schedule 2.8 hereto, Target has no liability or obligation whatsoever, whether
- ------------
matured, unmatured, absolute, contingent or otherwise, except for liabilities
and obligations incurred in the ordinary course of its business since the
Interim Financials Date, which in the aggregate have a Material Adverse Effect
on the operations, assets or financial condition of Target or the Practice.
II.9 No Violation of Law, Generally.
------------------------------
(a) Except as expressly set forth in Schedule 2.9 hereto, to
------------
the best knowledge of each of Shareholder and Target, neither Target nor any
Shareholder has been or shall be as of the Closing Date (by virtue of any
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever) in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court binding on
it, or relating to its property or business or its advertising, sales, referral
or pricing practices (including, without limitation, Titles 18 and 19 of the
Social Security Act and all applicable zoning and use laws), which in the
aggregate have or might have a Material Adverse Effect on the business, assets
or financial position of Target.
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<PAGE>
(b) Billing Practices/Regulatory Compliance.
---------------------------------------
(i) Billing Practices Generally. To the best
---------------------------
knowledge of each of Shareholder and Target, all billing practices by Target to
all third party payors, including, but not limited to, the federal Medicare
program, state Medicaid programs and private insurance companies, have been
true, fair and correct and in compliance with all applicable laws, regulations
and policies of all such third party payors, and Target has not billed for or
received any payment or reimbursement in excess of amounts allowed by law.
(ii) Fraud and Abuse. Target, its officers and
---------------
directors, and persons and entities providing professional services for Target,
have not engaged in any activities which are prohibited under the Fraud and
Abuse Statute, or the regulations promulgated thereunder pursuant to such
statute, or related state or local statutes or regulations, or which are
prohibited by rules of professional conduct, including, but not limited, to the
following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) 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 (1) 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 (2) 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; and (d) knowingly and willfully offering or paying
any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind to any person to induce such
person (1) to refer an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made in whole
or in part under Medicare or Medicaid or (2) to purchase, lease, order, or
arrange for or recommend purchasing, leasing, or ordering any good, facility,
service, or item for which payment may be made in whole or in part under
Medicare or Medicaid.
(c) Transactions with Referral Sources. Except as expressly
----------------------------------
set forth in Schedule 2.9, neither any Shareholder nor Target nor any affiliate
------------
of Target, nor any director, officer or employee thereof, is a party to any
contract, lease, agreement or arrangement, including, but not limited to, any
joint venture or consulting agreement with any physician, hospital, nursing
facility, home health agency or other person who is in a position to make or
influence referrals to or otherwise generate business for Target to provide
services, lease space, lease equipment or engage in any other venture or
activity.
II.10 Properties.
----------
(a) Schedule 2.10(a) hereto sets forth a current and complete
----------------
list and description of all of the assets owned by Target as of the Interim
Financials Date, the book value (net of
Page 9
<PAGE>
depreciation or amortization) of which, as properly reflected in Target's books
and records, on an individual item-by-item basis, exceeds Five Thousand and
No/100 Dollars ($5,000.00).
(b) Schedule 2.10(b) hereto sets forth a current and complete
----------------
list of all property, equipment and other assets leased, subleased, or licensed
or sublicensed by Target including, without limitation, all computer hardware
and software (collectively, the "Leased Equipment").
(c) To the extent not expressly itemized in the Financial
Statements, Schedule 2.10(c) hereto sets forth a current and complete list and
----------------
description of all equipment, utility and other deposits owned by Target.
(d) Except as expressly set forth and described on
Schedule 2.10(d), Target: (i) has good, valid and indefeasible title to all of
- ----------------
the personal and mixed, tangible and intangible property, rights and assets
which it purports to own, including all the personal property and assets
reflected, but not shown as leased or encumbered, in the Interim Financial
Statements (except for inventory and assets sold in the ordinary course of
business consistent with past practice and supplies consumed in the ordinary
course of business consistent with past practice since the Interim Financials
Date); and (ii) owns such rights, assets and personal property free and clear of
all title defects or objections, liens, restrictions, claims, charges, security
interest, or other encumbrances of any nature whatsoever, including any
mortgages, leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retention arrangements.
(e) All of the Leased Equipment and tangible assets owned by
Target are in good operating condition and repair and will be in such condition
on the Closing Date, except for ordinary wear and tear.
(f) All of the durable and nondurable supplies owned by Target
are of a quality and quantity usable in the ordinary and usual course of the
business of Target.
(g) The tangible assets, Leased Equipment, rights and
interests retained in the Surviving Corporation pursuant to this Agreement are
sufficient to enable the Practice and/or business of the Surviving Corporation
to continue to be managed or operated as it is currently being managed and
operated by Target.
II.11 Indebtedness.
------------
Schedule 2.11 sets forth a current and complete list and description of
-------------
all instruments or other documents relating to any direct or indirect
indebtedness for borrowed funds of Target in excess of Five Thousand and No/100
Dollars ($5,000.00), as well as indebtedness by way of lease purchase
arrangements, guarantees, undertakings on which others rely in extending credit
and all conditional sales contracts, chattel mortgages and other security
arrangements with respect to personal property used or owned by Target. Except
as set forth on Schedule 2.11, Target has not loaned funds to or guaranteed a
-------------
loan to any employee or Shareholder of Target or other investor in
Page 10
<PAGE>
Target that is in a position, directly or indirectly, to make or influence
referrals of patients to, furnish items or services to, or otherwise generate
business for the Practice.
II.12 Employee Contracts, Union Agreements and Benefit Plans.
------------------------------------------------------
(a) Except as set forth on Schedule 2.12(a) hereto, Target is
----------------
not a party to any employment contract (except for oral employment agreements
which are terminable by Target at will), consulting or collective bargaining
contracts, deferred compensation, pension (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus or other nonqualified benefit or compensation commitments, benefit plans,
arrangements or plans (whether written or oral), including all welfare plans, as
defined in Section 3(l) of ERISA, of or pertaining to any present or former
employee of Target, or its predecessors in interest, that have been in effect at
any time within the past five (5) years.
(b) Surviving Corporation shall employ, as employees at will,
all persons (other than physician Shareholders and employees who perform
clinical/medical services incident to the services of said physician
Shareholders) who are employees of Target in good standing on the Closing Date.
II.13 Labor Relations.
---------------
Except as expressly set forth in Schedule 2.13 hereto:
-------------
(a) Target is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours, occupational safety and health, and is not engaged
in any unfair labor practice within the meaning of Section 8 of the National
Labor Relations Act;
(b) There is no unfair labor practice, charge or complaint or
any other matter against or involving Target pending or, to Target's and each
Shareholder's knowledge threatened before the National Labor Relations Board or
any court of law;
(c) There are no charges, investigations, administrative
proceedings or formal complaints of discrimination (including discrimination
based upon sex, age, marital status, race, national origin, the making of
workers' compensation claims, sexual preference, handicap or veteran status)
pending or, to the knowledge of Target or any Shareholder, threatened before the
Equal Employment Opportunity Commission or any federal, state or local agency or
court against Target. There have been no governmental audits of the equal
employment opportunity practices of Target and to each Shareholder's and
Target's knowledge, no basis for any such audit exists;
(d) Target is in compliance with the Immigration Reform and
Control Act of 1986, as amended, and all applicable regulations promulgated
thereunder; and
Page 11
<PAGE>
(e) There are no inquiries, investigations or monitoring
activities of any licensed, registered, or certified professional personnel
employed by, credentialed or privileged, or under contract with Target or the
Practice pending or, to each Shareholder's and Target's knowledge, threatened by
any state professional board or agency charged with regulating the professional
activities of health care practitioners or providers.
II.14 Contracts and Commitments.
-------------------------
Except as expressly set forth in Schedule 2.14:
-------------
(a) No contract or commitment of Target continues for a period
of more than six (6) months from the date hereof or requires payments by Target
after the Closing Date, in the aggregate, in excess of Five Thousand and No/100
Dollars ($5,000.00);
(b) There are no contracts or agreements:
(i) With any of the directors, officers or
Shareholders of Target, or
(ii) With any person related by blood or marriage to
any director, officer or Shareholder of Target or with any company or other
organization in which anyone related by blood or marriage to any director,
officer or shareholder of Target has a direct or indirect financial interest;
(c) Neither Target nor any Shareholder is subject to any
contracts or agreements containing covenants prohibiting or limiting the freedom
of any Shareholder and/or Target to compete in any line of business or to
subject the employees or patients of any business in any geographic area or
requiring any Shareholder and/or Target to share any profits;
(d) Neither Target nor any Shareholder is a party to any
existing agreement for the management or administration of the Practice, and
neither Target nor any Shareholder is obligated to become a party to any such
management or administration agreement;
(e) Neither Target nor any Shareholder is a party to or bound
by any contract, agreement or other arrangement that has had or may be
reasonably expected in the future to have a Material Adverse Effect upon the
business, earnings or financial condition of Target; and
(f) To their respective knowledge, neither Target nor any
Shareholder is a party to or bound by any contract, agreement or other
arrangement, requiring the personal services of another person or entity which
does not comply with the safe harbor provisions of the Fraud and Abuse Statute
applicable to Target or any Shareholder.
Page 12
<PAGE>
II.15 Environmental Protection.
------------------------
Except as would not be expected to have a Material Adverse Effect,
Target has obtained all permits, licenses and other authorizations and filed all
notices which are required to be obtained or filed by any Shareholder and/or
Target for the operation of the Practice under federal, state and local laws
relating to pollution, protection of the environment or the generation or
disposal of waste. Except as would not be expected to have a Material Adverse
Effect, Target is in compliance in all material respects with all terms and
conditions of such required permits, licenses and authorizations. Except as
would not be expected to have a Material Adverse Effect, Target is in compliance
with all other applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
those laws or contained in any law, regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder. Except as would not be expected to have a Material Adverse Effect,
and except as expressly disclosed on Schedule 2.15 hereto, there are no past or
-------------
present events, conditions, circumstances, activities, practices, incidents,
actions or plans which may interfere with or prevent continued compliance, or
which may give rise to any common law or statutory liability or, otherwise form
the basis of any claim, action, suit, proceeding, hearing or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste (including medical waste)
with respect to Target or the Practice.
II.16 Filing of Reports.
-----------------
All returns, reports, plans and filings of any kind or nature necessary
to be filed by Target with any governmental authority have been properly
completed and timely filed in compliance with all applicable requirements where
failure to so file would have a Material Adverse Effect on the conduct of the
Practice by Surviving Corporation after the Closing.
II.17 Insurance Policies.
------------------
Schedule 2.17 hereto sets forth a complete and accurate list and
-------------
description of all insurance policies in force naming Target, any Shareholder or
any director, officer or employee thereof, as an insured or beneficiary or as a
loss payee or for which Target has paid or is obligated to pay all or any part
of the premiums including, without limitation, all general liability,
malpractice, fire, health, disability and life insurance policies. Target has
not received notice of any pending or threatened termination or premium increase
(retroactive or otherwise) with respect thereto, and Target and each Shareholder
is in compliance with all conditions contained therein. Except as expressly set
forth on Schedule 2.17 hereto, there are no pending claims against such
-------------
insurance by Target as to which insurers are defending under reservation of
rights or have denied liability, and except as set forth on Schedule 2.17
-------------
hereto, there exists no claim under such insurance that has not been properly
filed or reported by Target.
Page 13
<PAGE>
II.18 Accounts Receivable.
-------------------
Attached hereto as Schedule 2.18 is a true, complete and accurate list
-------------
and aging of all accounts receivable of Target as of September 30, 1997. All
such accounts receivable arose in the ordinary course of the business of Target
for the provision of professional services, have not been previously written off
as bad debts and, to Target's knowledge, are collectible in the ordinary course
of business.
II.19 Accounts Payable.
----------------
Attached hereto as Schedule 2.19 is a current and complete list of all
-------------
accounts payable of Target as of September 30, 1997, including each individual
indebtedness of Five Hundred and No/100 Dollars ($500.00) or more and setting
forth the payee, the amount of indebtedness and such additional information as
may be material with respect to any such account payable.
II.20 Inventory.
---------
All items of inventory of the Practice reflected on the Interim
Financial Statements consisted, all such items on hand on the date of this
Agreement consist, and all such items on hand on the Closing Date will consist,
of items of a quality and a quantity usable in the ordinary course of Target's
business and conform to generally accepted standards for physician medical
practices. The purchase commitments of Target for inventory are not materially
in excess of normal requirements, and none of such purchase commitments were
made at prices in excess of prevailing market prices at the time of purchase.
II.21 Inspections and Investigations.
------------------------------
Neither any Shareholder's nor Target's right nor the right of any
licensed professional or other individual employed by or under contract with the
Practice to receive Medicare and Medicaid reimbursements has been terminated or
otherwise adversely affected as a result of any investigation or action by any
federal or state governmental regulatory authority. Except as expressly set
forth and described on Schedule 2.21, to each Shareholder's and Target's
-------------
knowledge, neither Target nor any Shareholder nor any licensed professional or
other individual affiliated with the Practice has, during the past three (3)
years, been the subject of any inspection, investigation, survey, audit or
monitoring by any governmental regulatory entity, trade association,
professional review organization, accrediting organization or certifying agency,
nor has Target, any Shareholder or the Practice received from any such entity
any notice of deficiency in connection with the operation of the Practice. No
Shareholder has been the subject of a "medical malpractice action or claim" or a
"professional review action" within the last three (3) years as those terms are
defined in the Health Care Quality Improvement Act of 1986. Attached as part of
Schedule 2.21 hereto are copies of all reports, correspondence, notices and
- -------------
other documents relating to any such inspection, investigation, survey, audit,
monitoring or other form of review to which any of the foregoing has been
subject.
II.22 Ownership of Medical Service Practice(s).
----------------------------------------
Page 14
<PAGE>
Except as expressly set forth in Schedule 2.22 hereto, no Shareholder
-------------
nor any member of any Shareholder's family owns any interest in nor has a
financial relationship with any health care facility or practice other than
Target (including, without limitation, any physician or physician practice,
allied professional services such as chiropracty, physical therapy or podiatry,
or any physician management services organization, or any provider of ancillary
or specialty services including, but not limited to, laboratory and radiology
services).
II.23 Agreements in Full Force and Effect.
-----------------------------------
Except as expressly set forth in the Schedules to this Agreement, all
contracts, agreements, plans, leases, policies and licenses referred to, or
required to be referred to, in any Schedule delivered hereunder are valid and
binding and are in full force and effect and are enforceable in accordance with
their terms, except to the extent that the validity or enforceability thereof
may be limited by bankruptcy, insolvency, reorganization and other similar laws
affecting creditors' rights generally. There is no pending or, to the knowledge
of any Shareholder and Target, threatened bankruptcy, insolvency or similar
proceeding with respect to any party to such agreements, and no event has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default thereunder by
Target, any Shareholder or any other party thereto.
II.24 Taxes.
-----
Except as expressly set forth in Schedule 2.24 hereto, or as expressly
-------------
reflected in the Financial Statements, Target has not received notice of any tax
claim being asserted or any proposed assessment by any taxing authority and
Target has not received notice of any contemplated investigation or audit by the
Internal Revenue Service or any state agency. As of the date hereof, Target has
filed, or as of the Closing Date will have filed, all federal, state and local
tax returns required to be filed on or prior to the Closing Date, all of which
are or will be true, correct and complete, and Target has paid, or by the
Closing Date will have paid, all taxes (including penalties and interest in
respect thereof, if any) that have become due or are due with respect to any
period ending on or prior to the Closing Date. Target has withheld or collected
from each payment made to each of its employees the amount of all taxes required
to be withheld or collected therefrom and Target has paid the same to the proper
tax depositories or collecting authorities.
II.25 Capitalization; Title to Shares.
-------------------------------
Schedule 2.25 hereto sets forth a list of all Shareholders of Target
-------------
and the number and type of shares of capital stock of Target owned by such
Shareholder. Each Shareholder has, and on the Closing Date will have, good title
to those Target Shares owned by said Shareholder, free and clear of all claims,
liens, charges, encumbrances, options, and rights of any third parties
whatsoever. Target has a total of five hundred (500) shares of its common stock
authorized of which two hundred forty (240) are issued and outstanding.
Page 15
<PAGE>
II.26 Corporate Documents.
-------------------
(a) The corporate minute books of Target, made available by
Target to PHC and Acquisition Subsidiary prior to the date hereof, accurately
reflect all corporate actions taken by the directors and Shareholders of Target
or any committee of the Board of Directors of Target, and contain true and
accurate copies of or originals of the respective minutes of all meetings or
consent actions of the directors and Shareholders of Target and any committee of
the Board of Directors of Target.
(b) The stock record books of Target, made available by Target
to PHC and Acquisition Subsidiary prior to the date hereof, accurately reflect
the stock ownership of Target, and contain complete and accurate records with
respect to the transfer of all securities issued by Target since its inception.
II.27 Statements True and Correct.
---------------------------
No representation or warranty made by any Shareholder or Target herein,
nor any statement, certificate or instrument furnished or to be furnished by any
Shareholder or Target to PHC or Acquisition Subsidiary pursuant to this
Agreement or any other document, agreement or instrument referred to herein or
therein, contains or will contain any untrue statement of material fact or omits
or will omit any material fact necessary to make the statements contained
therein not misleading.
II.28 Delivery and Acceptance of Schedules.
------------------------------------
All Schedules required by this Agreement shall be delivered by Target
to PHC and Acquisition Subsidiary in acceptable form no later than the date
hereof. The last such Schedule shall be accompanied by a certificate from Target
stating that all Schedules have been delivered to PHC and Acquisition
Subsidiary. PHC and Acquisition Subsidiary shall have the right to terminate
this Agreement at any time within ten (10) business days following the receipt
of such certificate if the substance of the matters reflected in the Schedules
are unacceptable to PHC and Acquisition Subsidiary. In the event of such
termination, this Agreement shall be of no further force and effect and each
party shall pay all expenses incurred by it in connection with the proposed
transaction. No party shall be entitled to any damages as the result of the
termination of this Agreement under this Section 2.28. In the event of such
termination, PHC and Acquisition Subsidiary shall return to Target all documents
received by PHC and Acquisition Subsidiary hereunder and vice versa.
II.29 Investment Intent.
-----------------
Page 16
<PAGE>
Each Shareholder represents that he or she is acquiring his or her
respective PHC Shares for his or her own direct account or investment and not
with a view, directly or indirectly, to or in connection with a distribution
thereof and will not sell or transfer his or her respective PHC Shares in
violation of any federal or state securities laws and the rules and regulations
promulgated pursuant thereto. Except for Jeffrey M. Cohen, each Shareholder
represents that he is an "Accredited Investor" within the meaning of Rule 501
under Regulation D of the Securities Act of 1933 (the "Securities Act"), and
capable of evaluating, either alone or with said Shareholder's representatives
and advisors, the merits and risks of the investment in the PHC Shares to be
made hereunder by such Shareholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHC AND ACQUISITION SUBSIDIARY
----------------------------------------------------------------
As an inducement to the Shareholders and Target to enter into this
Agreement, PHC and Acquisition Subsidiary hereby jointly and severally represent
and warrant to each of the Shareholders and to Target as follows:
III.1 Organization, Standing and Authority of PHC.
-------------------------------------------
PHC is a corporation duly organized and validly existing under the laws
of the State of Delaware and will, on the Closing Date, be qualified to do
business in all locations where the nature of its business or the ownership of
its assets or properties requires such qualification. The parties hereto hereby
agree that the term "Business" as used in this Article III shall refer solely to
the business conducted by PHC itself, and not as conducted by any PHC affiliate,
and the ownership of equity securities of PHC affiliates by PHC. PHC has the
full requisite power and authority to (a) own all its assets and properties and
to operate its Business as conducted on the date hereof, (b) execute and deliver
this Agreement and each other document or instrument contemplated hereby
(collectively, the "PHC Transaction Agreements") and perform its obligations
hereunder and thereunder according to their respective terms, and (c) to carry
on and operate the Business as now being conducted. Except as set forth in
Schedule 3.1, PHC is not a participant in any joint venture, partnership,
- ------------
association or similar business arrangement with any other person or party.
III.2 Absence of Conflicting Agreements or Required Consents Relating to
------------------------------------------------------------------
PHC's Obligations.
- -----------------
Except as set forth in Section 6.1 or elsewhere in this Agreement, the
execution, delivery and performance by PHC, of the PHC Transaction Agreements
(with or without the giving of notice, the lapse of time, or both): (a) except
as expressly set forth on Schedule 3.2, has been consented to, where such
------------
consent is required by any governmental or regulatory authority or any other
third party; (b) will not conflict with any provision of PHC's Articles of
Incorporation, Bylaws or other organizational documents; (c) will not conflict
with, result in a breach of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which PHC is a party or by which PHC or its respective
properties are bound; (d) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default
Page 17
<PAGE>
under, or accelerate or permit the acceleration of any performance required by
the terms of any agreement, instrument, license or permit, material to this
transaction, to which PHC or its respective properties are bound; and (e) will
not create any claim, lien, charge or encumbrance upon any of the assets or
properties of PHC.
III.3 Financial Statements.
--------------------
Attached hereto as Schedule 3.3 are PHC's consolidated financial
------------
statements for the period from inception through December 31, 1996 and audited
interim financial statements for the period ending June 30, 1997 (the "PHC
Interim Financials Date"), reflecting the results of the operations and
financial condition of PHC and the Business at such dates which have been
prepared in accordance with generally accepted accounting principles
consistently applied (collectively, the "PHC Financial Statements").
III.4 Litigation and Claims.
---------------------
Except as expressly set forth in Schedule 3.4 hereto, there are no
------------
claims, lawsuits, counterclaims, proceedings, or investigations pending, and to
PHC's knowledge (which for purposes of this Agreement shall mean the conscious
awareness of facts or other information) threatened, against or affecting PHC,
the Business or any other individual employed by or under contract with PHC in
any court or before any arbitrator or governmental authority or agency, and to
PHC's knowledge, there is no basis for any such action or any state of facts or
occurrence of any event, which is reasonably expected to give rise to the
foregoing, which has or is reasonably expected to have an adverse effect on the
financial condition of assets or properties of PHC, on PHC's performance
hereunder, or on the continued operation of the Business by PHC. There are no
unsatisfied judgments against PHC, the Business, or any other individual
affiliated with the Business, or any consent decrees to which any of the
foregoing are subject which would have an adverse effect on the financial
condition of assets or properties of PHC, on PHC's performance hereunder, or on
the continued operation of the Business by PHC.
III.5 No Undisclosed Liabilities.
--------------------------
Except as and to the extent reflected in the PHC Financial Statements
or as set forth in the PPM, PHC has no liability or obligation whatsoever,
whether matured, unmatured, absolute, contingent or otherwise, except for
liabilities and obligations incurred in the ordinary course of its business
since the PHC Interim Financials Date, which in the aggregate have an adverse
effect on the operations, assets or financial condition of PHC or the Business.
The PHC Financial Statements: (i) present fairly in all material respects the
financial position of PHC as of the dates indicated and present fairly in all
material respects the results of PHC's operations for the period then ended in
accordance with GAAP; and (ii) are in accordance with the books and records of
PHC which have been properly maintained and are complete and correct in all
material respects.
III.6 No Violation of Law.
-------------------
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<PAGE>
Except as expressly set forth in Schedule 3.6 hereto, PHC has not been
------------
nor shall be as of the Closing Date (by virtue of any action, omission to act,
contract to which it is a party or any occurrence or state of facts whatsoever)
in violation of any applicable local, state or federal law, ordinance,
regulation, order, injunction or decree, or any other requirement of any
governmental body, agency or authority or court binding on it, or relating to
its property or business or its advertising, sales, referral or pricing practice
(including, without limitation, Titles 18 and 19 of the Social Security Act and
all applicable zoning and use laws).
III.7 Filing of Reports.
-----------------
All returns, reports, plans and filings of any kind or nature necessary
to be filed by PHC with any governmental authority have been properly completed
and timely filed in compliance with all applicable requirements where failure to
so file would have a Material Adverse Effect on the conduct of the Business by
PHC after the Closing.
III.8 Capitalization; Title to Shares.
-------------------------------
The authorized capital stock of PHC consists of 20,000,000 shares of
Voting Common Stock, 20,000,000 shares of Non-Voting Common Stock, 20,000,000
shares of Prime Common Stock, 500,000 shares of Class A Stock and 15,000,000
shares of Preferred Stock. As of October 8, 1997, approximately (a) 9,400,000
shares of Common Stock, (b) 3,825,000 shares of Preferred Stock and (c) 200,000
shares of Class A Stock were issued and outstanding. All shares of PHC stock
presently outstanding are validly authorized and issued and fully paid and
nonassessable. Since the PHC Interim Financials Date, except as set forth in the
PPM, PHC has not directly or indirectly redeemed, purchased or otherwise
acquired any shares of PHC stock, or declared, set aside, or paid any dividend
or other distribution in respect of PHC stock.
III.9 Statements True and Correct.
---------------------------
No representation or warranty made by PHC or Acquisition Subsidiary
herein, nor any statement, certificate or instrument furnished or to be
furnished by PHC or Acquisition Subsidiary to each Shareholder or Target
pursuant to this Agreement or any other document, agreement or instrument
referred to herein or therein, contains or will contain any untrue statement of
material fact or omits or will omit any material fact necessary to make the
statements contained therein not misleading.
III.10 Acquisition Subsidiary.
----------------------
Acquisition Subsidiary has been recently formed and has no material
assets, liabilities or contracts. PHC is, directly or indirectly, the record and
beneficial owner of all of the outstanding shares of capital stock of
Acquisition Subsidiary (the "Acquisition Subsidiary Shares"). PHC has,and on the
Closing Date will have, good title to the Acquisition Subsidiary Shares, free
and clear of all claims, liens, charges, encumbrances, options and rights of any
third parties whatsoever.
Page 19
<PAGE>
III.11 Organization, Standing and Authority of Acquisition Subsidiary.
--------------------------------------------------------------
Acquisition Subsidiary is a corporation duly organized and validly
existing under the laws of the State of Georgia and will, on the Closing Date,
be qualified to do business in all locations where the nature of its business or
the ownership of its assets or properties require such qualification.
Acquisition Subsidiary has the full requisite power and authority to execute,
deliver and perform this Agreement and all of the documents contemplated hereby
according to their respective terms.
III.12 Common Stock of Acquisition Subsidiary.
--------------------------------------
Acquisition Subsidiary has a total of one thousand (1,000) shares of
its common stock authorized, all of which shares are issued and outstanding.
III.13 PPM.
---
Notwithstanding anything to the contrary contained in this Article III,
all representations and warranties of PHC and Acquisition Subsidiary are further
qualified by such information contained in the PPM to be delivered by PHC to the
Target, Target's counsel and the Shareholders prior to Closing.
III.14 No Violation of Law, Generally.
------------------------------
(a) Billing Practices Generally. To PHC's knowledge, all
---------------------------
billing practices by PHC to all third party payors,
including, but not limited to, the federal Medicare
program, state Medicaid programs and private
insurance companies, have been true, fair and correct
and in compliance with all applicable laws,
regulations and policies of all such third party
payors, and PHC has not billed for or received any
payment or reimbursement in excess of amounts allowed
by law.
(b) Fraud and Abuse. PHC has not engaged in any
---------------
activities which are prohibited under the federal
Fraud and Abuse Statutes, or which are prohibited by
rules of professional conduct, including, but not
limited, to the following: (a) knowingly and
willfully making or causing to be made a false
statement or representation of a material fact in any
application for any benefit or payment; (b) knowingly
and willfully making or causing to be made any false
statement or representation of a material fact for
use in determining rights to any benefit or payment;
(c) 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 (1) in return referring an
individual to a person fo 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 (2) in return for purchasing, leasing,
or ordering or arranging for
Page 20
<PAGE>
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; and (d) knowingly and willfully
offering or paying any remuneration (including any
kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind to any person
to induce such person (1) to refer an individual to a
person for the furnishing or arranging for the
furnishing of any item or service for which payment
may be made in whole or in part under Medicare or
Medicaid or (2) to purchase, lease, order, or arrange
for or recommend purchasing, leasing, or ordering any
good, facility, service, or item for which payment
may be made in whole or in part under Medicare or
Medicaid.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
IV.1 Access and Inspection.
---------------------
From and after the date of this Agreement, PHC and its representatives
and agents shall have the right to enter Target's premises during regular
business hours to review, inspect and copy any and all books, records, documents
or other information concerning the operation of the Practice or such other
matters as PHC or its representatives or agents may reasonably request (the "Due
Diligence Inspection").
IV.2 Cooperation in Meeting Filing Requirements.
------------------------------------------
Each Shareholder, Target, PHC and Acquisition Subsidiary shall
cooperate in preparing, executing and filing such requests, applications,
information and other submittals as may be required by any federal or state
governmental agency or authority having jurisdiction over the assets or
properties of Target or the Practice, for the purpose of consummating the
transactions contemplated herein and Surviving Corporation's operation of the
Practice in substantially the same manner as currently operated by Target.
IV.3 Post Closing Audit of Target.
----------------------------
Each Shareholder and Target shall cooperate with and assist PHC and its
accountants and other representatives in preparing audited financial statements
of Target for any fiscal year of Target ending prior to the Closing Date. The
cost of any such audit shall be borne by PHC.
Page 21
<PAGE>
IV.4 Further Assurances.
------------------
Each party covenants that it will, in connection with the Closing and
from time to time after the Closing Date, execute such additional instruments
and take such actions as may be reasonably requested by the other party to
confirm or perfect or otherwise to carry out the intent and purposes of this
Agreement.
IV.5 Appointment of Attorney-in-Fact.
-------------------------------
The Shareholders hereby each make, constitute and appoint C. Raymond
Cottrell, M.D. (the "Attorney-in-Fact") as their true and lawful
Attorney-in-Fact with full power and authority to do and perform the following:
(a To deliver to PHC at Closing the Transaction Agreements;
(b To make, execute and deliver all agreements, schedules,
exhibits and certificates required to be executed by the Shareholders and
delivered to PHC in accordance with the terms and conditions of the Transaction
Agreements;
(c To commence, prosecute, defend, dismiss and compromise
all legal demands, actions or proceedings regarding the interest of the
Shareholders in the Transaction Agreements; and the Shareholders agree that no
such demand, action or proceeding shall be instituted by them except through the
Attorney-in-Fact, and then only in the event the Attorney-in-Fact has received
from Shareholders representing both a majority of the Shareholders and a
majority of shares of common stock of Target owned immediately prior to the
Effective Date ("Majority Vote"), written instructions demanding said Attorney-
in-Fact to commence, prosecute, defend, dismiss or compromise such legal
demands, actions or proceedings, and the Shareholders further agree that the
Attorney-in-Fact shall have the exclusive right to exercise all legal remedies
available to Shareholders for any breach or default by PHC under the Transaction
Agreements.
IV.6 Acceptance of Appointment.
-------------------------
C. Raymond Cottrell, M.D. hereby accepts his appointment as
Attorney-in-Fact and agrees to carry out in good faith the responsibilities
undertaken hereby and to receive, hold and distribute all funds payable under
the Transaction Agreements and to disburse the same in accordance with the terms
and conditions of the Transaction Agreements. The Attorney-in-Fact agrees to
maintain his appointment hereunder until his death, such earlier date as he may
be declared legally incompetent by a court of law or until the appointment of a
successor attorney-in-fact pursuant to this Article IV.
IV.7 Power of Attorney Irrevocable, Etc.
----------------------------------
The Shareholders do hereby ratify and confirm all that said Attorney-in-
Fact shall do or cause to be done by virtue of this Agreement. For the
consideration specified in this Agreement the Shareholders agree that the power
of attorney granted hereby to the Attorney-in-Fact is a special
Page 22
<PAGE>
power of attorney coupled with an interest, is irrevocable, shall not terminate
upon the death of any Shareholder and shall be effective from the date hereof
until or upon termination of this Agreement. The Shareholders hereby renounce
all right to revoke the power of attorney granted herein and to appoint another
person to perform the acts of the Attorney-in-Fact, except for successors
hereunder. After termination of the power of attorney hereby granted, the
Attorney-in-Fact shall have authority only to return any property, real or
personal, to the Shareholder who delivered the same to the Attorney-in-Fact.
IV.8 Successor Attorney-in-Fact.
--------------------------
The Shareholders agree that in the event C. Raymond Cottrell, M.D.
ceases to act as Attorney-in-Fact then Lionel C. Abbott, M.D. ("Successor")
shall, if he so accepts, succeed as Attorney-in-Fact hereunder. If Successor
fails to succeed as Attorney-in-Fact or if Successor resigns his appointment
hereunder, then the Shareholders by Majority Vote shall select a successor. Any
successor Attorney-in-Fact shall have all the rights, powers and obligations of
the Attorney-in-Fact. All charges, fees or other expenses or costs of any
successor Attorney-in-Fact shall be borne and paid by the Shareholders.
IV.9 Limitation of Liability and Indemnity.
-------------------------------------
Each of the Shareholders agrees that in performing any of his duties,
the Attorney-in-Fact shall not incur any liability to anyone for damages, losses
or expenses for any reason except for willful negligence or intentional
misconduct. Without limiting the foregoing, the Shareholders specifically agree
that the Attorney-in-Fact shall be entitled to act upon advice of his counsel
given with respect to any questions relating to his duties and responsibilities
as Attorney-in-Fact hereunder without incurring any liability to the
Shareholders or to any other person. The Shareholders agree to indemnify and
hold harmless the Attorney-in-Fact against and in respect of any and all losses,
claims, damages, liabilities and expenses including reasonable costs of
investigation, counsel fees and disbursements, which may be imposed upon or
incurred by the Attorney-in-Fact in connection with the performance of his
duties hereunder.
IV.10 PHC Disclosure; Limited Right of Termination.
--------------------------------------------
(a Accredited Investors.
--------------------
Each of the Shareholders other than Jeffrey M. Cohen, M.D.
("Dr. Cohen") (the "Accredited Investors") has represented and warranted to PHC
that he is an "accredited investor" as such term is defined in Regulation D
promulgated under the Securities Act of 1933, as amended. Each Accredited
Investor acknowledges and agrees that he has received, and has had an
opportunity to review, those certain disclosure documents of PHC described on
Exhibit D hereto, including that certain draft "Transaction Summary" prepared by
- ---------
PHC and delivered to each Accredited Investor before closing. PHC shall provide
to each Accredited Investor a copy of the PPM prior to Closing. The parties
hereto agree that each Accredited Investor shall have the right to terminate
this Agreement prior to Closing.
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<PAGE>
(b Unaccredited Investor.
----------------------
On the date hereof, Dr. Cohen is not a party to this
Agreement, and PHC has not, directly or indirectly, made an offer to sell to Dr.
Cohen or solicited an offer from Dr. Cohen to purchase PHC securities. PHC
intends to deliver to Dr. Cohen a PPM prepared by PHC to offer PHC securities to
him pursuant to the terms of this Agreement. Within five (5) days of his receipt
of the PPM, the parties hereto agree that Dr. Cohen may execute and deliver to
PHC a counterpart signature page to this Agreement and become a party to this
Agreement on the same terms as the other Shareholders.
(c Limited Right of Termination.
----------------------------
In the event Dr. Cohen does not become a party to this
Agreement, PHC shall have the right, but not the obligation, to terminate this
Agreement prior to Closing pursuant to this Section 4.10(c). If PHC terminates
this Agreement pursuant to this Section 4.10(c) or any Accredited Investor
terminates this Agreement pursuant to Section 4.10(a), (i) this Agreement shall
be of no further force and effect, (ii) each party shall pay all expenses
incurred by him/it in connection with the proposed transactions, (iii) no party
shall be entitled to recover any damages as the result of such termination, and
(iv) PHC shall return to Target all documents received by PHC hereunder and
Target and Shareholders shall return to PHC all documents received by Target or
any Shareholder hereunder.
(d Voting on Merger; PHC Termination.
---------------------------------
The Shareholders and Target shall properly call a special
meeting of Shareholders to be held within five (5) days after Dr. Cohen has been
provided a copy of the Private Placement Memorandum. All Shareholders shall vote
in favor of Target entering into the merger and the transactions contemplated by
this Agreement.
IV.11 [This Section intentionally reserved].
IV.12 Formation and Operation of Compliance Committee.
-----------------------------------------------
The Shareholders shall reasonably cooperate with the Surviving
Corporation in the establishment of a Compliance Committee (herein so called)
which shall be responsible for advising the Practice and the Surviving
Corporation in connection with the development and administration of procedures
designed to detect and deter potential violations of the Ethics Referrals Act,
Medicare and Medicaid anti-kickback laws an other healthcare and federal laws
applicable to the conduct of the Practice. The Surviving Corporation and the
Shareholders shall have equal representation on the Compliance Committee. The
Surviving Corporation shall designate, in its sole discretion, two (2) members
of the Compliance Committee. The Shareholders shall designate, in their sole
discretion, two (2) members of the Compliance Committee. The act of a majority
of the total number of members of the Compliance Committee shall be the act of
the Compliance Committee.
Page 24
<PAGE>
IV.13 ASC Purchase Option.
-------------------
On the Closing Date, PHC and the shareholders of Central Florida Surgical
Centers, Inc. and Oakwater Surgical Center, Inc. (the "ASC Shareholders") will
enter into the ASC Purchase Option Agreements in the form attached hereto as
Exhibit E.
- ---------
IV.14 Delivery and Acceptance of Schedules.
------------------------------------
All Schedules required by this Agreement shall be delivered by PHC and
Acquisition Subsidiary to Target in acceptable form no later than the date
hereof. The last such Schedule shall be accompanied by a certificate from PHC
and Acquisition Subsidiary stating that all Schedules have been delivered to
Target. Target shall have the right to terminate this Agreement at any time
before Closing following the receipt of such certificate if the substance of the
matters reflected in the Schedules are unacceptable to Target. In the event of
such termination, this Agreement shall be of no further force and effect and
each party shall pay all expenses incurred by it in connection with the proposed
transaction. No party shall be entitled to any damages as the result of the
termination of this Agreement under this Section 4.14. In the event of such
termination, PHC and Acquisition Subsidiary shall return to Target all documents
received by PHC and Acquisition Subsidiary hereunder and vice versa.
ARTICLE V
CONDUCT OF BUSINESS OF TARGET
-----------------------------
AND EACH SHAREHOLDER PENDING CLOSING
------------------------------------
Each Shareholder covenants and agrees that, without the prior written
consent of PHC, between the date of this Agreement and the Closing:
V.1 Disposition of Assets.
---------------------
The operation of the Practice shall be conducted only in the ordinary
course, and Target shall not dispose of any interest of any kind in the assets
or properties of Target nor incur nor guarantee any obligations for borrowed
money, except as otherwise permitted by this Agreement.
V.2 Sale of Shares.
--------------
The Shareholders shall not sell or transfer, or consent to the sale or
transfer of, any shares of capital stock in Target or any option, warrant or
other right to acquire an equity interest in Target.
V.3 Contracts.
---------
Target will not enter into any contract or other arrangement except in
the ordinary course of business and then only if such contract or arrangement
would not have a Material Adverse Effect on the operation of the Practice.
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<PAGE>
V.4 Condition of Assets.
-------------------
Target will maintain its assets in substantially the same condition as
they are in on the date of this Agreement, ordinary wear and tear excepted.
V.5 Liens; Encumbrances.
-------------------
Target will not sell, transfer or otherwise dispose of, nor mortgage,
pledge or subject to any lien, charge or other encumbrance, any of the assets or
any interest in the rights, except in the ordinary course of business and as
otherwise permitted by this Agreement.
V.6 Access and Inspection.
---------------------
From and after the date of this Agreement until the Closing, the
Shareholders, Target and their representatives and agents shall have the right
to enter PHC's premises during regular business hours to review, inspect and
copy any and all books, records, documents or other information concerning the
business and operations of PHC or such matters as its representatives or agents
may reasonably request.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PHC AND ACQUISITION SUBSIDIARY
-----------------------------------------------------------
The obligations of PHC and Acquisition Subsidiary to close the Merger
are subject to the satisfaction, at or prior to Closing, of each of the
following conditions:
VI.1 Necessary Approvals.
-------------------
PHC shall have received all licenses, consents, permits and approvals
necessary in order for PHC to operate the Practice in substantially the same
manner as Target. Within ten (10) business days following the date hereof, PHC's
officers shall submit this Agreement and Plan of Merger to the following parties
for approval, and attempt to obtain such approvals, but PHC shall not be
obligated to close the Merger unless each of the following parties approves this
Agreement and the transactions contemplated hereby: (i) PHC's Board of
Directors, (ii) Banque Paribas and (iii) PHC's venture capital investors.
VI.2 Representations and Warranties.
------------------------------
The representations and warranties of the Shareholders and Target set
forth in this Agreement, or any document or instrument delivered to PHC or
Acquisition Subsidiary hereunder, shall be true and correct on the Closing Date
with the same force and effect as if such representations and warranties had
been made on the Closing Date.
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<PAGE>
VI.3 Performance; Covenants.
----------------------
All of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Shareholders or Target at or prior to Closing
shall have been complied with and performed in all material respects including,
but not limited to, the delivery of the following documents:
(a) An Employment Agreement executed by each Shareholder in
substantially the form of Exhibit F;
---------
(b) A certificate dated the Closing Date signed by a duly
authorized officer of Target and by the Attorney-in-Fact certifying that the
representations and warranties are true and correct as of the date of such
certificate and that each Shareholder and Target have fulfilled the conditions
of this Section 6.3;
(c) Consent Resolutions of the Board of Directors and
Shareholders of Target in form and substance satisfactory to PHC approving the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, certified by a duly authorized
representative of Target;
(d) Written consents of all third parties necessary for the
consummation of the transactions contemplated by this Agreement and the
operation of the Practice as currently being operated;
(e) All of the books and records of Target related to the
operation of the Practice including, but not limited to: (i) the books of
accounts, contracts and agreements to which either Target or the Practice is a
party and (ii) such other documents or certificates as shall be reasonably
requested by PHC;
(f) An opinion of counsel of Target in substantially the
form of Exhibit G attached hereto;
---------
(g) The Investment Agreement in the form of Exhibit H
---------
attached hereto executed by each Shareholder pursuant to this Agreement (the
"Investment Agreement");
(h) The Practice Repurchase Agreement in substantially the
form of Exhibit I attached hereto (the "Practice Repurchase Agreement") executed
---------
by each Shareholder pursuant to this Agreement;
(i) The executed Note Purchase Agreement and Amendment to
Promissory Note in substantially the forms approved by the parties hereto on the
date hereof; and
Page 27
<PAGE>
(j) Such other documents as counsel for PHC shall reasonably
request, including, without limitation, any documents required to be filed with
any governmental body.
VI.4 PHC Due Diligence.
-----------------
Closing shall only occur upon the complete and sole satisfaction of PHC
as to the Due Diligence Inspection pursuant to Section 4.1; provided, however,
-------- -------
nothing herein is intended to extend the date by which the Closing is to occur.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND TARGET
--------------------------------------------------------
The obligations of the Shareholders and Target to close the Merger are
subject to the satisfaction, at or prior to Closing, of each of the following
conditions:
VII.1 Representations and Warranties.
------------------------------
The representations and warranties of PHC and Acquisition Subsidiary
set forth in this Agreement, or any other document or instrument delivered to
Target or the Shareholders hereunder, shall be true and correct on the Closing
Date with the same force and effect as if such representations and warranties
had been made on the Closing Date.
VII.2 Performance; Covenants.
----------------------
All of the terms, covenants and conditions of this Agreement to be
complied with or performed by PHC or Acquisition Subsidiary at or prior to
Closing shall have been complied with and performed in all material respects
including, but not limited to, the delivery of the following:
(a) The PHC Shares;
(b) Any Cash Consideration to be paid to the Shareholders in
connection with the Merger;
(c) PHC's payment of the expenses set forth in Section 9.11
below;
(d) A certificate dated the Closing Date signed by duly
authorized representatives of PHC and Acquisition Subsidiary certifying that the
representations and warranties are true and correct on the date of such
certificate and that PHC and Acquisition Subsidiary have fulfilled all of the
conditions of this Section 7.2;
(e) Consent Resolutions of the Board of Directors of PHC and
the Board of Directors and Shareholders of Acquisition Subsidiary in form and
substance satisfactory to Target and the Shareholders approving the execution,
delivery and performance of this Agreement and the
Page 28
<PAGE>
consummation of the transactions contemplated hereby, certified by a duly
authorized representative of PHC and Acquisition Subsidiary, respectively.
(f) An opinion of counsel of PHC in substantially the form
of Exhibit J attached hereto;
---------
(g) The Investment Agreement;
(h) The Practice Repurchase Agreement;
(i) The executed Note Purchase Agreement and Amendment to
Promissory Note in substantially the forms approved by the parties hereto on the
date hereof; and
(j) Such other documents necessary for the consummation of
the transactions contemplated herein as counsel for Target and the Shareholders
shall reasonably request, including, without limitation, any documents required
to be filed with any governmental body.
VII.3 Target Due Diligence.
--------------------
The Closing shall only occur upon the complete and sole satisfaction of
Target and the Shareholders as to the due diligence inspection pursuant to
Section 5.6 hereof; provided, however, nothing herein is intended to extend the
date by which the Closing is to occur.
ARTICLE VIII
INDEMNIFICATION
---------------
VIII.1 Indemnification by Each Shareholder and Target.
----------------------------------------------
Subject to the terms and conditions of this Article VIII, each
Shareholder and Target, jointly and severally, agree to indemnify, defend, and
hold harmless PHC, Surviving Corporation and Acquisition Subsidiary from,
against, for, and in respect of any and all Losses (as defined below) asserted
against, relating to, imposed upon, or incurred by PHC and/or Acquisition
Subsidiary or Surviving Corporation by reason of, resulting from, based upon, or
arising out of:
(a) Any misrepresentation, breach of warranty or breach or
non-fulfillment of any agreement of Target or any Shareholder contained in this
Agreement or in any document executed and delivered by Target or any Shareholder
in connection with this Agreement;
(b) Any liability or claim arising out of the obligations or
liabilities or commitments of Target, or its employees or agents not expressly
assumed by PHC or Acquisition Subsidiary pursuant to the terms of this
Agreement, including but not limited to personal injury and professional
liability claims;
Page 29
<PAGE>
(c) Any liability or claim arising out of actions taken in
connection with the hiring (or failing to hire) firing, disciplining, and
supervising of, and otherwise with respect to, any employees of Target prior to
the Closing Date;
(d) Any liability or claim arising out of any audit,
recoupment, or contractual settlement retroactively or otherwise adjusting the
amounts payable for reimbursement purposes, with respect to services rendered by
or on behalf of Target or billed for, by or on behalf of Target prior to the
Closing Date;
(e) Any liability, claim, loss or expense of any nature
whatsoever relating to the provision of fringe benefits of any kind to the
employees of Target and their dependents including, without limitation, those
arising out of COBRA continuation coverage, including but not limited to those
applicable or claimed to be applicable to PHC, Acquisition Subsidiary or
Surviving Corporation as the result of being determined to be a "successor
employer" of Target;
(f) Any claim(s) made against PHC arising out of Target's
ownership, operation, use or sale of the assets of Target or the operations of
the business of Target, including, but not limited to, any suit, claim or
proceeding of any nature seeking to recover damages for personal injury, death
or property damage due to occurrences in connection with the business of Target
or the assets of Target arising on or before the Closing Date and any suit,
claim or proceeding by any person currently an employee of Target which arises
as a result of acts or omissions prior to the Closing Date or in connection with
any communications between or arrangements with the employees and Target.
VIII.2 Indemnification by PHC.
----------------------
Subject to the terms and conditions of this Article VIII, PHC agrees to
indemnify, defend and hold harmless Target and each Shareholder from, against,
for, and in respect of any and all Losses (as defined below) asserted against,
relating to, imposed upon, or incurred by Target and/or any Shareholder by
reason of, resulting from, based upon, or arising out of any misrepresentation,
breach of warranty or breach of non-fulfillment of any agreement of PHC or the
Acquisition Subsidiary contained in this Agreement or in any document executed
and delivered by PHC or Acquisition Subsidiary in connection with this
Agreement.
VIII.3 Definition of Losses.
--------------------
For the purposes of this Article VIII, "Losses" shall mean any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs, and expenses, including, without limitation, taxes,
interest, penalties, and reasonable attorneys' and other professional fees and
expenses incurred in the investigation, preparation, defense, and settlement of
any claim, loss, damage, or liability as to which a party is entitled to
indemnification hereunder. The obligation of each Shareholder to indemnify PHC
and/or Acquisition Subsidiary shall be limited to the value of the consideration
received by the Shareholder pursuant to this Agreement as of the Closing Date.
The obligation of Target to indemnify PHC and/or Acquisition Subsidiary shall be
limited to the value of the consideration received by Target pursuant to this
Agreement on the Closing Date.
Page 30
<PAGE>
VIII.4 Offset.
------
The foregoing rights of indemnification are cumulative and without
prejudice to any other remedies which a party hereto may have against another
party hereto under applicable law or otherwise. Each Shareholder, Target,
Acquisition Subsidiary and PHC expressly agree that PHC shall have the right to
offset any amounts owed by any Shareholder and/or Target to PHC under this
Article VIII against any amounts payable by PHC to such Shareholder and/or
Target; provided, however, if any such offset amount is disputed in good faith
by Target or any Shareholder, such party shall provide written notice of the
facts in dispute in accordance with the procedures set forth in Section 8.8
hereof and PHC shall only be entitled to offset an amount determined by mutual
agreement of the parties or as awarded in the final decision of the arbitrator.
Each Shareholder, Target, Acquisition Subsidiary and PHC expressly agree that
Target and each Shareholder shall have the right to offset any amounts owed by
PHC and/or Acquisition Subsidiary to Target or the Shareholders under this
Article VIII against any amounts payable by any Shareholder and/or Target to
PHC; provided, however, if any such offset amount is disputed in good faith by
PHC, PHC shall provide written notice of the facts in dispute in accordance with
the procedures set forth in Section 8.8 hereof and Target and/or the
Shareholders shall only be entitled to offset an amount determined by the mutual
agreement of the parties or as awarded in the final decision of the arbitrator.
VIII.5 Notice and Opportunity to Defend.
--------------------------------
(a) Attorney-in-Fact is hereby designated the representative
of each Shareholder pursuant to the terms and conditions of Section 4.5 above,
to the extent necessary to give effect to the provisions of this Article VIII,
and in that representative capacity, Attorney-in-Fact is referred to as
Indemnified Party or Indemnifying Party, as appropriate.
(b) The party indemnified hereunder (the "Indemnified Party")
shall notify in writing the indemnifying party (the "Indemnifying Party") within
thirty (30) days after a claim is presented to the Indemnified Party, and the
Indemnifying Party shall defend such claim at its expense. If the Indemnifying
Party does not defend or settle such claim, the Indemnified Party may do so
without the Indemnifying Party's participation, in which case the Indemnifying
Party shall pay the expenses of such defense; provided, however, that the
Indemnified Party may not settle or compromise such claim without the consent of
the Indemnifying Party or a majority of the Indemnifying Parties, as the case
may be, which consent shall not be unreasonably withheld. An Indemnifying
Party's failure to object to the settlement of any claim within fifteen (15)
days of receiving written notice thereof shall be deemed to constitute the
Indemnifying Party's consent to such settlement. If the Indemnified Party fails
to notify the Indemnifying Party, and if the Indemnifying Party is thereby
materially prejudiced by such failure of notice in its defense of the claim, the
Indemnifying Party's obligation of indemnity hereunder shall be extinguished
with respect to such claim to the extent that the Indemnifying Party has been
prejudiced by the failure to give such notice.
Page 31
<PAGE>
(c) Anything herein to the contrary notwithstanding, PHC
shall not make any claim against Target or any Shareholder pursuant to this
Article VIII unless the dollar amount of all Losses suffered or incurred by PHC
shall exceed, in the aggregate, the amount of One Hundred Fifty Thousand and
No/100 Dollars ($150,000.00), but, if such amount is exceeded, the Indemnifying
Party shall be required to pay the full amount of such aggregate Losses (with a
deduction for such One Hundred Fifty Thousand and No/100 Dollars ($150,000.00)
threshold amount) for which indemnification rights and obligations are provided
under this Article VIII.
(d) Anything herein to the contrary notwithstanding, neither
Target nor any Shareholder shall make any claim against PHC pursuant to this
Article VIII unless the dollar amount of all Losses suffered or incurred by the
party seeking indemnification shall exceed, in the aggregate, the amount of
Fifty Thousand and No/100 Dollars ($50,000.00), but, if such amount is exceeded,
PHC shall be required to pay the full amount of such aggregate Losses (without
deduction for such Fifty Thousand and No/100 Dollars ($50,000.00) threshold
amount) for which indemnification rights and obligations are provided under this
Article VIII.
(e) Anything herein to the contrary notwithstanding, no party
shall be liable to any other party under this Article VIII for punitive or
consequential damages, including lost profits, except to the extent contained in
a settlement, award or judgment obtained by a third party.
VIII.6 Effect of Investigation by PHC.
------------------------------
No investigation or inquiry made by PHC or Acquisition Subsidiary of
any Shareholder or Target or its books and records and financial condition
shall, regardless of the Closing of the transactions contemplated hereby, affect
or limit any representation or warranty made by any of the Shareholders or
Target to PHC or Acquisition Subsidiary in this Agreement or in any Schedule
delivered by any of them pursuant hereto or any right of indemnification of PHC
or Acquisition Subsidiary under Section 8.1 hereof.
VIII.7 Effect of Investigation by Target and Shareholders.
--------------------------------------------------
No investigation or inquiry made by the Shareholders or Target of PHC
or Acquisition Subsidiary or their respective books and financial condition
shall, regardless of the Closing of the transactions contemplated hereby, affect
or limit any representation or warranty made by PHC or Acquisition Subsidiary to
Target or the Shareholders in this Agreement or in any Schedule delivered by any
of them pursuant hereto or any right of indemnification of Target or the
Shareholders under Section 8.1 hereof.
Page 32
<PAGE>
VIII.8 Dispute Resolution.
------------------
Any controversy, dispute or claim arising out of or relating to this
Agreement or the breach hereof which cannot be settled by mutual agreement shall
be settled by binding arbitration as follows: Any party who is aggrieved shall
deliver written notice to the other party or parties setting forth the specific
points in dispute. Any points remaining in dispute twenty (20) days after the
giving of such notice shall be submitted to binding arbitration in Atlanta,
Georgia, to the American Arbitration Association, before a single arbitrator
appointed from the members of the National Panel of Arbitrators in accordance
with the rules of the American Arbitration Association, modified only as
expressly provided herein. After such twenty (20) day period, any party, upon
ten (10) days written notice to the other parties, may so submit the points in
dispute to arbitration. The arbitrator may enter a default decision against any
party who fails to participate in the arbitration proceedings. The decision of
the arbitrator on the points in dispute will be final, unappealable and binding,
and judgment on the award may be entered in any court having jurisdiction
thereof. The arbitrator will be authorized to apportion its fees and expenses
and the reasonable attorney fees and expenses of the parties as the arbitrator
deems appropriate. In the absence of any such apportionment, the fees and
expenses of the arbitrator will be borne equally by each party, and each party
will bear the fees and expenses of its own attorney. The parties agree that this
paragraph has been included to rapidly and inexpensively resolve any disputes
between them with respect to this Agreement, that it contains the sole and
exclusive remedy (other than equitable remedies) of the parties with respect to
any disputes arising under this Agreement, and that this paragraph shall be
grounds for dismissal of any court action commenced by either party with respect
to this Agreement, other than post-arbitration actions seeking to enforce an
arbitration award or any court action seeking equitable relief. The parties
shall keep confidential, and shall not disclose to any person, except as may be
required by law, the existence of any controversy hereunder, the referral of any
such controversy to arbitration or the status or resolutions thereof.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
IX.1 Notices.
-------
Any notice required or permitted by this Agreement or any agreement or
document executed and delivered in connection with this Agreement shall be
deemed to have been served properly if transmitted by certified mail, return
receipt requested, with proper postage prepaid or sent by
Page 33
<PAGE>
overnight carrier or by personal delivery, addressed to the respective party to
whom such notice relates at the following addresses:
If to PHC: Physician Health Corporation
990 Hammond Drive
Suite 300
Atlanta, Georgia 30328
Attention: Daniel M. Epstein, M.D., Esq.
With a Copy to: Jackson Walker L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
Attention: James S. Ryan, III
If to Acquisition
Subsidiary: PHC-Orlando Acquisition Subsidiary II, Inc.
990 Hammond Drive
Suite 300
Atlanta, Georgia 30328
Attention: Daniel M. Epstein, M.D., Esq.
If to Target: Internal Medicine Specialists, Inc.
3885 Oakwater Circle
Orlando, Florida 32806
Attention: C. Raymond Cottrell, M.D.
If to a Shareholder: Attorney-in-Fact
Internal Medicine Specialists, Inc.
3885 Oakwater Circle
Orlando, Florida 32806
Attention: C. Raymond Cottrell, M.D.
With a Copy to: Maguire, Voorhis & Wells, P.A.
200 South Orange Avenue
SunTrust Center
Suite 3000
Orlando, Florida 32801
Attention: Stephen R. Looney, Esq.
or such other address as shall be furnished in writing by any party to the other
party. All such notices shall be considered received: (a) if transmitted by
certified mail, return receipt requested, with proper postage prepaid, upon the
fifth business day after mailing; (b) if transmitted by overnight carrier, on
the next business day; and (c) if transmitted by personal delivery, upon
receipt.
Page 34
<PAGE>
IX.2 Successors and Assigns.
----------------------
This Agreement shall not be assignable, by operation of law or
otherwise, without the prior written consent of all parties. Subject to the
foregoing, this Agreement shall inure to the benefit of, be enforceable by and
be binding upon the parties, their successors and permitted assigns.
IX.3 Entire Agreement.
----------------
This Agreement and the Exhibits, Schedules, certificates and other
documents delivered pursuant hereto or incorporated herein by reference, contain
and constitute the entire agreement among the parties and supersede and cancel
any prior agreements, representations, warranties, or communications, whether
oral or written, among the parties relating to the transactions contemplated by
this Agreement. Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only by an agreement in writing
signed by the party against whom or which the enforcement of such change,
waiver, discharge or termination is sought.
IX.4 Governing Law; Severability.
---------------------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, but excluding the conflicts laws of the State
of Georgia. The parties hereto agree to be subject to the exclusive venue in
Fulton County, Georgia or the Federal Court located in the Northern District of
Georgia which courts shall have jurisdiction of any case or controversy arising
under or in connection with this Agreement. The parties consent to the
jurisdiction of such courts. The provisions of this Agreement are severable and
the invalidity of one or more of the provisions herein shall not have any effect
upon the validity or enforceability of any other provision.
IX.5 No Brokers.
----------
The Shareholders, Target, PHC and Acquisition Subsidiary each represent
to the others that no broker or finder has been employed in connection with the
transactions hereunder.
IX.6 Schedules and Exhibits.
----------------------
All Schedules and Exhibits attached to this Agreement are by reference
made a part hereof.
IX.7 Waivers.
-------
No failure on the part of any party hereto to exercise, and no delay in
exercising, any right, power or remedy created hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
remedy by any such party preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. No waiver by any party hereto of
any breach of or default in any term or condition of this Agreement shall
constitute a waiver of or assent to any succeeding breach of or default in the
same or any other term or condition hereof.
Page 35
<PAGE>
IX.8 Headings.
--------
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
IX.9 Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
IX.10 Confidentiality.
---------------
The parties agree that they will not make any disclosure about the
existence or contents of this Agreement or activities relating to the
consummation of the transactions contemplated herein without prior approval of
the other party, except as may be required by law, as may be necessary to obtain
the required consents, licenses, permits or approvals pursuant to Section 6.1
herein, or as may be necessary in the ordinary course of business of PHC.
IX.11 Expenses.
--------
Provided that the transactions contemplated hereby are consummated, PHC
agrees to pay directly to the respective payees: (i) one hundred percent (100%)
of all actual accounting fees and expenses up to Thirty Five Thousand and No/100
Dollars ($35,000.00), (ii) fifty percent (50%) of all actual accounting fees and
expenses in excess of Thirty Five Thousand and No/100 Dollars ($35,000.00), and
(iii) all documented legal fees and expenses (the "Legal Fees") which are
incurred by Target and directly attributable to the consummation of the Merger
contemplated hereunder. PHC hereby agrees to pay seventy-five percent (75%) of
Legal Fees at Closing and the remaining twenty-five percent (25%) within thirty
(30) days after Closing. If the transactions contemplated hereby are not
consummated, each party hereto shall bear its own costs and expenses (including
attorneys' fees and expenses).
IX.12 No Third Party Beneficiaries.
----------------------------
Nothing contained in this Agreement (express or implied) is intended or
shall be construed to confer upon or give to any person, corporation or other
entity, other than the parties hereto and their permitted successors or assigns,
any rights or remedies under or by reason of this Agreement.
IX.13 Survival.
--------
Except as provided herein, the provisions of Articles II and III of
this Agreement shall survive the Closing for a period of twenty-four (24) months
following the Closing Date, provided that the provisions of Section 2.24 shall
continue for six (6) months after the expiration of the applicable statute of
limitations for assessment of the additional taxes. The provisions of Section
9.10 of this Agreement shall survive the Closing.
Page 36
<PAGE>
IX.14 Attorney Fees.
-------------
Except as provided in Section 8.8 hereof, in connection with any
litigation, including appellate proceedings, arising under this Agreement or any
related Agreement contemplated herein, the prevailing party or parties in such
litigation shall be entitled to recover reasonable attorney fees, paralegal
fees, law clerk fees and other costs and expenses related to such litigation
from the nonprevailing party or parties.
Page 37
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first written above; provided, however, that Jeffrey M. Cohen,
M.D. may be included as an additional party hereto for all purposes by executing
this Agreement below pursuant to Section 4.10 hereof.
PHC: TARGET:
PHYSICIAN HEALTH CORPORATION INTERNAL MEDICINE SPECIALISTS, INC.
By: By:
-------------------------------- --------------------------------
Sarah C. Garvin, President M.D, President
-----------------,
ACQUISITION SUBSIDIARY: THE SHAREHOLDERS:
PHC-ORLANDO ACQUISITION ----------------------------------
SUBSIDIARY II, INC. Mark Williams, M.D.
By:
-------------------------------- -----------------------------------
Sarah C. Garvin, President Kenneth R. Feuer, M.D.
----------------------------------
Timothy L. Prince, M.D.
----------------------------------
Robert F. Stonerock, Jr., M.D.
----------------------------------
Thomas C. Marbury, M.D.
----------------------------------
C. Raymond Cottrell, M.D.
----------------------------------
Lionel C. Abbott, M.D.
----------------------------------
Antonio Caos, M.D.
Page 38
<PAGE>
THE SHAREHOLDERS (continued from previous page):
-----------------------------------
Robert T. Baker, M.D.
-----------------------------------
Alex Menendez, M.D.
Page 39
<PAGE>
I hereby agree to be included as a party hereto for all purposes and as a
"Shareholder" as defined herein pursuant to Section 4.10 hereof.
-----------------------------------
Jeffrey M. Cohen, M.D.
Date:
------------------------------
Page 40
<PAGE>
EXHIBIT A
---------
List of Shareholders
Mark Williams, M.D.
Kenneth R. Feuer, M.D.
Robert T. Baker, M.D.
Robert F. Stonerock, Jr., M.D.
Thomas C. Marbury, M.D.
C. Raymond Cottrell, M.D.
Lionel C. Abbott, M.D.
Antonio Caos, M.D.
Timothy L. Prince, M.D.
Alex Menendez, M.D.
Page 41
<PAGE>
EXHIBIT B
---------
[Reserved]
Page 42
<PAGE>
EXHIBIT C
---------
Insert to Bylaws
Page 43
<PAGE>
EXHIBIT D
---------
Description of Disclosure Documents
1. Those certain due diligence materials of PHC delivered to each Shareholder
on or about November ___, 1996, as updated by those certain materials
delivered on the date hereof.
2. That certain Transaction Summary dated as of September 12, 1997 delivered
to each Shareholder.
3. Memorandum from Jim Ryan dated July 3, 1997 regarding Securities and
Exchange Commission issues.
4. Memorandum from Sarah Garvin dated July 11, 1997 regarding Securities and
Exchange Commission and PHC lender issues.
5. The Private Placement Memorandum.
Page 44
<PAGE>
EXHIBIT E
---------
ASC Purchase Option Agreements
Page 45
<PAGE>
EXHIBIT F
---------
Form of Employment Agreement
Page 46
<PAGE>
EXHIBIT G
---------
Opinion of Counsel of Target
Page 47
<PAGE>
EXHIBIT H
---------
Investment Agreement
Page 48
<PAGE>
EXHIBIT I
---------
Practice Repurchase Agreement
Page 49
<PAGE>
EXHIBIT J
---------
Opinion of Counsel of PHC
Page 50
<PAGE>
EXHBIT 10.10
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PHYSICIAN HEALTH CORPORATION
A DELAWARE CORPORATION,
PHC - MIDWEST, INC.
A GEORGIA CORPORATION,
PARKCREST SURGICAL ASSOCIATES, INC.
A MISSOURI CORPORATION
AND
THE SHAREHOLDERS OF
PARKCREST SURGICAL ASSOCIATES, INC.
DATED AS OF SEPTEMBER 4, 1997
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A List of Practice Group Shareholders
EXHIBIT B Disclosure Documents
EXHIBIT C Acquisition Restrictive Covenant Agreement
EXHIBIT D Practice Management Agreement
EXHIBIT E Opinion of Counsel of Practice Group
EXHIBIT F Investment Agreement
EXHIBIT G Registration Rights Agreement
EXHIBIT H Opinion of Counsel of PHC
<PAGE>
LIST OF SCHEDULES
-----------------
SCHEDULE 1.7 Conversion of Shares
- ------------
SCHEDULE 2.2 Required Consents Relating to Seller's Obligations
- ------------
SCHEDULE 2.3 Licenses and Authorizations
- ------------
SCHEDULE 2.4 Lease and License Agreements
- ------------
SCHEDULE 2.5 Financial Statements of Practice Group
- ------------
SCHEDULE 2.6 Absence of Charges
- ------------
SCHEDULE 2.7 Litigation and Claims
- ------------
SCHEDULE 2.8 Undisclosed Liabilities
- ------------
SCHEDULE 2.9 Violations of Law; Transactions with Referral Sources
- ------------
SCHEDULE 2.10(A) Owned Assets
- ----------------
SCHEDULE 2.10(B) Leased Equipment
- ----------------
SCHEDULE 2.10(C) Equipment, Utility and Other Deposits
- ----------------
SCHEDULE 2.10(D) Exceptions to Title to Assets
- ----------------
SCHEDULE 2.11 Indebtedness
- -------------
SCHEDULE 2.12(A) Employment Contracts, Union Agreements and Benefit Plans
- ----------------
SCHEDULE 2.13 Exceptions to Compliance with Employment and Labor Laws
- -------------
SCHEDULE 2.14 Contracts and Agreements of Practice Group
- -------------
SCHEDULE 2.15 Environmental Protection
- -------------
SCHEDULE 2.17 Insurance Policies
- -------------
SCHEDULE 2.18 Accounts Receivable
- -------------
SCHEDULE 2.19 Accounts Payable
- -------------
SCHEDULE 2.21 Inspections and Investigations
- -------------
SCHEDULE 2.22 Ownership of Medical Service Practice(s)
- -------------
SCHEDULE 2.23 Agreements in Full Force and Effect
- -------------
SCHEDULE 2.24 Taxes
- -------------
SCHEDULE 3.5 Litigation and Claims of PHC
- ------------
<PAGE>
SCHEDULE 3.6 Financial Statements of PHC
- ------------
SCHEDULE 5.1 Disposition of Assets
- ------------
SCHEDULE 5.1 Assumption of Indebtedness
- ------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of the 4th day of September, 1997, by and among Physician Health
Corporation, a Delaware corporation ("PHC"), PHC - Midwest, Inc., a Georgia
corporation ("Acquisition Subsidiary"), Parkcrest Surgical Associates, Inc., a
Missouri corporation ("Practice Group") and each of the shareholders of Practice
Group, as listed on EXHIBIT A attached hereto (the "Shareholder" and
---------
collectively the "Shareholders"); provided however, that on the date hereof,
Sandra L. Tate, M.D., and Diane M. Radford, M.D. (the "Unaccredited Investors")
are not parties to this Agreement, but they may be included as additional
parties to this Agreement, and within the definition of Shareholders as used
herein, as provided in Section 4.11.
R E C I T A L S:
---------------
PHC desires to acquire Practice Group in a forward triangular merger
(the "Merger") qualifying as a tax-free reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"). As
consideration for the acquisition of Practice Group, Shareholders shall acquire
stock of PHC in the Merger. PHC is entering into this Agreement subject to the
review and approval of this Agreement and the transactions contemplated hereby
by PHC's Board of Directors and certain other parties as provided in Section 6.1
hereof.
A G R E E M E N T S:
-------------------
For and in consideration of the premises and the mutual covenants,
agreements, representations and warranties contained herein, the parties hereto,
intending to be legally bound, covenant and agree as follows:
ARTICLE I
MERGER, EFFECT OF MERGER
------------------------
On the Effective Date (as defined in Section 1.1 hereof), Practice Group
shall merge with and into Acquisition Subsidiary, and Acquisition Subsidiary
shall survive the Merger as the "Surviving Corporation."
1.1 Effect of Merger.
----------------
The Merger shall become effective on the date (the "Effective Date") on
which the duly executed Articles of Merger are filed with the Secretary of State
of Georgia and the Secretary of State of Missouri in accordance with the
applicable legal requirements of the State of Georgia and the State of Missouri.
On the Effective Date, and as a result of the Merger: (a) the separate
existence of Practice Group will cease; (b) title to all assets and properties,
or any interest therein, owned by Practice Group will be vested in the Surviving
Corporation without reversion or impairment; (c) the Surviving Corporation will
thenceforth be responsible and liable for all the liabilities and obligations of
Practice Group and (d) neither the rights of
<PAGE>
creditors nor any liens upon the property of Practice Group will be impaired by
the Merger.
1.2 Surviving Corporation.
---------------------
Following the Merger, the existence of the Surviving Corporation shall
continue unaffected and unimpaired by the Merger, with all the rights,
privileges, immunities and powers, and subject to all the duties and
liabilities, of a corporation organized under the laws of the State of Georgia.
1.3 Name.
----
As a result of the Merger, the corporate name of Surviving Corporation
shall continue to be the name of the Acquisition Subsidiary.
1.4 Articles of Incorporation.
-------------------------
The Articles of Incorporation of Surviving Corporation, as in effect on the
Effective Date, remain the Articles of Incorporation of Surviving Corporation
from and after the Effective Date, subject to the right of Surviving Corporation
thereafter to amend its Articles of Incorporation in accordance with Georgia
law.
1.5 Bylaws.
------
The Bylaws of Surviving Corporation shall remain the Bylaws of Surviving
Corporation from and after the Effective Date, subject to the right of Surviving
Corporation thereafter to amend its Bylaws in accordance with its Articles of
Incorporation and with Georgia law.
1.6 Directors and Officers.
----------------------
The members of the Board of Directors and the officers of Acquisition
Subsidiary in office on the Effective Date shall remain the Board of Directors
and officers of Surviving Corporation.
1.7 Conversion of Shares.
--------------------
On the Effective Date, all of the then outstanding shares of capital stock
of Practice Group (the "Practice Group Shares") shall be converted into the
number of shares of the Prime Common Stock of PHC (the "PHC Shares") set forth
on SCHEDULE 1.7 hereto, and all outstanding certificates evidencing shares of
------------
capital stock of Practice Group shall be canceled. SCHEDULE 1.7 sets forth the
------------
financial terms used to calculate the estimated number of PHC Shares to be
issued in the Merger. The parties agree that on the Closing Date (as
hereinafter defined) they will adjust the number of PHC Shares, on the same
basis as the initial calculation of the number of PHC Shares to be converted
under this Section 1.7, to reflect the net change in the accounts receivable and
the accounts payable of the Practice Group from the date hereof to the Closing
Date. SCHEDULE 1.7 shall be revised at Closing to reflect such changes by PHC
------------
and agreed to by the Shareholders.
1.8 Procedure for Exchange.
----------------------
At the Closing, each Shareholder shall surrender to PHC his or her
respective certificates representing the Practice Group Shares owned or held by
each said Shareholder, and each said Shareholder shall receive a certificate
evidencing the PHC Shares owned by such Shareholder.
1.9 Status of Company Shares After Effective Date.
---------------------------------------------
From and after the Effective Date and until surrendered and exchanged, each
outstanding certificate formerly representing Practice Group Shares shall be
deemed for all purposes to represent only the right to receive the PHC Shares
specified in Section 1.7 hereof. From and after the Effective Date, the stock
<PAGE>
transfer books of Practice Group shall be closed, and no transfer of shares on
the books of Practice Group shall be made or recorded.
1.10 Closing.
-------
The Closing shall occur on September 30, 1997 (the "Closing Date"), at
10:00 a.m. local time, at the offices of Gallop, Johnson & Neuman, L.C., Interco
Corporate Tower, 101 South Hanley, St. Louis, Missouri 63105, or at such other
place and time as the parties hereto shall mutually agree.
1.11 Risk of Loss.
------------
Risk of loss to the assets of Practice Group, however caused (other than by
Acquisition Subsidiary or those duly authorized to act on behalf of Acquisition
Subsidiary), from the date hereof, through the Closing Date, shall remain wholly
upon Practice Group. Such risk shall shift to Surviving Corporation at the
beginning (viz., 12:00:01 a.m.) of the day immediately following the Closing
Date.
1.12 Post-Closing Adjustment.
-----------------------
On the 180th day following the Closing Date, PHC shall calculate the net
amount PHC has collected from Practice Group's accounts receivable existing on
the Closing Date (the "Actual Collections"). Within 30 days following
calculation of the Actual Collections, (i) PHC shall pay in cash to the
Shareholders (pro rata in accordance with their respective ownership of Practice
Group as reflected on EXHIBIT A attached hereto) the amount, if any, by which
---------
the Actual Collections exceed the "Estimated Accounts Receivable" amount set
forth on SCHEDULE 1.7 and, and (ii) the Shareholders shall pay in cash (pro rata
------------
in accordance with their respective ownership of Practice Group as reflected on
EXHIBIT A attached hereto) to PHC the amount, if any, by which the Actual
- ---------
Collections are less than such "Estimated Collectible Accounts Receivable"
amount.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER
--------------------------------------------------
For purposes of this Article II, reference to the term "Knowledge" when
used with respect to Shareholders, shall mean the actual knowledge after due
inquiry of the Shareholders of Practice Group. As a material inducement to PHC
and Acquisition Subsidiary to enter into this Agreement, any of the Shareholders
hereby jointly and severally represent and warrant to each of PHC and
Acquisition Subsidiary as follows:
2.1 Organization, Standing and Authority of Practice Group.
------------------------------------------------------
Practice Group is a corporation duly organized and validly existing under
the laws of the State of Missouri and qualified to do business in all locations
where the nature of its business or the ownership of its assets or properties
requires such qualification. Practice Group has the full requisite power and
authority to (a) own all its assets and properties and to operate its business
of operating a medical practice in the specialty of surgery in St. Louis,
Missouri (the "Practice") as conducted on the date hereof, (b) execute and
deliver this Agreement and each other document or instrument contemplated hereby
(collectively, the "Transaction Agreements") and perform its obligations
hereunder and thereunder according to their respective terms, and (c) to carry
on and operate the Practice as now being conducted. Practice Group is not a
participant in any joint venture, partnership, association or similar business
arrangement with any other person or party. The Attorney-in-Fact (as defined in
<PAGE>
Section 4.6 hereof) has the requisite power and all authority to execute and
deliver each of the Transaction Agreements and to perform his obligations
hereunder and thereunder according to their respective terms.
2.2 Absence of Conflicting Agreements or Required Consents Relating to
------------------------------------------------------------------
Each Shareholder and Practice Group's Respective Obligations.
- ------------------------------------------------------------
The execution, delivery and performance by each Shareholder and Practice
Group respectively, of the Transaction Agreements (with or without the giving of
notice, the lapse of time, or both): (a) except as expressly set forth on
SCHEDULE 2.2, do not require the consent of any governmental or regulatory
- ------------
authority or any other third party; (b) will not conflict with any provision of
Practice Group's articles of incorporation, bylaws or other organizational
documents; (c) will not conflict with, result in a breach of, or constitute a
default under any law, ordinance, regulation, ruling, judgment, order or
injunction of any court or governmental instrumentality to which any Shareholder
or Practice Group is a party or by which any Shareholder or Practice Group or
their respective properties are bound; (d) to each Shareholder's Knowledge, will
not conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of any
performance required by the terms of any agreement, instrument, license or
permit relating to the Practice, to which any Shareholder or Practice Group is a
party or by which any Shareholder or Practice Group or their respective
properties are bound and (e) will not create any claim, lien, charge or
encumbrance upon any of the assets or properties of Practice Group.
2.3 Licenses and Authorizations.
---------------------------
To each Shareholder's Knowledge, each Shareholder and Practice Group hold
all valid licenses, permits and other rights and authorizations required by any
federal, state or local law, ordinance, regulation or ruling of any governmental
regulatory authority necessary to operate the Practice at each of its current
locations as it is currently being operated including, without limitation, the
right to receive Medicare and Medicaid reimbursements. A correct and complete
list of all such licenses, permits and other authorizations is set forth in
SCHEDULE 2.3 hereto. None of such licenses has been revoked or suspended or
- ------------
is the subject of any proceeding or action for revocation or suspension.
2.4 Lease Agreements.
----------------
SCHEDULE 2.4 hereto contains a current list of all the lease agreements and
------------
license and sublicense agreements to which Practice Group and/or any Shareholder
are parties and pursuant to which the Practice Group and/or any Shareholder
lease (whether as lessor or lessee) or license (whether as licensor or licensee)
any real or personal property related to the operation of the Practice (the
"Lease Agreements"). Practice Group has delivered to PHC true and complete
copies of all of the Lease Agreements. To each Shareholder's Knowledge, each of
the Lease Agreements is valid and effective in accordance with its terms, and to
each Shareholder's Knowledge there is not under any of such Lease Agreements (a)
any existing or claimed default by Practice Group or any Shareholder or event of
default or event which with notice or lapse of time, or both, would constitute a
default by Practice Group or any Shareholder, or (b) any existing default by any
other party under any of the Lease Agreements or any event of default or event
which with notice or lapse of time, or both, would constitute a default by any
such party. To each Shareholder's Knowledge, each of the Lease Agreements is in
compliance with all applicable safe harbor provisions promulgated by the
<PAGE>
Department of Health and Human Services in connection with the enforcement of
the federal Fraud and Abuse Statute, 42 U.S.C. (S) 1320 a-7b and Regulations
contained in 42 CFR (S) 1001 et seq. (the "Fraud and Abuse Statute").
2.5 Financial Statements.
--------------------
Attached hereto as SCHEDULE 2.5 are Practice Group's unaudited financial
------------
statements for the fiscal years ending March 31, 1995, 1996 and 1997 and
unaudited interim financial statements (the "Interim Financial Statements") for
the four-month period ending July 31, 1997 (the "Interim Financials Date"),
reflecting the results of the operations and financial condition of Practice
Group and the Practice at such dates which have been prepared in accordance with
the federal income tax basis of accounting (cash method) consistently applied
(collectively, the "Financial Statements"). Prior to Closing, Practice Group
shall provide PHC with updated Interim Financial Statements for the three-month
period ending June 30, 1997. The Financial Statements: (i) to each
Shareholder's Knowledge, present fairly the financial position of Practice Group
and the Practice as of the dates indicated and present fairly the results of
Practice Group's operations for the periods then ended and (ii) to each
Shareholder's Knowledge, are in accordance with the books and records of the
Practice Group, as the case may be, which have been properly maintained and are
complete and correct. To each Shareholder's Knowledge, each of the Financial
Statements is auditable for purposes of determining their conformity to
generally accepted accounting principles.
2.6 Absence of Changes.
------------------
Except as expressly set forth in SCHEDULE 2.6 hereto and as permitted or
------------
contemplated by this Agreement, since the Interim Financials Date, to each
Shareholder's Knowledge, each Shareholder and Practice Group have conducted the
Practice only in the ordinary course of business consistent with past practices,
and have not:
(a) Suffered any material adverse change in its working capital, condition
(financial or otherwise), assets, liabilities, reserves, business or
operations;
(b) Paid, discharged or satisfied any material liability other than the
payments, discharge or satisfaction of liabilities in the ordinary
course of business;
(c) Written off as uncollectible any receivable, except for write-offs in
the ordinary course of business not exceeding Five Thousand and No/100
Dollars ($5,000) in the aggregate;
(d) Canceled or compromised any debts or waived or permitted to lapse any
claims or rights or sold, transferred or otherwise disposed of any of
its properties or assets (except as disclosed in SCHEDULE 5.1 attached
------------
hereto);
(e) Entered into any commitment or transaction not in the ordinary course
of business or made any capital expenditure or commitment in excess of
Five Thousand and No/100 Dollars ($5,000.00);
(f) Made any change in any method of accounting or accounting practice for
financial or income tax purposes;
<PAGE>
(g) Incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of Five Thousand and No/100 Dollars ($5,000.00),
except for trade payables incurred in the ordinary course of business;
(h) Mortgaged, pledged, subjected or agreed to subject, any of its assets,
tangible or intangible, to any lien, claim or encumbrance, except for
liens of current personal property taxes not yet due and payable;
(i) Sold or otherwise transferred any ownership interest in Practice
Group;
(j) Increased any salaries, wages or any employee benefits for any
employee;
(k) Hired, committed to hire or terminated any employee; or
(l) Agreed, whether in writing or otherwise, to take any action
particularly described in this Section 2.6.
2.7 Litigation and Claims.
---------------------
Except as expressly set forth in SCHEDULE 2.7 hereto, there are no claims,
------------
lawsuits, counterclaims, proceedings, or investigations pending, and to each
Shareholder's Knowledge, threatened, against or affecting any Shareholder,
Practice Group, the Practice or any licensed professional or other individual
employed by or under contract with the Practice in any court or before any
arbitrator or governmental authority or agency, and to each Shareholder's
Knowledge, there is no basis for any such action or any state of facts or
occurrence of any event which might give rise to the foregoing which has or
could have a material adverse effect on the financial condition or assets or
properties of Practice Group, on any Shareholder's or Practice Group's
performance hereunder, or on the continued operation of the Practice by the
Surviving Corporation. There are no unsatisfied judgments against any
Shareholder, Practice Group, the Practice, or any licensed professional or other
individual employed by or under contract with the Practice, or any consent
decrees to which any of the foregoing are subject which would have a material
adverse effect on the financial condition or assets or properties of Practice
Group, on Practice Group's or any Shareholder's performance hereunder, or on the
continued operation of the Practice by Surviving Corporation.
2.8 No Undisclosed Liabilities.
--------------------------
Except as and to the extent reflected in the Financial Statements or as
expressly shown in SCHEDULE 2.8 hereto, Practice Group has no liability or
------------
obligation whatsoever, whether matured, unmatured, absolute, contingent or
otherwise, except for liabilities and obligations incurred in the ordinary
course of its business since the Interim Financials Date, which do not in the
aggregate have a material adverse effect on the operations, assets or financial
condition of Practice Group or the Practice.
2.9 No Violation of Law, Generally.
------------------------------
(a) Except as expressly set forth in SCHEDULE 2.9 hereto, to each
------------
Shareholder's Knowledge, neither Practice Group nor any Shareholder
has been or shall be as of the Closing Date (by virtue of any action,
omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever) in violation of any applicable local, state
<PAGE>
or federal law, ordinance, regulation, order, injunction or decree, or
any other requirement of any governmental body, agency or authority or
court binding on it, or relating to its property or business or its
advertising, sales, referral or pricing practices (including, without
limitation, Titles 18 and 19 of the Social Security Act and all
applicable zoning and use laws).
(b) Billing Practices/Regulatory Compliance.
---------------------------------------
(i) Billing Practices Generally. To each Shareholder's Knowledge,
---------------------------
all billing practices by Practice Group to all third party
payors, including, but not limited to, the federal Medicare
program, state Medicaid programs and private insurance companies,
have been true, fair and correct and in compliance with all
applicable laws, regulations and policies of all such third party
payors, and Practice Group has not billed for or received any
payment or reimbursement in excess of amounts allowed by law.
(ii) Fraud and Abuse. Practice Group, its officers and directors, and
---------------
persons and entities providing professional services for Practice
Group, have not engaged in any activities which are prohibited
under the Fraud and Abuse Statute, or the regulations promulgated
thereunder pursuant to such statutes, or related state or local
statutes or regulations, or which are prohibited by rules of
professional conduct, including, but not limited, to the
following: (a) knowingly and willfully making or causing to be
made a false statement or representation of a material fact in
any application for any benefit or payment; (b) knowingly and
willfully making or causing to be made any false statement or
representation of a material fact for use in determining rights
to any benefit or payment; (c) 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 (1) 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 (2) 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; and (d)
knowingly and willfully offering or paying any remuneration
(including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind to any person
to induce such person (1) to refer an individual to a person for
the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part under
Medicare or Medicaid or (2) to purchase, lease, order, or arrange
for or recommend purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole
or in part under Medicare or Medicaid.
<PAGE>
(c) Transactions with Referral Sources. Except as expressly set forth in
----------------------------------
SCHEDULE 2.9, neither any Shareholder nor Practice Group nor any
------------
affiliate of Practice Group, nor any director, officer or employee
thereof, is a party to any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting
agreement with any physician, hospital, nursing facility, home health
agency or other person who is in a position to make or influence
referrals to or otherwise generate business for Practice Group to
provide services, lease space, lease equipment or engage in any other
venture or activity.
2.10 Properties.
----------
(a) SCHEDULE 2.10(A) hereto sets forth a current and complete list and
----------------
description of all of the tangible and intangible assets owned by
Practice Group as of the Interim Financials Date.
(b) SCHEDULE 2.10(B) hereto sets forth a current and complete list of all
----------------
property, equipment and other assets leased, subleased, or licensed or
sublicensed by Practice Group including, without limitation, all
computer hardware and software (collectively, the "Leased Equipment").
(c) To the extent not expressly itemized in the Interim Financial
Statements, SCHEDULE 2.10(C) hereto sets forth a current and complete
----------------
list and description of all equipment, utility and other deposits
owned by Practice Group.
(d) Except as expressly set forth and described on SCHEDULE 2.10(D),
----------------
Practice Group: (i) has good, valid and indefeasible title to all of
the personal and mixed, tangible and intangible property, rights and
assets which it purports to own, including all the personal property
and assets reflected, but not shown as leased or encumbered, in the
Interim Financial Statements (except for inventory and assets sold in
the ordinary course of business consistent with past practice and
supplies consumed in the ordinary course of business consistent with
past practice since the Interim Financials Date) and (ii) owns such
rights, assets and personal property free and clear of all title
defects or objections, liens, restrictions, claims, charges, security
interest, or other encumbrances of any nature whatsoever, including
any mortgages, leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements.
(e) All of the Leased Equipment and tangible assets owned by Practice
Group are in good operating condition and repair, normal wear
excepted, and will be in such condition on the Closing Date.
(f) All of the durable and nondurable supplies owned by Practice Group are
of a quality and quantity usable in the ordinary and usual course of
the business of Practice Group.
<PAGE>
(g) No assets, rights or interests are required in addition to those
tangible assets, Leased Equipment, rights and interests owned by
Practice Group in order to manage or operate the Practice and/or
business of the Surviving Corporation as it is currently being managed
and operated by Practice Group.
2.11 Indebtedness.
------------
Schedule 2.11 sets forth a current and complete list and description of all
-------------
instruments or other documents relating to any direct or indirect indebtedness
for borrowed funds of Practice Group in excess of Five Thousand and No/100
Dollars ($5,000.00), as well as indebtedness by way of lease purchase
arrangements, guarantees, undertakings on which others rely in extending credit
and all conditional sales contracts, chattel mortgages and other security
arrangements with respect to personal property used or owned by Practice Group.
Practice Group has not loaned funds to or guaranteed a loan to any employee or
shareholder of Practice Group or other investor in Practice Group that is in a
position, directly or indirectly to make or influence referrals of patients to,
furnish items or services to, or otherwise generate business for the Practice.
2.12 Employee Contracts, Union Agreements and Benefit Plans.
------------------------------------------------------
(a) Except as set forth on SCHEDULE 2.12(A) hereto, Practice Group is not
----------------
a party to any employment contract (except for oral employment
agreements which are terminable by Practice Group at will), consulting
or collective bargaining contracts, deferred compensation, pension (as
defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended, and all rules and regulations from time to time
promulgated thereunder ("ERISA")), profit sharing, bonus or other
nonqualified benefit or compensation commitments, benefit plans,
arrangements or plans (whether written or oral), including all welfare
plans, as defined in Section 3(l) of ERISA, of or pertaining to any
present or former employee of Practice Group, or its predecessors in
interest, that have been in effect at any time within the past five
(5) years. Each Shareholder of Practice Group agrees that PHC and
Surviving Corporation will not be responsible or liable for any
pension, profit sharing, retirement, deferred compensation, bonus,
incentive, stock purchase, severance, hospitalization, insurance or
other plan, agreement, arrangement or understanding relating to such
employees or to any accrued benefits thereunder relating to the
operation of Practice Group prior to Closing. There are no other
accrued benefits held by any employee for which PHC shall be liable,
Practice Group having compensated said employees in full for vacation
time, sick leave or other compensated absence.
(b) Surviving Corporation shall employ, as employees at will, all persons
(other than physician Shareholders and employees who perform
clinical/medical services incident to the services of said physician
Shareholders) who are employees of Practice Group on the Closing Date.
As of the Closing Date, each Shareholder and Practice Group will use
their best efforts to terminate the participation of all such
employees employed by Surviving Corporation in all Practice Group
employee benefit plans set forth in SCHEDULE 2.12(A), such termination
----------------
<PAGE>
to be effected in accordance with and to the extent permitted by the
applicable provisions of the Internal Revenue Code of 1986 and ERISA.
2.13 Labor Relations.
---------------
Except as expressly set forth in SCHEDULE 2.13 hereto:
-------------
(a) Practice Group is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of
employment, wages and hours, occupational safety and health, and is
not engaged in any unfair labor practice within the meaning of Section
8 of the National Labor Relations Act;
(b) There is no unfair labor practice, charge or complaint or any other
matter against or involving Practice Group pending or threatened
before the National Labor Relations Board or any court of law;
(c) There are no charges, investigations, administrative proceedings or
formal complaints of discrimination (including discrimination based
upon sex, age, marital status, race, national origin, the making of
workers' compensation claims, sexual preference, handicap or veteran
status) pending or to each Shareholder's and Practice Group's
Knowledge threatened before the Equal Employment Opportunity
Commission or any federal, state or local agency or court against
Practice Group. There have been no governmental audits of the equal
employment opportunity practices of Practice Group, and to each
Shareholder's Knowledge no basis for any such audit exists;
(d) To each Shareholder's and Practice Group's Knowledge, Practice Group
is in compliance with the Immigration Reform and Control Act of 1986,
as amended, and all applicable regulations promulgated thereunder; and
(e) There are no inquiries, investigations or monitoring activities of any
licensed, registered, or certified professional personnel employed by,
credentialed or privileged, or under contract with Practice Group or
the Practice pending or, to each Shareholder's Knowledge threatened by
any state professional board or agency charged with regulating the
professional activities of health care practitioners or providers.
2.14 Contracts and Commitments.
-------------------------
Except as expressly set forth in SCHEDULE 2.14:
-------------
(a) No written or oral contract or commitment to which Practice Group is a
party or is bound continues for a period of more than six (6) months
from the date hereof or requires payments by Practice Group after the
Closing Date, in the aggregate, in excess of Five Thousand and No/100
Dollars ($5,000.00);
(b) There are no written or oral contracts or agreements to which Practice
Group is a party or is bound:
<PAGE>
(i) With any of the directors, officers or shareholders of the
Practice Group, or
(ii) With any person related by blood or marriage to any director,
officer or shareholder of Practice Group or with any company or other
organization in which anyone related by blood or marriage to Practice
Group has a direct or indirect financial interest;
(c) Neither Practice Group nor any Shareholder is a party to or bound by
any contracts or agreements containing covenants prohibiting or
limiting the freedom of any Shareholder and/or Practice Group to
compete in any line of business or to subject the employees or
patients of any business in any geographic area or requiring any
Shareholder and/or Practice Group to share any profits;
(d) Neither Practice Group nor any Shareholder is a party to any existing
agreement for the management or administration of the Practice, and
neither Practice Group nor any Shareholder is obligated to become a
party to any such management or administration agreement;
(e) To each Shareholder's Knowledge neither Practice Group nor any
Shareholder is a party to or bound by any contract, agreement or other
arrangement that has had or based on present facts is likely to have a
material adverse effect upon the business, earnings or financial
condition of Practice Group; and
(f) Neither Practice Group nor any Shareholder is a party to or bound by
any contract, agreement or other arrangement, requiring the personal
services of another person or entity which does not comply with the
safe harbor provisions of the Fraud and Abuse Statute.
2.15 Environmental Protection.
------------------------
Practice Group has obtained all permits, licenses and other authorizations
and filed all notices which are required to be obtained or filed by any
Shareholder and/or Practice Group for the operation of the Practice under
federal, state and local laws relating to pollution, protection of the
environment or the generation or disposal of waste. Practice Group is in
compliance in all material respects with all terms and conditions of such
required permits, licenses and authorizations. Practice Group is in compliance
with all other applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
those laws or contained in any law, regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder. To each Shareholder's Knowledge, except as expressly disclosed on
SCHEDULE 2.15 hereto, there are no past or present events, conditions,
- -------------
circumstances, activities, practices, incidents, actions or plans which may
interfere with or prevent continued compliance, or which may give rise to any
common law or statutory liability or, otherwise form the basis of any material
claim, action, suit, proceeding, hearing or investigation, based on or related
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, or any pollutant, contaminant, or hazardous or
<PAGE>
toxic material or waste (including medical waste) with respect to Practice Group
or the Practice.
2.16 Filing of Reports.
-----------------
To each Shareholder's Knowledge, all returns, reports, plans and filings of
any kind or nature necessary to be filed by Practice Group with any governmental
authority have been properly completed and timely filed in compliance with all
applicable requirements where failure to so file would have a material adverse
effect on the conduct of the Practice by Surviving Corporation after the
Closing.
2.17 Insurance Policies.
------------------
Schedule 2.17 hereto sets forth a complete and accurate list and
-------------
description of all insurance policies in force naming Practice Group, any
Shareholder or any director, officer or employee thereof, as an insured or
beneficiary or as a loss payee or for which Practice Group has paid or is
obligated to pay all or any part of the premiums including, without limitation,
all general liability, malpractice, fire, health, disability and life insurance
policies. Practice Group has not received notice of any pending or threatened
termination or premium increase (retroactive or otherwise) with respect thereto,
and Practice Group and each Shareholder is in compliance with all conditions
contained therein. Except as expressly set forth on SCHEDULE 2.17 hereto, there
-------------
are no pending claims against such insurance by Practice Group as to which
insurers are defending under reservation of rights or have denied liability, and
except as set forth on SCHEDULE 2.17 hereto, there exists no claim under such
-------------
insurance that has not been properly filed or reported by Practice Group.
2.18 Accounts Receivable.
-------------------
Attached hereto as SCHEDULE 2.18 is a true, complete and accurate list and
-------------
aging of all accounts receivable of Practice Group as of the Interim Financials
Date. To each Shareholder's Knowledge, all such accounts receivable arose in
the ordinary course of the business of Practice Group for the provision of
professional services and have not been previously written off as bad debts.
All such accounts receivables are collectible in amounts consistent with past
practice, in the ordinary course of business.
2.19 Accounts Payable.
----------------
Attached hereto as SCHEDULE 2.19 is a current and complete list of all
-------------
accounts payable of Practice Group as of the Interim Financials Date, including
each individual indebtedness of Five Hundred and No/100 Dollars ($500.00) or
more and setting forth the payee, the amount of indebtedness and such additional
information as may be material with respect to any such account payable.
2.20 Inventory.
---------
To each Shareholder's Knowledge, all items of inventory of the Practice
reflected on the Interim Financial Statements consisted, all such items on hand
on the date of this Agreement consist, and all such items on hand on the Closing
Date will consist, of items of a quality and a quantity usable in the ordinary
course of the Practice Group's business and conform to generally accepted
standards for physician medical practices. The purchase commitments of Practice
Group for inventory are not materially in excess of normal requirements, and
none of such purchase commitments were made at prices in excess of prevailing
market prices at the time of purchase.
2.21 Inspections and Investigations.
------------------------------
Neither any Shareholder's nor Practice Group's right nor the right of any
licensed professional or other individual employed by or under contract with the
<PAGE>
Practice to receive Medicare and Medicaid reimbursements has been terminated or
otherwise adversely affected as a result of any investigation or action by any
federal or state governmental regulatory authority. Except as expressly set
forth and described on SCHEDULE 2.21, to each Shareholder's Knowledge, neither
-------------
(i) Practice Group nor any Shareholder nor any licensed professional or other
individual affiliated with the Practice has, during the past three (3) years,
been the subject of any inspection, investigation, survey, audit or monitoring
by any governmental regulatory entity, trade association, professional review
organization, accrediting organization or certifying agency, (ii) nor has
Practice Group, any Shareholder or the Practice received from any such entity
any notice of deficiency in connection with the operation of the Practice. No
Shareholder has been the subject of a "medical malpractice action or claim" or a
"professional review action" within the last three (3) years as those terms are
defined in the Health Care Quality Improvement Act of 1986. Attached as part of
SCHEDULE 2.21 hereto are copies of all reports, correspondence, notices and
- -------------
other documents relating to any such inspection, investigation, survey, audit,
monitoring or other form of review to which any of the foregoing has been
subject.
2.22 Ownership of Medical Service Practice(s).
----------------------------------------
Except as expressly set forth in SCHEDULE 2.22 hereto, to each
-------------
Shareholder's Knowledge, no Shareholder nor any member of any Shareholder's
immediate family owns any interest in nor has a financial relationship with any
health care facility, practice or entity other than Practice Group (including,
without limitation, any physician or physician practice, allied professional
services such as chiropracty, physical therapy or podiatry, or any physician
management services organization, or any provider of ancillary or specialty
services including, but not limited to, laboratory and radiology services).
2.23 Agreements in Full Force and Effect.
-----------------------------------
Except as expressly set forth in SCHEDULE 2.23, all contracts, agreements,
-------------
plans, leases, policies and licenses referred to, or required to be referred to,
in any Schedule delivered hereunder are valid and binding and are in full force
and effect and are enforceable in accordance with their terms, except to the
extent that the validity or enforceability thereof may be limited by bankruptcy,
insolvency, reorganization and other similar laws affecting creditors' rights
generally. To each Shareholder's Knowledge, there is no pending or threatened
bankruptcy, insolvency or similar proceeding with respect to any party to such
agreements, and no event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder by Practice Group, any Shareholder or any other
party thereto.
2.24 Taxes.
-----
Except as expressly set forth in SCHEDULE 2.24 hereto or as expressly
-------------
reflected in the Financial Statements, immediately prior to the Closing, there
does not exist any liability for taxes accrued or due which may be asserted by
any taxing authority against, and no lien or other encumbrance for taxes accrued
or due through the date hereof that may attach to any assets or properties of
Practice Group or the operations of the Practice. All federal, state and local
income and other tax returns and tax reports required to be filed by Practice
Group or with respect to the Practice and have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports are
required to be filed, all of which are true, correct and complete, and all
amounts shown as owing thereon have been paid in full.
<PAGE>
2.25 Capitalization; Title to Shares.
-------------------------------
Exhibit A hereto sets forth a list of all the Shareholders of Practice
---------
Group and the number and type of shares of capital stock of Practice Group owned
by such Shareholder. Each Shareholder has, and on the Closing Date will have,
good title to those Practice Group Shares owned by said Shareholder, free and
clear of all claims, liens, charges, encumbrances, options, and rights of any
third parties whatsoever. Practice Group has a total of 30,000 shares of its
capital stock authorized of which ninety-one (91) shares are issued and
outstanding. No person or entity has any rights to acquire or to be granted
from the Practice Group any shares in the Practice Group or any options or other
rights to acquire shares in the Practice Group.
2.26 Corporate Documents.
-------------------
(a) As of the Closing Date, the corporate minute books of Practice Group,
to be made available by Practice Group to PHC and Acquisition
Subsidiary, will accurately reflect all corporate actions taken by the
directors and shareholders of Practice Group or any committee of the
Board of Directors of Practice Group, and will contain true and
accurate copies of or originals of the respective minutes of all
meetings or consent actions of the directors and shareholders of
Practice Group and any committee of the Board of Directors of Practice
Group.
(b) The stock record books of Practice Group, made available by Practice
Group to PHC and Acquisition Subsidiary prior to the date hereof,
accurately reflect the stock ownership of Practice Group, and contain
complete and accurate records with respect to the transfer of all
securities issued by Practice Group since its inception.
2.27 Investment Intent.
-----------------
Each Shareholder represents that he or she is acquiring his or her
respective PHC Shares for his or her own direct account or investment and not
with a view, directly or indirectly, to or in connection with a distribution
thereof and will not sell or transfer his or her respective PHC Shares in
violation of any federal or state securities laws and the rules and regulations
promulgated pursuant thereto. Except for the Unaccredited Investors, each
Shareholder represents that he or she is an "Accredited Investor" within the
meaning of Rule 501 under Regulation D of the Securities Act of 1933 (the
"Securities Act"), and capable of evaluating, either alone or with said
Shareholder's representatives and advisors, the merits and risks of the
investment in the PHC Shares to be made hereunder by such Shareholder.
2.28 Statements True and Correct.
---------------------------
(a) No representation or warranty made by any Shareholder or Practice
Group herein, nor in any statement, certificate or instrument
furnished to or to be furnished by any Shareholder or Practice Group
to PHC or Acquisition Subsidiary pursuant to this Agreement or any
Exhibit hereto, contains or will contain any untrue statement of
material fact or omits or will omit any material fact necessary to
make the statements contained therein not misleading.
<PAGE>
(b) To each Shareholder's Knowledge, there is not under any of Practice
Group's material contracts or agreements: (i) any existing or claimed
default by Practice Group or event of default or event which with
notice or lapse of time, or both, would constitute a default by
Practice Group, or (ii) any existing default by any other party under
any such contract or agreement or any event of default or event which
with notice or lapse of time, or both, would constitute a default by
any such party, that will have a material adverse effect on Practice
Group.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHC AND ACQUISITION SUBSIDIARY
----------------------------------------------------------------
As a material inducement to the Shareholders and Practice Group to enter
into this Agreement, PHC and Acquisition Subsidiary hereby jointly and severally
represent and warrant to each of the Shareholders and to Practice Group as
follows:
3.1 Organization, Standing and Authority of PHC.
-------------------------------------------
PHC is a corporation organized and existing under the laws of the
State of Delaware and will, on the Closing Date, be qualified to do business in
the States of Delaware and Georgia. Acquisition Subsidiary is a corporation
organized and existing under the laws of the State of Georgia and will, on the
Closing Date, be qualified to do business in the States of Georgia and Missouri.
PHC and Acquisition Subsidiary have the requisite power and authority to
execute, deliver and perform this Agreement and all other documents contemplated
hereby according to their respective terms.
3.2 Absence of Conflicting Agreement or Required Consents.
-----------------------------------------------------
Except as provided in Section 6.1 of this Agreement, the execution,
delivery and performance by each of PHC and Acquisition Subsidiary of this
Agreement and any other documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (a) will not conflict with any
provision of its articles of incorporation, bylaws or other organizational
documents; (b) will not conflict with, result in a breach of, or constitute a
default under any law, ordinance, regulation, ruling, judgment, order or
injunction of any court or governmental instrumentality to which it is a party
or by which it or its properties are bound and (c) will not conflict with,
constitute grounds for termination of, result in a breach of, constitute a
default under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit, material
to this transaction, to which it is a party or by which it or its properties are
bound.
3.3 Prime Common Stock of PHC.
-------------------------
The PHC Shares are duly authorized, and when issued to each
Shareholder by PHC, will be validly issued, fully paid and nonassessable. PHC
has a total of 20,000,000 shares of its Prime Common Stock authorized of which
3,112,166 shares are issued and outstanding.
<PAGE>
3.4 No Violation of Law.
-------------------
PHC has not been nor shall be, as of the Closing Date (by virtue of
any act, omission to act, contract to which it is a party or any current state
of facts whatsoever) in violation of any applicable material local, state or
federal law, ordinance, regulation, order, injunction or decree, or any other
requirement of any other governmental body, agency, authority or court binding
on it, or relating to its property or business which could have a material
adverse effect on its financial condition.
3.5 Litigation and Claims.
---------------------
Except as expressly set forth in SCHEDULE 3.5, there are no claims,
------------
lawsuits, counterclaims, proceedings, or investigations pending, or to PHC's
actual knowledge, threatened, against or affecting PHC in any court or before
any arbitrator or governmental authority or agency, and, to PHC's knowledge
after due inquiry, there is no basis for any such action or state of facts or
occurrence of any event which might give rise to the foregoing which has or
could have a material adverse effect on the financial condition of PHC. There
are no unsatisfied judgments against PHC or any consent decrees to which PHC is
subject which would have a material adverse effect on the financial condition of
PHC.
3.6 Financial Statements of PHC.
---------------------------
Attached hereto as SCHEDULE 3.6 are PHC's audited financial statements
------------
for the calendar years ending December 31, 1995 and 1996, and unaudited interim
financial statements for the four-month period ending April 30, 1997 (the "PHC
Interim Financial Statements") (collectively, the "PHC Financial Statements"),
reflecting the results of the operations and financial condition of PHC as of
such date, which have been prepared in accordance with generally accepted
accounting principles consistently applied, subject, in the case of the PHC
Interim Financial Statements, to normal year-end adjustments.
3.7 Title to Shares of Acquisition Subsidiary.
-----------------------------------------
PHC owns of record and beneficially all outstanding shares of capital
stock of Acquisition Subsidiary (the "Acquisition Subsidiary Shares"). PHC has,
and on the Closing Date will have, good title to the Acquisition Subsidiary
Shares, free and clear of all claims, liens, charges, encumbrances, options, and
rights of any third parties whatsoever (other than those of NationsCredit
Commercial Corporation "NationsCredit").
3.8 Common Stock of Acquisition Subsidiary.
--------------------------------------
Acquisition Subsidiary has a total of ten thousand (10,000) shares of
its common stock authorized of which one thousand (1,000) shares are issued and
outstanding.
3.9 Statements True and Correct.
---------------------------
(a) No representation or warranty made by PHC and/or the Acquisition
Subsidiary herein, nor in any statement, certificate or instrument
furnished to or to be furnished by PHC and/or the Acquisition
Subsidiary to any Shareholder or Practice Group pursuant to this
Agreement or any Exhibit hereto (including the documents described in
EXHIBIT B hereto), contains or will contain any untrue statement of
---------
material fact or omits or will omit any material fact necessary to
make the statements contained therein not misleading.
(b) To PHC's knowledge after due inquiry, there is not under any of PHC's
or Acquisition Subsidiary's material contracts or agreements: (i) any
<PAGE>
existing or claimed default by PHC or Acquisition Subsidiary or event
of default or event which with notice or lapse of time, or both, would
constitute a default by PHC or Acquisition Subsidiary; or (ii) any
existing default by any other party under any such contract or
agreement or any event of default or event which with notice or lapse
of time, or both, would constitute a default by any such party, that
will have a material adverse effect on PHC or Acquisition Subsidiary.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
4.1 Access and Inspection.
---------------------
From and after the date of this Agreement, PHC and its representatives
and agents shall have the right to enter the Practice Group's premises during
regular business hours to review, inspect and copy any and all books, records,
documents or other information concerning the operation of the Practice as PHC
or its representatives or agents may reasonably request (the "Due Diligence
Inspection"). Following Closing, the Surviving Corporation shall, subject to
all applicable laws continue to provide PHC with access to any and all financial
and other records of Practice Group that PHC may reasonably request in order to
operate the Practice, to file any reports or respond to inquiries or
investigations including, without limitation, the preparation or examination of
tax returns, or for any other reasonable business purpose in connection with the
operation of the Practice.
4.2 Cooperation in Meeting Filing Requirements.
------------------------------------------
Each of the Shareholders, Practice Group, PHC and Acquisition
Subsidiary shall cooperate in preparing, executing and filing such requests,
applications, information and other submittals as may be required by any federal
or state governmental agency or authority having jurisdiction over the assets or
properties of Practice Group or the Practice, for the purpose of consummating
the transactions contemplated herein and Surviving Corporation's operation of
the Practice in substantially the same manner as currently operated by Practice
Group.
4.3 Post Closing Audit of Practice Group.
------------------------------------
Each Shareholder and Practice Group shall cooperate with and assist
PHC and its accountants and other representatives in preparing audited financial
statements of Practice Group for any fiscal year of Practice Group ending prior
to the Closing Date.
4.4 Further Assurances.
------------------
Each party covenants that it will, in connection with the Closing and
from time to time after the Closing Date, execute such additional instruments
and take such actions as may be reasonably requested by the other party to
confirm or perfect or otherwise to carry out the intent and purposes of this
Agreement.
4.5 Tax Free Treatment.
------------------
Each of the parties shall use its reasonable efforts to cause the
merger to constitute a reorganization under Section 368 of the Code.
4.6 Appointment of Attorney-in-Fact.
-------------------------------
The Shareholders hereby each make, constitute and appoint David A.
Caplin, M.D. (the "Attorney-in-Fact") as their true and lawful Attorney-in-Fact
with full power and authority to do and perform the following:
<PAGE>
(a) To deliver to PHC and Acquisition Subsidiary at Closing the
Transaction Agreements;
(b) To make, execute and deliver all agreements, schedules, exhibits and
certificates required to be executed by the Shareholders and delivered
to PHC and Acquisition Subsidiary in accordance with the terms and
conditions of the Transaction Agreements;
(c) To commence, prosecute, defend, dismiss and compromise all legal
demands, actions or proceedings regarding the interest of the
Shareholders in the Transaction Agreements.
4.7 Acceptance of Appointment.
-------------------------
David A. Caplin, M.D. hereby accepts his appointment as Attorney-in-
Fact and agrees to carry out in good faith the responsibilities undertaken
hereby and to receive, hold and distribute all funds payable under the
Transaction Agreements and to disburse the same in accordance with the terms and
conditions of the Transaction Agreements. The Attorney-in-Fact agrees to
maintain his appointment hereunder until his death, such earlier date as he may
be declared legally incompetent by a court of law or until he has taken
reasonable actions to appoint a successor attorney-in-fact pursuant to this
Article IV.
4.8 Power of Attorney Irrevocable, Etc.
-----------------------------------
The Shareholders do hereby ratify and confirm all that said Attorney-
in-Fact shall do or cause to be done by virtue of this Agreement. For the
consideration specified in this Agreement the Shareholders agree that the power
of attorney granted hereby to the Attorney-in-Fact is a special power of
attorney coupled with an interest, is irrevocable, shall not terminate upon the
death of any Shareholder and shall be effective from the date hereof until or
upon termination of this Agreement. The Shareholders hereby renounce all right
to revoke the power of attorney granted herein and to appoint another person to
perform the acts of the Attorney-in-Fact, except for successors hereunder.
After termination of the power of attorney hereby granted, the Attorney-in-Fact
shall have authority only to return any property, real or personal, to the
Shareholder who delivered the same to the Attorney-in-Fact.
4.9 Successor Attorney-in-Fact.
--------------------------
The Shareholders agree that in the event David A. Caplin, M.D. ceases
to act as Attorney-in-Fact then Marlys E. Schuh, M.D. shall, if she so accepts,
succeed as Attorney-in-Fact hereunder. If Dr. Schuh fails to succeed as
Attorney-in-Fact or if Dr. Schuh resigns her appointment hereunder, then the
Shareholders by Majority Vote shall select a successor. Any successor Attorney-
in-Fact shall have all the rights, powers and obligations of the Attorney-in-
Fact. All charges, fees or other expenses or costs of any successor Attorney-
in-Fact shall be borne and paid by the Shareholders.
4.10 Limitation of Liability and Indemnity.
-------------------------------------
Each of the Shareholders agrees that in performing any of his duties,
the Attorney-in-Fact shall not incur any liability to anyone for damages, losses
or expenses for any reason except for willful negligence or intentional
misconduct. Without limiting the foregoing, the Shareholders specifically agree
that the Attorney-in-Fact shall be entitled to act upon advice of his counsel
given with respect to any questions relating to his duties and responsibilities
<PAGE>
as Attorney-in-Fact hereunder without incurring any liability to the
Shareholders or to any other person. The Shareholders agree to indemnify and
hold harmless the Attorney-in-Fact against and in respect of any and all losses,
claims, damages, liabilities and expenses including reasonable costs of
investigation, counsel fees and disbursements, which may be imposed upon or
incurred by the Attorney-in-Fact in connection with the performance of his
duties hereunder.
4.11 PHC Disclosure; Limited Right of Termination.
--------------------------------------------
(a) Accredited Investors.
--------------------
Each of the Shareholders other than the Unaccredited Investors (the
"Accredited Investors") has represented and warranted to PHC that he or she is
an "accredited investor" as such term is defined in Regulation D promulgated
under the Securities Act of 1933, as amended. Each Accredited Investor
acknowledges and agrees that he has received, and has had an opportunity to
review, those certain disclosure documents of PHC described on EXHIBIT B hereto.
---------
(b) Unaccredited Investors.
----------------------
On the date hereof, the Unaccredited Investors are not parties to this
Agreement, and PHC has not, directly or indirectly, made an offer to sell or
solicited an offer to the Unaccredited Investors to purchase PHC securities.
PHC intends to deliver to the Unaccredited Investors a Private Placement
Memorandum prepared by PHC to offer PHC securities to each of them pursuant to
the terms of this Agreement. Within five (5) days of his or her receipt of the
Private Placement Memorandum, the parties hereto agree that the Unaccredited
Investors may execute and deliver to PHC counterpart signature pages to this
Agreement and become parties to this Agreement on the same terms as the other
Shareholders.
(c) Limited Right of Termination. In the event any of the
----------------------------
Unaccredited Investors do not become a party to this Agreement, PHC shall have
the right, but not the obligation, to terminate this Agreement prior to Closing
pursuant to this Section 4.11(c). If PHC terminates this Agreement pursuant to
this Section 4.11(c), (i) this Agreement shall be of no further force and
effect, (ii) each party shall pay all expenses incurred by him or her in
connection with the proposed transactions, (iii) no party shall be entitled to
recover any damages as the result of such termination, and (iv) PHC shall return
to Practice Group all documents received by PHC hereunder and vice versa.
ARTICLE V
CONDUCT OF BUSINESS OF PRACTICE GROUP AND EACH SHAREHOLDER
----------------------------------------------------------
PENDING CLOSING
---------------
Each Shareholder and Practice Group jointly and severally covenants and
agrees that, without the prior written consent of PHC, between the date of this
Agreement and the Closing:
5.1 Disposition of Assets.
---------------------
Except as described in SCHEDULE 5.1, and Section 6.5 hereof, the
------------
operation of the Practice shall be conducted only in the ordinary course, and
Practice Group shall not dispose of any interest of any kind in the assets or
properties of Practice Group nor incur nor guarantee any obligations for
<PAGE>
borrowed money, except as otherwise permitted by this Agreement.
5.2 Sale of Shares.
--------------
The Shareholders and Practice Group shall not sell or transfer, or
consent to the issuance, sale or transfer of, any shares of capital stock in
Practice Group or any option, warrant or other right to acquire an equity
interest in Practice Group.
5.3 Contracts.
---------
Practice Group will not enter into any contract or other arrangement
except in the ordinary course of business and then only if such contract or
arrangement would not have a material effect on the operation of the Practice.
5.4 Condition of Assets.
-------------------
Practice Group will maintain its assets in substantially the same
condition as they are in on the date of this Agreement, ordinary wear and tear
excepted.
5.5 Liens; Encumbrances.
-------------------
Practice Group will not sell, transfer or otherwise dispose of, nor
mortgage, pledge or subject to any lien, charge or other encumbrance, any of the
assets or any interest in the rights, except as otherwise permitted by this
Agreement.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF PHC AND ACQUISITION SUBSIDIARY
-----------------------------------------------------------
The obligations of PHC and Acquisition Subsidiary to close the Merger are
subject to the satisfaction, at or prior to Closing, of each of the following
conditions:
6.1 Necessary Approvals.
-------------------
PHC shall have received all licenses, consents, permits and approvals
necessary in order for PHC to operate the Practice in substantially the same
manner as Practice Group. Within five (5) business days following the date
hereof, PHC's officers shall submit this Agreement and Plan of Merger to the
following parties for approval, and attempt to obtain such approvals, but PHC
shall not be obligated to close the Merger unless each of the following parties
approves this Agreement and the transactions contemplated hereby: (i) PHC's
Board of Directors; and (ii) representatives of the holders of certain
securities of PHC.
6.2 Representations and Warranties.
------------------------------
The representations and warranties of the Shareholders set forth in
this Agreement, or any document or instrument delivered to PHC or Acquisition
Subsidiary hereunder, shall be true and correct on the Closing Date with the
same force and effect as if such representations and warranties had been made on
and as of the Closing Date.
6.3 Performance; Covenants.
----------------------
All of the terms, covenants and conditions of this Agreement to be
complied with or performed by the Shareholders or Practice Group at or prior to
Closing shall have been complied with and performed in all material respects
including, but not limited to, the delivery of the following documents:
(a) An Acquisition Restrictive Covenant Agreement executed by each
Shareholder, other than Kenneth J. Bennett, M.D., in substantially the
form of EXHIBIT C;
---------
<PAGE>
(b) A Practice Management Agreement (and exhibits thereto) executed as
provided therein by a new Missouri corporation to be formed by the
Shareholders, in substantially the form of EXHIBIT D (the "Management
---------
Agreement");
(c) A certificate dated the Closing Date signed by a duly authorized
officer of Practice Group and by the Attorney-in-Fact certifying that
the representations and warranties are true and correct as of the date
of such certificate and that each Shareholder and Practice Group have
fulfilled the conditions of this Section 6.3;
(d) Unanimous Consent Resolutions of the Board of Directors and
Shareholders of Practice Group in form and substance satisfactory to
PHC approving the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby, certified by a duly authorized representative of Practice
Group;
(e) Written consents of all third parties necessary for the consummation
of the transactions contemplated by this Agreement and the operation
of the Practice as currently being operated;
(f) All of the books and records of the Practice Group related to the
operation of the Practice including, but not limited to: (i) the
books of accounts, contracts and agreements to which either the
Practice Group or the Practice is a party and (ii) such other
documents or certificates as shall be reasonably requested by PHC;
(g) An opinion of counsel of Practice Group in substantially the form of
EXHIBIT E attached hereto;
---------
(h) The Investment Agreement in substantially the form of EXHIBIT F
---------
attached hereto executed by each Shareholder (the "Investment
Agreement");
(i) The Registration Rights Agreement in substantially the form of EXHIBIT
-------
G attached hereto executed by each Shareholder (the "Registration
-
Rights Agreement");
(j) Articles of Merger executed by a duly authorized officer of Practice
Group, in a form to be agreed to by the parties hereto prior to the
Closing (the "Articles of Merger"); and
(k) Such other documents as counsel for PHC shall reasonably request,
including, without limitation, any documents required to be filed with
any governmental body.
6.4. PHC Due Diligence.
-----------------
Closing shall only occur upon the complete and sole satisfaction of PHC as
to (i) the additional Schedules to be provided by Practice Group as indicated in
certain of the Schedules attached hereto, which Schedules shall be provided
within five (5) business days of the date hereof, and (ii) PHC's Due Diligence
<PAGE>
Inspection pursuant to Section 4.1; provided, however, nothing herein is
-------- -------
intended to extend the date by which the Closing is to occur.
6.5. Removal/Assumption of Indebtedness.
----------------------------------
Prior to Closing, the Shareholders shall remove or cause to be removed
Practice Group from any liability or obligations under the debt obligations on
SCHEDULE 6.5 attached hereto.
- ------------
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND PRACTICE
----------------------------------------------------------
GROUP
-----
The obligations of the Shareholders and Practice Group to close the Merger
are subject to the satisfaction, at or prior to Closing, of each of the
following conditions:
7.1 Representations and Warranties.
------------------------------
The representations and warranties of PHC and Acquisition Subsidiary
set forth in this Agreement, or any other document or instrument delivered to
Practice Group or the Shareholders hereunder, shall be true and correct on the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date.
7.2 Performance; Covenants.
----------------------
All of the terms, covenants and conditions of this Agreement to be
complied with or performed by PHC or Acquisition Subsidiary at or prior to
Closing shall have been complied with and performed in all material respects
including, but not limited to, the delivery of the following:
(a) The PHC Shares;
(b) A certificate dated the Closing Date signed by duly authorized
representatives of PHC and Acquisition Subsidiary certifying that the
representations and warranties are true and correct on the date of
such certificate and that PHC and Acquisition Subsidiary have
fulfilled all of the conditions of this Section 7.2;
(c) Consent Resolutions of the Board of Directors of PHC and the Board of
Directors of Acquisition Subsidiary approving the execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby, certified by a duly authorized
representative of PHC and Acquisition Subsidiary, respectively.
(d) An opinion of counsel of PHC in substantially the form of EXHIBIT H
---------
attached hereto;
(e) the Management Agreement;
(f) The Investment Agreement;
<PAGE>
(g) The Registration Rights Agreement;
(h) the Articles of Merger; and
(i) Such other documents necessary for the consummation of the
transactions contemplated herein as counsel for the Practice Group and
Shareholders shall reasonably request, including, without limitation,
any documents required to be filed with any governmental body.
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Indemnification by Each Shareholder
------------------------------------
Subject to the terms and conditions of this Article VIII, each
Shareholder jointly and severally, agrees to indemnify, defend, and hold
harmless PHC and Acquisition Subsidiary from, against, for, and in respect of
any and all Losses (as defined below) asserted against, relating to, imposed
upon, or incurred by PHC and/or Acquisition Subsidiary by reason of, resulting
from, based upon, or arising out of:
(a) The inaccuracy, untruth, or incompleteness of any representation or
warranty of any Shareholder contained in or made pursuant to this
Agreement;
(b) The failure of any Shareholder to comply with any of the covenants
made by any Shareholder in this Agreement;
(c) The conduct of the Practice and business of the Practice Group on or
prior to the Closing Date.
8.2 Indemnification by PHC.
----------------------
Subject to the terms and conditions of this Article VIII, PHC agrees
to indemnify, defend and hold harmless each Shareholder from, against, for and
in respect of any and all Losses (as defined below) asserted against, relating
to, imposed upon, or incurred by Practice Group and/or any Shareholder by reason
of, resulting from, based upon, or arising out of:
(a) The inaccuracy, untruth, or incompleteness of any representation or
warranty of PHC and/or Acquisition Subsidiary contained in or made
pursuant to this Agreement;
(b) The failure of PHC and/or Acquisition Subsidiary to comply with any of
the covenants made by PHC and/or Acquisition Subsidiary in this
Agreement.
(c) The conduct of the Practice and business of the Practice Group after
the Closing Date, except to the extent caused by the negligent or
willful acts or omissions of any of the Shareholders.
<PAGE>
8.3 Definition of Losses.
--------------------
For the purposes of this Article VIII, "Losses" shall mean any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs, and expenses, including, without limitation, interest,
penalties, and reasonable attorneys' and other professional fees, and expenses
incurred in the investigation, preparation, defense, and settlement of any
claim, loss, damage, or liability as to which a party is entitled to
indemnification hereunder.
8.4 Offset.
------
The foregoing rights of indemnification are cumulative and without
prejudice to any other remedies which PHC and/or Acquisition Subsidiary may have
against any Shareholder, and vice versa, under applicable law or otherwise.
Each Shareholder, Practice Group, Acquisition Subsidiary and PHC expressly agree
that (i) PHC shall have the right to offset any amounts owed by any Shareholder
to PHC under this Article VIII against any amounts payable by PHC to any
Shareholder and (ii) any Shareholder shall have the right to offset any amounts
owed by PHC and/or Acquisition Subsidiary to such Shareholder under this Article
VIII against any amounts payable by such Shareholder to PHC and/or Acquisition
Subsidiary.
8.5 Notice and Opportunity to Defend.
--------------------------------
(a) Attorney-in-Fact is hereby designated the representative of each
Shareholder pursuant to the terms and conditions of Section 4.6 above,
to the extent necessary to give effect to the provisions of this
Article VIII, and in that representative capacity, Attorney-in-Fact is
referred to as Indemnified Party or Indemnifying Party, as
appropriate.
(b) The party indemnified hereunder (the "Indemnified Party") shall notify
in writing the indemnifying party (the "Indemnifying Party") within
thirty (30) days after a claim is presented to the Indemnified Party,
and the Indemnifying Party shall defend such claim at its expense. If
the Indemnifying Party does not defend or settle such claim, the
Indemnified Party may do so without the Indemnifying Party's
participation, in which case the Indemnifying Party shall pay the
expenses of such defense, and the Indemnified Party may settle or
compromise such claim without the Indemnifying Party's consent. If
the Indemnified Party fails to notify the Indemnifying Party, and if
the Indemnifying Party is thereby materially prejudiced by such
failure of notice in its defense of the claim, the Indemnifying
Party's obligation of indemnity hereunder shall be extinguished with
respect to such claim to the extent that the Indemnifying Party has
been prejudiced by the failure to give such notice.
(c) Anything herein to the contrary notwithstanding, (other than for
liability related to Section 2.27), no party shall make any claim
against any other party pursuant to this Article VIII unless the
dollar amount of all Losses suffered or incurred by the party seeking
such indemnity hereunder shall exceed, in the aggregate, the amount of
Fifteen Thousand and No/100 Dollars ($15,000.00), but, if such amount
is exceeded, the Indemnifying Party shall be required to pay the full
amount of such aggregate Losses (without deduction for such Fifteen
Thousand and No/100 Dollars ($15,000.00), threshold amount) for which
<PAGE>
indemnification rights and obligations are provided under this Article
VIII. Notwithstanding the foregoing, the indemnification obligation
of those Shareholders listed on SCHEDULE 8.5 attached hereto shall be
------------
limited, except with respect to liability relating to Section 2.27, to
the aggregate amount of consideration they received pursuant to this
Agreement.
(d) Anything herein to the contrary notwithstanding, no party shall be
liable to any other party under this Article VIII for punitive or
consequential damages, including lost profits, except to the extent
contained in a settlement, award or judgment obtained by a third
party.
8.6 Effect of Investigation by PHC.
------------------------------
No investigation or inquiry made by PHC or Acquisition Subsidiary of
any Shareholder or Practice Group or its books and records and financial
condition shall, regardless of the Closing of the transactions contemplated
hereby, affect or limit any representation or warranty made by any of the
Shareholders or Practice Group to PHC or Acquisition Subsidiary in this
Agreement or in any Schedule delivered by any of them pursuant hereto or any
right of indemnification of PHC or Acquisition Subsidiary under Section 8.1
hereof; provided however, that PHC shall provide written notice to the
Shareholders prior to Closing of any material inaccuracy or deficiency known to
PHC in any of the Schedules hereto delivered by the Shareholders.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
9.1 Notices.
-------
Any notice required or permitted by this Agreement or any agreement or
document executed and delivered in connection with this Agreement shall be
deemed to have been served properly if transmitted by certified mail, return
receipt requested, with proper postage prepaid or sent by overnight carrier or
by personal delivery, addressed to the respective party to whom such notice
relates at the following addresses:
If to PHC or to
Acquisition
Subsidiary to it at: Physician Health Corporation
<PAGE>
990 Hammond Drive
Suite 300
Atlanta, Georgia 30328
Attention: Daniel M. Epstein, M.D., Esq.
With a copy to: Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attention: John F. Sandy Smith, Esq.
If to Practice Group: Parkcrest Surgical Associates, Inc.
675 Old Ballas Road, Suite 200
St. Louis, Missouri 63141
Attention: David A. Caplin, M.D.
If to any Shareholder: c/o David A. Caplin, M.D.
675 Old Ballas Road, Suite 200
St. Louis, Missouri 63141
With a copy to: Gallop Johnson Neuman, L.C.
101 South Hanley, Suite 1600
St. Louis, Missouri 63105
Attention: Randy S. Gerber, Esq.
or such other address as shall be furnished in writing by any party to the other
party. All such notices shall be considered received: (a) if transmitted by
certified mail, return receipt requested, with proper postage prepaid, upon the
fifth (5th) business day after mailing; (b) if transmitted by overnight carrier,
on the next business day and (c) if transmitted by personal delivery, upon
receipt.
9.2 Successors and Assigns. Either PHC or Acquisition Subsidiary may
----------------------
assign its rights under this Agreement to any corporation, or other entity
controlled by or under common control with PHC, but otherwise this Agreement
shall not be assignable, by operation of law or otherwise, without the prior
written consent of the other parties. Subject to the foregoing, this Agreement
shall inure to the benefit of, be enforceable by and be binding upon the
parties, their successors and assigns.
9.3 Entire Agreement. This Agreement and the Exhibits, Schedules,
----------------
certificates and other documents delivered pursuant hereto or incorporated
herein by reference, contain and constitute the entire agreement among the
parties and supersede and cancel any prior agreements, representations,
warranties, or communications, whether oral or written, among the parties
relating to the transactions contemplated by this Agreement. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by an agreement in writing signed by the party
against whom or which the enforcement of such change, waiver, discharge or
termination is sought.
<PAGE>
9.4 Governing Law; Severability.
---------------------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia , but excluding the conflicts laws of the State
of Georgia. The parties hereto agree to be subject to the exclusive venue in
Fulton County, Georgia or the Federal Court located in the Northern District of
Georgia which courts shall have jurisdiction of any case or controversy arising
under or in connection with this Agreement. The parties consent to the
jurisdiction of such courts. The provisions of this Agreement are severable and
the invalidity of one or more of the provisions herein shall not have any effect
upon the validity or enforceability of any other provision.
9.5 No Brokers.
----------
The Shareholders, Practice Group, PHC and Acquisition Subsidiary each
represent to the others that no broker or finder has been employed in connection
with the transactions hereunder.
9.6 Schedules and Exhibits.
----------------------
All Schedules and Exhibits attached to this Agreement are by reference
made a part hereof.
9.7 Waivers.
-------
No failure on the part of any party hereto to exercise, and no delay
in exercising, any right, power or remedy created hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
remedy by any such party preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. No waiver by any party hereto of
any breach of or default in any term or condition of this Agreement shall
constitute a waiver of or assent to any succeeding breach of or default in the
same or any other term or condition hereof.
9.8 Headings.
--------
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
<PAGE>
9.9 Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
9.10 Confidentiality.
---------------
The parties agree that they will not make any disclosure about the
existence or contents of this Agreement or activities relating to the
consummation of the transactions contemplated herein without prior approval of
the other party, except as may be required by law, as may be necessary to obtain
the required consents, licenses, permits or approvals pursuant to Section 6.1
herein, or as may be necessary in the ordinary course of business of PHC.
9.11 Expenses.
--------
Each party shall bear its own expenses incurred in the preparation,
negotiation and performance of this Agreement.
9.12 No Third Party Beneficiaries.
----------------------------
Nothing contained in this Agreement (express or implied) is intended
or shall be construed to confer upon or give to any person, corporation or other
entity, other than the parties hereto and their permitted successors or assigns,
any rights or remedies under or by reason of this Agreement.
9.13 Survival.
--------
The provisions of Articles II, III, IV and VIII and Section 9.10 of
this Agreement shall survive the Closing and continue in full force and effect
until the third anniversary of the date of the Closing.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above; provided, however, that Sandra Tate, M.D. and
Diane M. Radford, M.D. may be included as additional parties hereto for all
purposes by executing this Agreement below pursuant to Section 4.11 hereof.
PHC: PRACTICE GROUP:
PHYSICIAN HEALTH CORPORATION PARKCREST SURGICAL ASSOCIATES, INC.
By: By:
------------------------- -------------------
Sarah C. Garvin, President -------------------, President
ACQUISITION SUBSIDIARY: THE SHAREHOLDERS:
PHC - MIDWEST, INC.
------------------------------------------
Donald R. Bassman, M.D.
By:
------------------------- ------------------------
Name: David A. Caplin, M.D.
----------------------
Title:
--------------------- ------------------------
Patricia A. McGuire, M.D.
-------------------------
Alan M. Londe, M.D.
-------------------------
Charles R. Nathan, M.D.
-------------------------
Marlys E. Schuh, M.D.
-------------------------
Stanley L. London, M.D.
-------------------------
Kenneth J. Bennett, M.D.
<PAGE>
-------------------------
James P. Emanuel, M.D.
-------------------------
Kurt W. Kaufman, D.P.M.
-------------------------
Mark A. Ludwig, M.D.
-------------------------
Glen E. Johnson, M.D.
-------------------------
Cesar A. Gomez, M.D.
I hereby agree to be included as a party
hereto for all purposes and as a
"Shareholder" defined herein pursuant to
Section 4.11 hereof.
Date: ------------------ ---------------------------
Sandra L. Tate, M.D.
Date: ------------------ ---------------------------
Diane M. Radford, M.D.
<PAGE>
EXHIBIT 10.11
PRACTICE MANAGEMENT AGREEMENT
BY AND AMONG
PHYSICIAN HEALTH CORPORATION,
PHC - MIDWEST, INC.
AND
P.S.A. MEDICAL GROUP, INC.
DATED OCTOBER , 1997
---
<PAGE>
PRACTICE MANAGEMENT AGREEMENT
THIS PRACTICE MANAGEMENT AGREEMENT (the "Agreement") is made and executed
as of the day of October, 1997, the ("Effective Date"), by and among
-------
Physician Health Corporation, a Delaware corporation ("PHC") as to Section 16
only, PHC - Midwest, Inc., a Georgia corporation ("PHC-SUB") and P.S.A. Medical
Group, Inc., a Missouri corporation (the "Service Provider").
RECITALS:
--------
A. Pursuant to the terms of that certain Agreement and Plan of Merger
dated as of September 4, 1997 (the "Merger Agreement") by and among PHC, PHC-
SUB, Parkcrest Surgical Associates, Inc. ("Old P.C.") and the shareholders of
Old P.C. ("Shareholders"), Old P.C. merged into PHC-SUB.
B. Prior to the Merger, each of the current physician employees of Service
Provider had practiced medicine as physician employees of Old P.C.
C. PHC-SUB and its Affiliates (as defined herein) are engaged in the
business of providing high quality health care management services in the form
of (1) physician practice management, development and administration, and (2)
physician network development, marketing, management and administration.
D. In conjunction with the Merger, but prior to its effective time, the
physician employees terminated their employment relationships with Old P.C. and
entered into relationships with the Service Provider, which will continue to
practice medicine and provide medical services to patients at various medical
offices in the metropolitan St. Louis area with practice management services
being provided by PHC-SUB pursuant to this Agreement.
E. PHC-SUB and the Service Provider desire to enter into this Agreement
for (1) the provision of practice management and development services by PHC-SUB
to the Service Provider and (2) the provision by PHC-SUB of facilities,
personnel, equipment and supplies necessary to operate the Service Provider,
pursuant to the terms and conditions hereof, to permit the Service Provider and
each of its physician employees to devote their respective efforts on a
concentrated and continuous basis to the rendering of medical services to their
patients.
F. PHC owns all the issued and outstanding capital stock of PHC-SUB and is
a party to this Agreement for the sole purpose of guaranteeing the full and
complete performance by PHC-SUB of the obligations, duties and covenants of PHC-
SUB owed to the Service Provider hereunder.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
<PAGE>
SECTION 1. GENERAL PRACTICE GOVERNANCE AND MUTUAL PLEDGE OF SUPPORT.
(a) As described more fully in this Agreement, the Service Provider will
operate with broad control over the day-to-day operations of the Service
Provider remaining with the directors and officers of, and the physicians
employed by, the Service Provider. PHC-SUB shall (i) consult with the Service
Provider and its physician employees as to the method of PHC-SUB's performance
of the General Management Services (as defined herein) and (ii) follow the
reasonable advice thereon of the Service Provider in a cooperative effort to
promote the future development and success of the Service Provider.
(b) The Service Provider acknowledges that among the reasons it is entering
into this Agreement is to gain access to the strategic planning, financing,
ancillary services development, managed care, purchasing groups, information
systems, consulting and other practice management and development expertise that
PHC-SUB can make available to the Service Provider, as well as the potential
greater efficiencies and economies of scale to be recognized by centralizing
certain management services to be provided by PHC-SUB to the Service Provider
and the formation of multi-specialty or single specialty physician practice
groups within the Service Provider. Consistent with the Service Provider's
control and direction over its day-to-day operations, the Service Provider and
PHC-SUB pledge to work together to identify and take advantage of such
opportunities for the achievement of greater efficiency and economies in the
operation of the Service Provider. With the support of PHC-SUB through the
establishment and operation of the Joint Policy Board (as described in Section 6
hereof), the Service Provider and PHC-SUB will work together to develop and
implement strategic plans related to expansion of ancillary and other services
provided by, and the addition of medical offices, physicians and other
professional personnel to, the Service Provider.
SECTION 2. DEFINITIONS.
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles, as in effect from time
to time ("GAAP") applied on a consistent basis.
As used herein, the following capitalized terms shall have the meanings
ascribed to such terms below:
2.1. "ADJUSTED NET SERVICE PROVIDER REVENUE" means, for any fiscal period,
the Net Service Provider Revenues minus the New Service Provider Employee
Expenses.
2.2. "AFFILIATE" of a corporation means (a) any person or entity directly
or indirectly controlled by such corporation, (b) any person or entity directly
or indirectly controlling such corporation, (c) any subsidiary of such
corporation if the corporation has a fifty percent (50%) or greater equity
ownership interest in the subsidiary, or (d) such corporation's parent
corporation if the parent has a
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fifty percent (50%) or greater ownership interest in the corporation.
2.3. "AGENT" means such person or entity as may be appointed by PHC-SUB in
writing to Service Provider from time to time to serve as Agent hereunder.
2.4 "CHAMPUS" means, collectively, the Civilian Health and Medical Program
of the Uniformed Service, a program of medical benefits covering former and
active members of the uniformed services and certain of their dependents,
financed and administered by the United States Departments of Defense, Health
and Human Services and Transportation, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program including
(a) all federal statutes (whether set forth in U.S. (S)(S)1071-1106 or
elsewhere) affecting such program; and (b) all rules, regulations, (including 32
C.F.R. (S)199), manuals, orders and administrative, reimbursement and other
guidelines of all governmental authorities promulgated in connection with such
program (whether or not having the force of law), in each case as the same may
be amended, supplemented or otherwise modified from time to time.
2.5. "CHAMPUS RECEIVABLE" means a Receivable payable pursuant to CHAMPUS.
2.6. "CHAMPVA" means, collectively, the Civilian Health and Medical Program
of the Department of Veteran Affairs, a program of medical benefits covering
retirees and dependents of former members of the armed services administered by
the United States Department of Veteran Affairs, and all laws, rules,
regulations, manuals, orders, guidelines or requirements pertaining to such
program, including (a) all federal statutes (whether set forth in 38 U.S.C.
(S)1713 or elsewhere) affecting such program or, to the extent applicable to
CHAMPVA, CHAMPUS; and (b) all rules, regulations (including 38 C.F.R. (S)17.54),
manuals, orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
2.7. "CHAMPVA RECEIVABLE" means a Receivable payable pursuant to CHAMPVA.
2.8. "COLLATERAL" means all property mortgaged, pledged or otherwise
purported to be subject to a lien pursuant to the Credit Agreement.
2.9. "CREDIT AGREEMENT" means any security agreement required by PHC-SUB to
secure any advances made by it pursuant to this Agreement.
2.10. "GOVERNMENT RECEIVABLES" means, collectively, any and all Receivables
which are (a) Medicare Receivables, (b) Medicaid Receivables, (c) CHAMPUS
Receivables, (d) CHAMPVA Receivables, or (e) any other Receivable payable by a
governmental authority approved by the Agent.
2.11. "HCFA" means the Health Care Financing Administration, an agency of
the United States Department of Health and Human Services, and any successor
thereto.
2.12. "MATERIAL ADVERSE EFFECT" means, with respect to any event, act,
condition or occurrence of whatever
3
<PAGE>
nature (including any adverse determination in any litigation, arbitration, or
governmental investigation or proceeding), whether singly or in conjunction with
any other events, act or acts, condition or conditions, occurrence or
occurrences, whether or not related, a material adverse change in, or a material
adverse effect upon, any of the financial condition, operations, business,
properties or prospects of the Service Provider.
2.13. "MEDICAID" means, collectively, the health care assistance program
established by Title XIX of the Social Security Act (42 USC (S)(S)1396 et seq.)
and any statutes succeeding thereto, and all laws, rules, regulations, manuals,
orders, guidelines or requirements pertaining to such program including (a) all
federal statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting such program; (b) all state statues and plans for medical
assistance enacted in connection with such program and federal rules and
regulations promulgated in connection with such program; and (c) all applicable
provisions of all rules, regulations, manuals, orders and administrate,
reimbursement, guidelines and requirements of all government authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
2.14. "MEDICAID PROVIDER AGREEMENT" means an agreement entered into between
a state agency or other entity administering Medicaid in such state and a health
care facility or physician under which the health care facility or physician
agrees to provide services or merchandise for Medicaid patients.
2.15. "MEDICAID RECEIVABLE" means a Receivable payable pursuant to a
Medicaid Provider Agreement.
2.16. "MEDICARE" means, collectively, the health insurance program for the
aged and disabled established by Title XVIII of the Social Security Act (42 USC
(S)(S)1395 et seq.) and any statutes succeeding thereto, and all laws, rules,
regulations, manuals, orders or guidelines pertaining to such program including
(a) all federal statutes (whether set forth in Title XVIII of the Social
Security Act or elsewhere) affecting such program; and (b) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all governmental authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
2.17. "MEDICARE PROVIDER AGREEMENT" means an agreement entered into between
a state agency or other entity administering Medicare in such state and a health
care facility or physician under which the health care facility or physician
agrees to provide services or merchandise for Medicare patients.
2.18. "MEDICARE RECEIVABLE" means a Receivable payable pursuant to Medicare
Provider Agreement.
2.19. "MEDICAL OFFICE" means any of the medical offices provided by PHC-SUB
that are utilized, in whole or in part, by the Service Provider.
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<PAGE>
2.20. "NET SERVICE PROVIDER REVENUE" means, for any fiscal period, (i) all
revenues recognized by or on behalf of the Service Provider or any of its
Service Provider Employees, including New Service Provider Employees, as a
result of professional medical services furnished to patients, ancillary
services furnished to patients, pharmaceuticals and other items and supplies
sold to patients; and (ii) other fees or income received by the Service Provider
or its employees in their capacity as Service Provider Employees, whether
rendered in an inpatient or outpatient setting and whether rendered to health
maintenance organizations, preferred provider organizations, Medicare, Medicaid
or other patients, including, but not limited to, payments received under any
capitation arrangement (including, without limitation, monthly capitation
payments, bonus payments, risk pool payments, etc.). For the purposes of this
Agreement, only the professional component of New Ancillary Service Revenue
shall be included in Net Service Provider Revenues. Notwithstanding the
foregoing, revenue recognized by a physician Service Provider Employee as a
result of non-patient related services (by way of example and not limitation,
speeches involving honoraria, fees from medical directorships or expert witness
services involving expert witness fees) shall not constitute Net Service
Provider Revenue.
2.21. "NEW ANCILLARY SERVICE EXPENSES" means, for any fiscal period, all
expenses paid during such period by PHC-SUB in generating New Ancillary Service
Revenue, including, without limitation, the costs of facilities, equipment,
supplies, staff and technicians directly associated therewith and the direct
capital expenses associated therewith.
2.22. "NEW ANCILLARY SERVICE REVENUE" means, for any fiscal period, all
revenue generated during such period by the Service Provider as a result of new
ancillary services furnished to patients unlike in nature or in scope the
ancillary services that were provided by the Service Provider immediately prior
to the Effective Date ("New Ancillary Services"), except for the professional
medical services revenue component of such New Ancillary Services, which
component shall constitute a portion of Net Service Provider Revenue for such
period.
2.22A. "NEW PHYSICIAN EMPLOYEE COMPENSATION" means, for any fiscal period,
all salaries and benefits paid by Service Provider attributable to physician New
Service Provider Employees.
2.23. "NEW SERVICE PROVIDER EMPLOYEE" means any Service Provider Employee
who was not employed by or under contract with the Service Provider as of the
Effective Date.
2.24. "NEW SERVICE PROVIDER EMPLOYEE EXPENSES" means for each New Service
Provider Employee, for any fiscal period, the aggregate amount of salaries and
benefits paid by the Service Provider relating to the employment or engagement
by the Service Provider of the New Service Provider Employee.
2.25. "OPERATIONAL EXPENSES" means, for any fiscal period, all the expenses
and capitalized costs (other than PHC-SUB Expenses, Service Provider Expenses,
New Ancillary Service Expenses and New Service Provider Employee Expenses)
incurred by PHC-SUB in the provision of the General Management Services and the
Service Provider Development Services to the Service Provider pursuant to this
Agreement and such other expenses of a kind set forth in the Annual Budget (as
defined in Section 4.1) for provision of
5
<PAGE>
services by PHC-SUB to the Service Provider, (provided that, with respect to any
Operational Expenses required to be capitalized under GAAP, the capitalized cost
of the item shall not be an Operational Expense, but the depreciation or
amortization of such expense by PHC-SUB shall be an Operational Expense)
including, but not limited to, the following:
(a) salaries, benefits (including deferred compensation benefits
comparable to those received by Service Provider Employees) and other costs
relating to the employment or engagement by PHC-SUB of employees or
independent contractors to provide services for the Service Provider as
required under this Agreement or as approved by the Joint Policy Board,
including a pro-rata (allocated among those entities utilizing such
services) share of expenses relating to employees or independent
contractors who provide services to the Service Provider as required under
this Agreement and as approved by the Joint Policy Board, and to other
persons or entities;
(b) professional liability insurance premiums and deductibles to the
extent provided in Section 10 hereof;
(c) Service Provider Employee licensure fees, board certification
fees, and hospital staff privilege dues;
(d) obligations under leases or subleases for the Medical Offices and
equipment used by the Service Provider;
(e) personal property and intangible taxes assessed against assets
used by the Service Provider and state and local business taxes, fees and
charges of the Service Provider or of PHC-SUB and related to the Service
Provider;
(f) charitable contributions approved in the Annual Budget or by a
unanimous vote of the Joint Policy Board (as defined in Section 6);
(g) depreciation, amortization and all other expenses related to FF&E
(as defined in Section 3.4 hereof);
(h) interest expenses or other costs of funds on indebtedness incurred
by PHC-SUB or PHC to finance or refinance any of its obligations hereunder
or services provided under this Agreement, including such expenses related
to salary advances for Service Provider Employees as approved by the Joint
Policy Board;
(i) medical and office supply expenses, including pharmaceutical
products;
(j) utility expenses and all other costs relating to the Medical
Offices, including without limitation, costs of repairs, maintenance,
telephone, normal janitorial services, refuse disposal;
(k) insurance premiums for general comprehensive liability insurance
6
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and workers' compensation insurance for PHC-SUB's employees described in
Section 2.26(a) hereof;
(l) expenses related to billing and collecting for payment for
services rendered by the Service Provider; and
(m) expenses relating to the recruitment of physicians and any other
personnel for the Service Provider as requested by the Service Provider.
2.26. "PHC-SUB EXPENSE" means any expense paid by PHC-SUB not directly
related to the Service Provider or the provision by PHC-SUB of the General
Management Services including, but not limited to, the following:
(a) corporate overhead charge of or allocated to PHC-SUB other than
the kind of items listed in Section 2.25 hereof, except as may be otherwise
agreed upon by PHC-SUB and the Service Provider;
(b) amortization expense resulting from the amortization of Management
Agreement Costs (as defined in Section 8.4(a)(i) hereof) in connection with
this Agreement or the Merger Agreement;
(c) interest expense or other cost of funds on indebtedness incurred
by PHC or PHC-SUB to finance the purchase price paid or withheld pursuant
to any liabilities assumed by PHC-SUB under the Merger Agreement;
(d) federal and state income taxes of PHC-SUB, PHC, or any of their
Affiliates and the costs of preparing their respective federal and state
income and employment tax returns and other related filings; and
(e) liability judgments assessed against PHC-SUB, PHC or any of that
affiliates or any employees or agents thereof in excess of applicable
insurance policy limits and all liability judgments assessed against PHC-
SUB or PHC-SUB employees or settlements of claims against PHC-SUB or PHC-
SUB employees in excess of policy limits or not covered by insurance
policies of PHC-SUB.
PHC-SUB Expense shall not include any New Ancillary Service Expenses and
any New Service Provider Employee Expenses.
2.27. "SERVICE PROVIDER EMPLOYEE" means any individual:
(1) who is (a) duly licensed to practice medicine and (b) an employee
or independent contractor of the Service Provider, including the physician
shareholders of the Service Provider, or
(2) who is (a) required by contract, law or regulatory authority to be
employed by or whose services are required to be billed through a licensed
physician for purposes of obtaining payment or reimbursement for such
services or otherwise and (b) provides medical services to patients of the
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Service Provider, including, without limitation, nurse practitioners,
certified registered nurse anesthetists, physician assistants, fellows,
surgical assistants, certified nurse midwives, individuals with a masters
degree in social work, physical therapists, psychologists, and any other
similar individuals.
Notwithstanding, anything contained herein to the contrary, the Service
Provider may, at its discretion, retain other non-professional employees to
provide other services to the Service Provider or its Service Provider
Employees, provided that all expenses related to such non-professional employees
shall constitute Service Provider Expenses and not Operational Expenses, and
such non-professional employees shall not be considered "Service Provider
Employees" for the purposes of this Agreement.
2.28. "SERVICE PROVIDER EXPENSE" means any expense of the Service Provider
which is not an Operational Expense, a PHC-SUB Expense or a New Ancillary
Service Expense. Service Provider Expenses shall include, without limitation,
the following:
(a) all salaries or benefits payable with respect to Service Provider
Employees and New Service Provider Employees or compensation paid or
payable to physician independent contractors;
(b) all federal, state or local income and employment taxes of the
Service Provider and the costs of preparing its federal, state or local
income and employment tax returns;
(c) all costs of membership in professional associations and
continuing professional education expenses for Service Provider Employees;
(d) all liability judgments assessed against the Service Provider or
Service Provider Employees or settlements of claims against the Service
Provider or Service Provider Employees in excess of policy limits or not
covered by insurance policies of the Service Provider or Service Provider
Employees;
(e) all costs of employees providing personal services to particular
Service Provider Employees and like expenses personal in nature;
(f) the General Management Fee (as defined hereinafter);
(g) the Service Provider Development Fee (as defined hereinafter); and
(h) all other expenses to be taken as Service Provider Expenses (as
defined hereinafter) as specifically set forth herein.
2.29. "PRE-DISTRIBUTION PROFIT MARGIN" means, for any fiscal period, the
amount equal to the Adjusted Net Service Provider Revenue minus the Operational
Expenses for such period.
2.30. "PROFESSIONAL SERVICE PROVIDER SECURITY AGREEMENT" means the security
agreement between the Agent and the Service Provider in the form prescribed by
the Agent or, in lieu thereof or in addition thereto, any
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security agreement required by PHC-SUB to secure any advances made by it under
this Agreement.
2.31. "PUBLIC OFFERING" means any method or means by which PHC initially
accesses any public capital market for any shares of its capital stock,
including without limitation, an initial public offering of the shares of the
common stock of PHC.
2.32. "RECEIVABLE" means, as at any date of determination thereof, the
unpaid portion of the obligation, as stated in the respective invoice, of a
patient of the Service Provider or any of the Service Provider Employees in
respect of Inventory (as defined in Article 9 of the Uniform Commercial Code of
the State of Georgia) or services rendered in the ordinary course of business,
which amount has been earned by performance under the terms of the related
contract and recognized as revenue on the books of the Service Provider, net of
any credits, rebates or offsets owed to such patient or any Third Party Payor in
respect thereof and also net of any commissions payable to any person or entity
other than PHC-SUB, any of its Affiliates, the Service Provider, or any of their
employees.
2.33. "SECURED PARTY" means any of the secured parties to the Professional
Service Provider Security Agreement(s).
2.34. "THIRD PARTY PAYORS" means any governmental entity, insurance
company, health maintenance organization, preferred provider organization or
similar entity that is obligated to make payments with respect to a Receivable.
SECTION 3. GENERAL MANAGEMENT SERVICES.
PHC-SUB shall render to the Service Provider the general management
services and provide personnel, office space, equipment and supplies as set out
in this Section 3 (collectively the "General Management Services"). Such
General Management Services shall be provided by PHC-SUB at its costs, such
costs to constitute Operational Expenses as defined in Section 2.25 hereof.
3.1. PHC-SUB PERSONNEL.
(a) PHC-SUB shall employ and provide to the Service Provider, as
reasonably requested by the Service Provider: (i) all nurses (except for
nurses who shall be Service Provider Employees pursuant to Section 2.27
hereof), medical records personnel and other medical support personnel as
shall be reasonably necessary for the operation of the Service Provider at
the Medical Offices; (ii) all business office personnel (i.e., clerical,
secretarial, bookkeeping and revenue collection personnel) as shall be
reasonably necessary for the maintenance of patient records, collection of
accounts receivable and upkeep of the financial records of the Service
Provider; and (iii) an office administrator (the "Administrator") as shall
be reasonably necessary to manage and administer, subject to the terms and
conditions hereof, all of the day-to-day routine business functions and
services of the Service Provider.
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(b) As to the personnel provided by PHC-Sub to the Service Provider
under Section 3.1(a), PHC-SUB shall consult with the Service Provider as to
the salaries of all such personnel and shall follow the Service Provider's
reasonable advice thereon. PHC-SUB shall cause PHC-SUB's or PHC's employee
benefits plans, if any, to be available to such personnel, as in effect
from time to time; provided, however, that Service Provider shall have the
right, in the event required by applicable law, to include any or all such
personnel in the Service Provider's employee benefit plans. For this
purpose, PHC covenants that it shall utilize PHC-SUB for providing
management services similar to those described herein to substantially all
(but no less than four) physician practice groups and/or service providers
in the states of Missouri and Illinois from whom PHC acquires non-medical
assets during the term of this Agreement. As requested by the Service
Provider, PHC-SUB shall identify and recommend personnel candidates for all
such positions to perform services at the Medical Offices; provided,
however, that the Service Provider shall have the right to direct and
approve, based solely on professional competence, the assignment of all
non-physician medical support personnel to provide services at the Medical
Offices. PHC-SUB shall, at the Service Provider's request, remove from the
Service Provider and reassign and or replace any such personnel who are
not, in the Service Provider's professional judgment, adequately performing
the required professional services. In providing its consultation and
advice with regard to personnel as provided to the Service Provider
pursuant to Section 3.1 (a) hereof, neither the Service Provider nor PHC-
SUB shall discriminate against such personnel on the basis of race,
religion, age, sex, disability or national origin as in violation of any
applicable federal or state law. All the Service Provider's and PHC-SUB's
obligations regarding staff of the Service Provider shall be governed by
the overriding principle and goal of providing high quality medical care.
Employee assignments shall be made to assure consistent and continued
rendering of high quality medical support services and to ensure prompt
availability and accessibility of individual medical support personnel to
physicians in order to develop constant, familiar and routine working
relationships between individual physicians and individual members of the
medical support personnel.
3.2. MEDICAL OFFICES.
PHC-SUB shall lease or sublease the Medical Offices, and hereby grants the
Service Provider the exclusive right in conjunction with PHC-SUB, during the
term of this Agreement, to use, subject to the terms and conditions of such
lease or sublease, the Medical Offices for the practice of medicine and the
performance of services ancillary thereto. PHC-SUB shall provide, manage and
maintain the Medical Offices in good condition and repair, including the
provision of routine janitorial services and maintenance services, subject to
the terms of the various leases. PHC-SUB shall pay rent as due, provide
utilities and pay other related expenses, consistent with the Annual Budget.
3.3. LICENSE OF SERVICE PROVIDER NAME.
PHC-SUB hereby licenses the Service Provider to use the name "Parkcrest
Surgical Associates, Inc." during the term of this Agreement; provided, however,
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such license shall terminate upon any termination of this Agreement, subject to
the Service Provider's rights to repurchase assets pursuant to Section 8.4
hereof.
3.4. FURNITURE, FIXTURES AND EQUIPMENT.
PHC-SUB agrees to provide to the Service Provider those supplies and items
of furniture, fixtures and equipment reasonably determined in the Service
Provider's discretion to be necessary and/or appropriate for the Service
Provider's operations at the Medical Offices during the term of this Agreement
(all such items of furniture, fixtures and equipment are collectively referred
to hereinafter as the "FF&E"). Title to the existing, additional and
replacement FF&E shall be in the name of PHC-SUB or its nominee or a leasing
company. PHC-SUB shall be responsible for all repairs and maintenance of the
FF&E, except for repairs, maintenance or replacement necessitated by the
negligence of the Service Provider, its employees or agents. The FF&E provided
shall be at least reasonably equivalent to that of the Service Provider
immediately prior to the Effective Date.
The Service Provider acknowledges that PHC-SUB makes no warranties or
representations, express or implied, as to the fitness, suitability or adequacy
of any furniture, fixtures, equipment, inventory, or supplies which are leased
or provided to the Service Provider pursuant to this Agreement, for the conduct
of a medical practice or for any other particular purpose.
3.5. BUSINESS OFFICE SERVICES.
(a) PHC-SUB shall provide or cause to be provided all management and
administrative business functions and services related to the Service Provider's
services during the term of this Agreement as reasonably requested or approved
by the Service Provider, including but not limited to all reasonable and
necessary computer, bookkeeping, billing and collection services, accounts
receivable and accounts payable management services, laundry, linen, janitorial
and cleaning services and management services. The provision of all such
management and administrative business functions and services shall be performed
in a manner and by such PHC-SUB personnel as shall be reasonably requested by
the Service Provider. At the reasonable request or with the approval of the
Service Provider, certain management and administrative business functions and
services related to the Service Provider may be centralized in PHC-SUB, PHC or
affiliated sites located outside the Medical Offices. Without limiting the
generality of the foregoing, PHC-SUB shall perform the following functions:
(i) Administer all managed care contracts on behalf of the Service
Provider, all such managed care contracts being subject to approval by the
Joint Policy Board as set forth in Section 6.1;
(ii) Provide ongoing assessment of business activity including product
line analysis, outcomes monitoring and patient satisfaction;
(iii) Order and purchase all medical and office supplies reasonably
required in the day-to-day operation of the Service Provider at the
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Medical Offices;
(iv) Negotiate for and cause premiums to be paid with respect to the
insurance provided for in Section 10 hereof.
(v) Subject to the Service Provider's rights to select and direct the
personnel, collection practices and outside collection agencies (if on
reasonable market terms as determined by PHC-SUB in its reasonable
discretion), PHC-SUB shall have the right to bill and collect from patients
all professional fees for medical services and for ancillary services
performed at or on behalf of the Service Provider and the Service Provider
Employees. The Service Provider hereby appoints PHC-SUB for the term of
this Agreement as its true and lawful attorney in fact for the following
purposes:
(1) To bill patients in the Service Provider's name and on the
Service Provider's behalf, and in the name and on behalf of all
Service Provider Employees;
(2) To collect accounts receivable generated by such billings in
the Service Provider's name and on the Service Provider's behalf, and
in the name and on behalf of all Service Provider Employees;
(3) To receive, on behalf of the Service Provider and all Service
Provider Employees, payments from patients, insurance companies,
Medicare, Medicaid and all other payers with respect to services
rendered by the Service Provider and Service Provider Employees, and
the Service Provider hereby covenants to forward such payments to PHC-
SUB for deposit;
(4) To take possession of and endorse in the name of the Service
Provider, or in the name of any Service Provider Employee, any notes,
checks, money orders, insurance payments and any other instruments
received as payment of such accounts receivable; and
(5) To initiate and pursue legal proceedings in the name of the
Service Provider: (i) to collect any accounts and moneys owed to the
Service Provider or any Service Provider Employee; (ii) to enforce the
rights of the Service Provider as creditors under any contract or in
connection with the rendering of any service; and (iii) to contest
adjustments and denials by governmental agencies (or its fiscal
intermediaries) as third-party payors; provided the initiation and
pursuit of any such legal proceeding shall require the prior written
consent of the Service Provider, such consent not to be unreasonably
withheld.
(b) PHC-SUB agrees that the Service Provider and only the Service Provider
will perform the medical functions of its practice. PHC-SUB will have no
authority, directly or indirectly, to perform, and will not perform, any medical
function. PHC-SUB may, however, advise the Service Provider as to the
relationship (if any) between its performance of medical functions and the
overall administrative and business functioning of its practice. To the extent
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that they assist the Service Provider in performing medical functions, all
clinical personnel provided by PHC-SUB who perform patient care services shall
be subject to the professional direction and supervision of the Service Provider
and, in the performance of such medical functions, shall not be subject to any
direction or control by, or create any liability on behalf of, PHC-SUB, except
as may be specifically authorized by PHC-SUB.
3.6. PATIENT AND FINANCIAL RECORDS.
PHC-SUB shall own and maintain all files and records (other than medical
records) relating to the operation of the Service Provider in such manner and
method as reasonably directed by the Service Provider, including, but not
limited to, customary financial records and patient files. PHC-SUB shall use
its best efforts to manage all files and records in compliance with all
applicable federal, state and local statutes and regulations, and all files and
records shall be located so that they are readily accessible for patient care,
consistent with ordinary records management practices.
The Service Provider 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 the Service Provider. PHC-SUB shall have
reasonable access to such records and, subject to applicable laws, regulations
and accreditation policies, PHC-SUB shall be permitted to retain true and
complete copies of such records.
3.7. FINANCIAL STATEMENTS.
PHC-SUB shall prepare and deliver to the Service Provider monthly financial
statements within thirty (30) days after the end of each month and a year-end
financial statement within one hundred twenty (120) days after the end of each
calendar year, in a form mutually acceptable to PHC-SUB and the Service
Provider, reflecting Net Service Provider Revenue, Operational Expenses, the
Management Fees, Adjusted Net Service Provider Revenue, New Ancillary Service
Expenses, New Ancillary Service Revenue, New Service Provider Employee Expenses,
and the Pre-Distribution Profit Margin, for such period.
3.8. PAYMENT OF OPERATIONAL EXPENSES AND PHC-SUB EXPENSES.
PHC-SUB shall timely pay all Operational Expenses and PHC-SUB Expenses as
they fall due; provided, however, PHC-SUB may contest in good faith such claimed
expenses as to which there is any dispute.
SECTION 4. SERVICE PROVIDER DEVELOPMENT SERVICES.
PHC-SUB shall provide to the Service Provider the practice development
services provided for in this Section 4 which are intended to identify and
evaluate for the Service Provider opportunities for: (i) expanding ancillary and
other services and adding Medical Offices and Service Provider Employees; and
(ii) creating greater efficiency and economy in the operation of the Service
Provider (collectively the "Service Provider Development Services") in a manner
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consistent with the provisions of this Section 4 and the other provisions of
this Agreement. Such Service Provider Development Services shall be provided by
PHC-SUB at its costs, such costs to constitute Operational Expenses as defined
in Section 2.25 hereof, except as otherwise provided in Section 4.3 hereof.
4.1. FINANCIAL PLANNING AND GOALS.
PHC-SUB will prepare, in consultation with the Service Provider, an annual
budget (the "Annual Budget") for the Service Provider, reflecting in reasonable
detail anticipated revenues, expenses, sources and uses of capital for growth,
personnel staffing, and anticipated ancillary services. The Annual Budget shall
be subject to review and approval by the Joint Policy Board, in accordance with
Section 6 hereof. Subject to such approval, the access to needed working
capital and capital expenditures provided therein shall be provided by PHC-SUB.
4.2. RECRUITMENT OF NEW SERVICE PROVIDER EMPLOYEES.
At the request of the Service Provider, PHC-SUB shall perform
administrative services relating to the recruitment of Service Provider
Employees. The decision to retain a New Service Provider Employee shall be made
by the Joint Policy Board, as set forth in Section 6, provided the Service
Provider shall interview and hire each individual New Service Provider Employee
and all such personnel shall be employees, independent contractors or agents of
the Service Provider.
4.3. MANAGED CARE RELATIONSHIPS.
PHC-SUB shall assist the Service Provider in evaluating and developing
relationships and affiliations with other physicians, physician practices,
physician networks, hospitals, integrated delivery systems and managed care
organizations ("Managed Care Relationships") that may expand or increase the
business or value of the Service Provider. The Service Provider shall cooperate
with PHC-SUB and contribute reasonable efforts to assist PHC-SUB in its efforts
to pursue Managed Care Relationships. All decisions regarding initiating or
terminating Managed Care Relationships shall be subject to the review and
approval of the Joint Policy Board. All costs and expenses related to services
provided under this Section 4.3 shall be PHC-SUB Expenses and not Operational
Expenses of the Service Provider.
4.4. EXPANSION OF THE SERVICE PROVIDER.
PHC-SUB shall assist the Service Provider in evaluating and adding
additional office space, new Medical Offices, new office-based procedures and
services, and new ancillary services, as provided for in the Annual Budget or
otherwise approved by the Joint Policy Board. PHC-SUB and the Service Provider
hereby pledge their mutual intention and support for such reasonable expansion
of the Service Provider.
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4.5. SERVICE PROVIDER ASSESSMENT AND CONSULTING SERVICES.
PHC-SUB shall assess Service Provider performance including product line
analysis, outcomes monitoring and patient satisfaction. PHC-SUB shall develop
systems to track revenues, expenses, utilization, quality improvement, Service
Provider and physician productivity, and patient satisfaction. PHC-SUB shall
arrange for or provide business and financial management consultation and advice
reasonably requested by the Service Provider and directly related to the
operations of the Service Provider pursuant to this Agreement.
SECTION 5. OBLIGATIONS OF THE SERVICE PROVIDER.
5.1. SERVICE PROVIDER EXPENSES.
The Service Provider shall be solely responsible for the payment of all of
Service Provider Expenses and shall timely pay all such expenses, as herein
defined; provided, however, that the Service Provider may contest in good faith
any such claimed expense as to which there is any dispute.
5.2. PROFESSIONAL STANDARDS.
The professional services provided by the Service Provider and the Service
Provider Employees shall be performed solely by or under the supervision of
physicians licensed to practice medicine and shall at all times be provided in
accordance with applicable ethical standards, laws and regulations applying to
the medical profession. The Service Provider shall, with the assistance of PHC-
SUB if so requested, resolve any utilization management or quality improvement
issues which may arise in connection with the Service Provider.
If any disciplinary actions or professional liability actions are initiated
against the Service Provider or any Service Provider Employee, the Service
Provider shall immediately inform PHC-SUB of such action and the underlying
facts and circumstances. PHC-SUB shall similarly inform the Service Provider of
any such disciplinary actions or professional liability actions initiated
against the Service Provider or any Service Provider Employee of which it first
becomes aware.
The Service Provider shall establish and maintain procedures to assure the
consistency and quality of all professional medical services provided by the
Service Provider, and PHC-SUB shall render administrative assistance to the
Service Provider as requested in furtherance thereof.
5.3. PHYSICIAN POWERS OF ATTORNEY.
The Service Provider shall require all Service Provider Employees to
execute and deliver to PHC-SUB powers of attorney, satisfactory in form and
substance to PHC-SUB, appointing PHC-SUB as attorney in fact for each such
Service Provider Employee for the purposes set forth in Section 3.5(a).
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5.4. RESTRICTIVE COVENANTS.
(a) The Service Provider acknowledges and agrees that the services to be
provided by PHC-SUB hereunder are feasible only if the Service Provider operates
a vigorous medical practice to which the Service Provider Employees devote their
full time and attention. Accordingly, the Service Provider agrees that it shall
not, without the prior written consent of PHC-SUB: (i) during the term of this
Agreement, establish, operate or provide physician services substantially
similar to those professional medical, surgical and related ancillary services
offered by the Service Provider other than pursuant to this Agreement, and (ii)
for a period of 12 months following termination of this Agreement, establish or
otherwise operate a medical office or practice for the purpose of providing
physician services substantially similar to those professional medical, surgical
and related ancillary services offered by the Service Provider pursuant to this
Agreement within five (5) automobile driving miles (as determined in good faith
by PHC-SUB) of the Service Provider's office located at 675 Old Ballas Road,
Suite 200, Creve Coeur, Missouri (the "Restricted Territory"); provided however,
that this sentence shall not prohibit Service Provider after termination of this
Agreement from (i) performing medical services at a hospital or surgical
facility within the Restricted Territory so long as the physicians providing
such services do not establish, or otherwise operate a medical office inside the
Restricted Territory, or (ii) performing medical services at the outpatient
surgery center located at 415 N. New Ballas Road, Creve Coeur, Missouri (the
"Permitted Activities").
The Service Provider shall obtain, maintain, update (as new Medical
Offices, if any, are established) and reasonably enforce agreements with all its
physician Service Provider Employees except as provided in Section I of EXHIBIT
5.4(A) attached hereto, satisfactory in form and substance to PHC-SUB, pursuant
to which physician Service Provider Employees shall agree: (i) not to establish,
operate or provide physician medical or surgical services substantially similar
to those professional medical, surgical and related ancillary services offered
by the Service Provider other than on behalf of the Service Provider and
pursuant to this Agreement, without the prior written consent of PHC-SUB, during
the term of this Agreement and during such time that such physician is a Service
Provider Employee; and (ii) not to establish or otherwise operate a medical
office for the purpose of providing physician services substantially similar to
those professional medical, surgical and related ancillary services provided by
such physician on behalf of the Service Provider within the Restricted
Territory, for a period of two (2) years following the termination of the
professional relationship between such physician and the Service Provider;
provided however, that this sentence shall not prohibit a physician from
performing Permitted Activities following such termination. PHC-SUB shall be
expressly named as a third-party beneficiary to such agreements between the
Service Provider and each physician Service Provider Employee.
(b) In the event that, during the first five (5) years of this Agreement, a
"Covered Physician" (as defined in Section 7.1(a)) terminates his or her
relationship with the Service Provider, other than (i) as a result of death or
permanent disability or (ii) under such circumstances as are set forth in
EXHIBIT 5.4(C) attached hereto, such Covered Physician shall pay to PHC-SUB the
Liquidated Damages as are set forth in EXHIBIT 5.4(B) attached hereto. Upon the
payment of the Liquidated Damages by a Covered Physician set forth in EXHIBIT
5.4(B) hereto, the Service Provider shall be required to maintain the
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restrictive covenants set forth in Sections 5.4(a) and 5.4(d) hereof with
respect to such Covered Physician, PHC-SUB shall remain a third-party
beneficiary to such agreement between the Service Provider and such Covered
Physician, and the Covered Physician shall honor the terms and obligations of
the restrictive covenants set forth in Sections 5.4(a) and 5.4(d) hereof with
respect to such agreement between the Service Provider and such Covered
Physician.
(c) Under such circumstances and upon the payment to PHC-SUB by a Covered
Physician of such Liquidated Damages as are set forth in EXHIBIT 5.4(C) attached
hereto, the Service Provider shall not be required to maintain the restrictive
covenants set forth in Section 5.4(a) hereof with respect to such Covered
Physician and PHC-SUB shall be removed as a third-party beneficiary to such
agreement between the Service Provider and such Covered Physician.
(d) During the term of this Agreement and for a period of eighteen (18)
months following the termination or expiration of this Agreement, the Service
Provider shall not, without the prior written consent of PHC-SUB, employ, hire
or contract for services with any employee or former employee of PHC-SUB, nor
shall the Service Provider solicit any such person to leave the employ of PHC-
SUB. For purposes of this Section 5.4(d), a "former employee" shall be any
person who was employed by PHC-SUB within the six (6) months prior to the
termination or expiration of this Agreement. The Service Provider shall cause
its Service Provider Employees to enter into written agreements, satisfactory in
form and substance to PHC-SUB, pursuant to which such persons shall agree to be
bound by the same restrictions as set forth in this Section 5.4(d) with respect
to the Service Provider and PHC-SUB, and PHC-SUB shall be expressly named as a
third-party beneficiary to such agreements between the Service Provider and each
physician Service Provider Employee.
(e) If this Agreement is terminated pursuant to Section 8.2(a), 8.2(b),
8.2(c)(iv), 8.2(c)(v) or 8.2(e) hereof, the Service Provider shall not, directly
or indirectly, for a period of two years following the date of such termination,
sell, transfer or otherwise convey all or substantially all of its stock or
assets to, or merge with or into, any other person or entity (or group of
affiliated entities) (an "Acquirer") in connection with which the Acquirer or
any of its affiliates shall provide or arrange for the provision to the Service
Provider of comprehensive management services of the kind contemplated by this
Agreement.
(f) Notwithstanding any provisions of this Agreement providing for
mandatory arbitration, PHC-SUB and the Service Provider acknowledge and agree
that PHC-SUB's remedy at law for any breach or attempted breach of the foregoing
provisions of this Section 5.4 will be inadequate and that PHC 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.
5.5. CONTINUING PROFESSIONAL EDUCATION.
The Service Provider shall ensure that each of its Service Provider
Employees participates in such continuing medical education activities as are
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necessary for such physicians or other employees 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.
5.6. CONTRACTS WITH SERVICE PROVIDER EMPLOYEES.
Decisions regarding the addition of a New Service Provider Employee shall
be made by the Joint Policy Board pursuant to Section 6.1 hereof. In addition,
the Service Provider shall use its best efforts to consult with PHC-SUB prior to
terminating the employment by the Service Provider of any Service Provider
Employee. The Service Provider shall also, during the term of this Agreement,
use its reasonable efforts to consult with PHC-SUB with regard to the terms and
conditions of contracts or other arrangements entered into between the Service
Provider and Service Provider Employees. Notwithstanding the foregoing, all
decisions with respect to removing Service Provider Employees, and with respect
to the terms and conditions of contracts or other arrangements in connection
therewith, shall be made by the Service Provider, in its sole and absolute
discretion.
5.7. COOPERATION.
The Service Provider shall cooperate in the obtaining and maintaining of
professional liability insurance coverage on Service Provider and Service
Provider Employees by assuring that it and its Service Provider Employees are
insurable, and by participating in an on-going risk management program. The
Service Provider shall, and shall cause its Service Provider Employees to, use
their respective good faith efforts to exercise diligence in assisting PHC-SUB
to control costs and expenses of the Service Provider without sacrificing
professional standards or high quality patient care. The Service Provider
shall, and shall require Service Provider Employees to, exercise due care to
ensure that, when being used by Service Provider Employees, medical equipment
utilized by the Service Provider is being used in a safe and efficient manner,
and shall timely report any unsafe or unsatisfactory equipment of which the
Service Provider, or any of its Service Provider Employees, is aware. The
Service Provider acknowledges and agrees that on execution of this Agreement,
PHC-SUB intends to implement its own policies and procedures, including, but not
limited to, policies and procedures regarding cash management and revenue
controls. The implementation of such policies and procedures shall be subject
to the approval of the Service Provider, such approval not to be unreasonably
withheld. These policies and procedures will be implemented as soon as
reasonably practicable after execution of this Agreement and may be revised or
amended by PHC-SUB from time to time thereafter during the term of this
Agreement, subject to the approval of the Service Provider. Upon their
approval, the Service Provider agrees to cooperate with any such implementation,
revision, or enactment of PHC-SUB's policies and procedures. The Service
Provider also agrees to cooperate with, and participate in, any patient
satisfaction surveys and/or outcomes management surveys or programs instituted
or implemented by PHC-SUB, subject to approval by the Service Provider.
5.8. COVENANTS RELATING TO CREDIT AGREEMENT.
(a) The Service Provider will cause to be reasonably promptly and duly
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taken, executed, acknowledged, and delivered all such further acts, documents,
and assurances:
(i) as may from time-to-time be necessary or as the secured party to the
Professional Service Provider Security Agreement may from time to time
reasonably request in order to carry out the intent and purposes of that
document and the transactions contemplated thereby, including all such actions
to establish, preserve, protect, and perfect the estate, right, title, and
interest to the Collateral (including Collateral acquired after the date hereof)
including first priority liens thereon; and
(ii) as the secured party under the Professional Service Provider Security
Agreement may from time-to-time reasonably request to establish, preserve,
protect, and perfect first priority liens on the Service Provider Revenues and
the Receivables, now owned or hereafter acquired that are not Collateral on the
date hereof.
(b) The Service Provider will use its best efforts to assist PHC-SUB in
keeping accurate and complete records of its Receivables.
(c) At the request of the Secured Party, the Service Provider will appoint
the Secured Party as its attorney-in-fact for the purpose of collecting the
Service Provider's Receivables, including, without limitation, its Governmental
Receivables, consistent with any limitations provided by law and will cooperate
with the Secured Party in signing or otherwise providing notices to Third Party
Payors with respect to this agency.
(d) Nothing in this Section 5.8 shall require the Service Provider to grant
any security interest in or lien on that portion of Service Provider Revenues
which have properly been distributed by PHC-SUB pursuant to this Agreement to
the Service Provider or at Service Provider's request to any person (other than
PHC-SUB).
SECTION 6. JOINT POLICY BOARD.
6.1. FORMATION AND RESPONSIBILITIES OF JOINT POLICY BOARD.
PHC-SUB and the Service Provider shall establish a Joint Policy Board to be
comprised of three (3) members. PHC-SUB shall designate, in its sole
discretion, one (1) member to the Joint Policy Board. The Service Provider shall
designate, in its sole discretion, one (1) or two (2) members to the Joint
Policy Board. The Joint Policy Board shall consider, review, determine and
approve, by unanimous vote only, the following matters as they relate to the
operation of the Service Provider (which actions shall not be taken without such
approval):
(i) the jointly developed Annual Budgets as prepared by PHC-SUB;
(ii) the long-term strategic planning objectives for the Service
Provider;
(iii) operational or capital expenditures not included in the Annual
Budget greater than Twenty-five thousand dollars ($25,000);
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(iv) the opening or closing of any Medical Office;
(v) the addition of a New Service Provider Employee and the terms of
any contract with such employee;
(vi) the establishment or maintenance of Managed Care Relationships;
provided, however, that PHC-SUB agrees to direct its designee to the Joint
Policy Board to vote as directed by the Service Provider's designee on such
matters, unless the Managed Care Relationship is contrary to or in conflict
with any managed care contracting policies established by PHC-SUB or
conflicts with any existing Managed Care Relationship of Service Provider,
PHC-SUB or its affiliates, as determined by PHC-SUB in its reasonable
discretion (it being agreed that PHC-SUB shall not adopt a policy requiring
an individual physician to establish or maintain Managed Care
Relationships);
(vii) the addition of New Ancillary Services;
(viii) the setting of New Ancillary Service fees and collection
policies and the distribution of New Ancillary Service Revenues of the
Service Provider between the Service Provider and PHC-SUB;
(ix) the purchase, lease or sublease of any real property by PHC-SUB
which will be used, in whole or in part, by the Service Provider; and
(x) the establishment of performance and productivity incentives as
provided in Section 7.2 hereof.
Notwithstanding any provision of this Agreement, it is acknowledged and
agreed that, while the parties to this Agreement shall be obligated to follow
the decisions of the Joint Policy Board as set forth above, the Joint Policy
Board does not have the legal authority or power to bind PHC-SUB or the Service
Provider with respect to any third party, and no person not a party hereto shall
have any right under or by virtue of any vote taken or decision made by the
Joint Policy Board.
6.2. RESOLUTION MECHANISM FOR DIVIDED VOTE OF JOINT POLICY BOARD.
Except as set forth in this Section 6.2 below, on any matter on which there
is a divided vote among the members of the Joint Policy Board, the Joint Policy
Board shall consider the matter for at least thirty (30) days from the date of
such divided vote and make its best good faith efforts to reach a unanimous
consensus. If such a unanimous consensus cannot be reached within thirty (30)
days, the Joint Policy Board, by majority vote, shall select any other PHC (or
PHC Affiliate) designated representative to another Joint Policy Board of
another PHC (or PHC Affiliate) affiliated practice, who shall consider the
matter in good faith and whose decision on such matter shall be final.
Notwithstanding the foregoing, on matters related to items (iii), (iv), (v) and
(ix) of Section 6.1, the Joint Policy Board may, but shall not be required to,
submit such matter for resolution pursuant to this Section 6.2.
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6.3. ANNUAL BUDGET AND BUSINESS PLAN.
PHC-SUB shall be authorized to incur any operational, capital or other
expense approved by the Joint Policy Board pursuant to the Annual Budget. PHC-
SUB shall be required to seek the approval of the Joint Policy Board to incur an
expense exceeding the budgeted amounts specified in the annual business plan and
budget unless: (i) the expense is reasonable and does not exceed a line item
expense specified in the Annual Budget by more than ten percent (10%) for any
twelve (12) month period; (ii) the total expenses for the applicable budget
year, on an annualized basis, do not exceed the total amount budgeted for such
year by more than five percent (5%); or (iii) the expenditure is consented to by
the Joint Policy Board or the Service Provider. Notwithstanding the foregoing,
PHC-SUB may exceed budgeted amounts in the event the increase in the expenditure
is reasonable and is the result of an event beyond the control of PHC-SUB (e.g.,
increases in tax rates or utility charges, Acts of God, strikes and labor
disputes) provided that PHC-SUB shall provide notice of such a situation to the
Service Provider.
SECTION 7. FINANCIAL ARRANGEMENTS.
7.1. PHC-SUB COMPENSATION.
The Service Provider and PHC-SUB agree that the compensation described in
this Section 7.1 will be paid by the Service Provider to PHC-SUB in
consideration of the substantial commitment made by PHC-SUB hereunder and that
such compensation is fair and reasonable.
(a) GENERAL MANAGEMENT FEE. As compensation for the provision by PHC-
SUB of the General Management Services, PHC-SUB shall receive a general
management fee (the "General Management Fee") as set forth in EXHIBIT 7.1
attached hereto.
Contemporaneously with the execution of this Agreement, the Service
Provider shall cause each of the physician shareholders of the Service Provider
other than those listed in Section I of EXHIBIT 5.4(A) (the "Covered
Physicians") to execute and deliver to PHC-SUB a guaranty of payment of such
physician's proportionate share of the General Management Fee for the first five
(5) years of this Agreement in the form attached to EXHIBIT 7.1 hereto.
Notwithstanding the foregoing, in the event (i) of death or permanent disability
of a Covered Physician, (ii) that a Covered Physician terminates his or her
affiliation with the Service Provider and pays the Liquidated Damages to PHC-SUB
pursuant to Section 5.4(b) or 5.4(c), the guarantee of payment of such
physician's proportionate share of the General Management Fee for the first five
(5) years of this Agreement shall be released; provided, however, that in such
event the Joint Policy Board shall agree to the addition of a New Service
Provider Employee if so requested by PHC-SUB.
(b) PRACTICE DEVELOPMENT FEE. As compensation for the provision by
PHC-SUB of the Practice Development Services, PHC-SUB shall receive a
practice development fee (the "Practice Development Fee") as set forth in
EXHIBIT 7.1 attached hereto.
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(c) OPERATIONAL EXPENSES. The Service Provider shall reimburse PHC-
SUB in the amount of all Operational Expenses paid by PHC-SUB; provided,
however, that Service Provider shall be entitled to a credit each month in
the amount by which the aggregate New Physician Employee Compensation
exceeds (A) the aggregate Total Physician Revenue less (B) the aggregate
physician New Service Provider Employees' allocable share of Common
Operational Expenses (as defined in Exhibit 7.1) for physician New Service
Provider Employees. Notwithstanding the foregoing, unless otherwise agreed
in writing between Service Provider and PHC-SUB at the time of approval by
the Joint Policy Board of the hiring of a physician New Service Provider
Employee, Service Provider shall not be entitled to all or any portion of
the monthly credit under subsection (c) of this Section 7.1 for a physician
New Service Provider Employee after 36 months employment by service
Provider, if PHC-SUB delivers 90 days written notice to Service Provider of
its intent to curtail all or any portion of such credit.
7.2. RECRUITMENT AND PRODUCTIVITY INCENTIVES.
The Joint Policy Board, by a unanimous vote, may from time to time
establish performance and productivity incentives for the Service Provider and
the Service Provider Employees in addition to the financial arrangements set
forth in Section 7.1 hereof. At the request of the Service Provider, PHC-SUB
will also advise and assist the Service Provider in establishing its own
productivity incentives for the Service Provider and the individual Service
Provider Employees. The initial performance and productivity incentives for the
Service Provider shall be as set forth in EXHIBIT 7.2 hereto.
7.3. REVIEW OF FINANCIAL ARRANGEMENTS BY THE JOINT POLICY BOARD.
The Joint Policy Board shall have the right to review PHC-SUB's
calculations of all payments, fees and expenses due by any party to any other
party or a third party under this Agreement. In the event the Joint Policy
Board desires to review PHC-SUB's calculations or allocation of any such
payments, fees or expenses, the Joint Policy Board shall be provided, upon
reasonable notice to the PHC-SUB, the documents used in determining such amounts
(the "Compensation Documents"). Not later than fifteen (15) business days
following the delivery of the Compensation Documents to the Joint Policy Board,
the Joint Policy Board, pursuant to a majority determination and vote, may
furnish PHC-SUB with written notification of any dispute concerning any items
shown thereon or omitted therefrom, together with a detailed explanation in
support of the Joint Policy Board's position in respect thereof. PHC-SUB and
the Joint Policy Board shall consult to resolve any dispute for a period of
fifteen (15) business days following such notification to PHC-SUB. If such
fifteen (15) business day consultation period expires and the dispute has not
been fully resolved, the matter shall be referred to an independent public
accounting firm chosen by a unanimous vote of the Joint Policy Board (the
"Accountants"), which shall resolve the dispute and render its decision
(together with a brief explanation of the basis therefor) to the Joint Policy
Board and PHC-SUB not later than twenty (20) business days following submission
of the dispute to it; provided, however, that if the Joint Policy Board is
unable to agree by unanimous vote upon an independent public accounting firm,
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then the Joint Policy Board, by majority vote, and PHC-SUB shall each choose an
independent public accounting firm and those firms shall appoint a third
independent public accounting firm to act as the Accountants. The decision of
such Accountants shall be a final determination of such amounts. The fees and
expenses of the Accountants shall be paid fifty percent (50%) by PHC-SUB and
fifty percent (50%) by the Service Provider.
7.4. CALCULATION OF PAYMENTS BASED ON ACCOUNTS RECEIVABLE.
(a) Except for the first month of the term of this Agreement, on or before
the twentieth day of each month, PHC-SUB shall purchase the accounts receivable
of the Service Provider arising during the previous month, by payment of cash or
other readily available funds into the operating account of the Service Provider
to accelerate the cash flow to the Service Provider arising from such accounts
receivable. The amount of monthly payment shall be an estimate based upon the
previous operating results of the Service Provider, shall take into account all
reasonable adjustments to the accounts receivable and the historical collection
rate on such receivables by the Service Provider, shall be discounted by three
percent (3%) with respect to those accounts receivable generated by or
attributable to (pursuant to the allocation of revenue by the Service Provider
as set forth in Table 1 to EXHIBIT 7.1 hereof) those physicians listed in
Section I of EXHIBIT 5.4(A) hereof, and shall be less all fees due PHC-SUB
pursuant to this Section 7 (the "Monthly Payment").
(b) Adjustments to the Monthly Payments shall be made to reconcile actual
amounts due under this Section 7 within forty-five (45) days after the end of
each calendar quarter during the term of this Agreement. At such quarterly
intervals, PHC-SUB shall determine the actual amounts due PHC-SUB pursuant to
this Section 7 for each such calendar quarter, with such amounts to be
calculated on an annualized basis for such quarters. PHC-SUB shall notify the
Service Provider of the amount of payments, if any, due from one party to
another as a result of such adjustments within sixty (60) days of the end of
each calendar quarter. If payment is due from one party to the other, such
amount shall be paid in full within ten (10) days of such notification of the
Service Provider; provided, however, that in the case such amounts are due PHC-
SUB on such calculations, PHC-SUB may, at its discretion, offset such amounts
due from the Service Provider against the Monthly Payment due the Service
Provider for succeeding calendar months.
(c) Within one hundred twenty (120) days after the end of each calendar
year, PHC-SUB will determine the actual amounts due PHC-SUB pursuant to this
Section 7 for such calendar year (prorated for any calendar year for which this
Agreement has been in effect less than the entire year).
If, after taking into account the Monthly Payments and any quarterly
adjustments for such calendar year, payment is due from one party to the other,
such amount shall be paid in full within ten (10) business days after such
calculations are made final; provided, however, that in the case amounts are due
PHC-SUB on such calculations, PHC-SUB may, at its discretion, offset such
amounts due from the Service Provider against the Monthly Payment due the
Service Provider for succeeding calendar months. This year-end reconciliation
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shall include reconciliation of any amounts owed by one party to another with
respect to any expenses of any party, as set forth hereunder, paid by any other
party.
(d) In order to secure the PHC-SUB loans used to purchase the accounts
receivable and to assure that PHC-SUB becomes owner of the accounts receivable
of the Service Provider, in case such purchase shall be ineffective for any
reason, the Service Provider is concurrently herewith entering into the
Professional Service Provider Security Agreement in the form attached as EXHIBIT
7.4(D) to grant a security interest in the accounts receivable to PHC-SUB. In
addition, the Service Provider shall cooperate with PHC-SUB and execute all
necessary documents in connection with the pledge of such accounts receivable to
PHC-SUB or at PHC-SUB's option, its lenders. All collections in respect of such
accounts receivable shall be deposited in a Service Provider bank account at a
bank designated by PHC-SUB. To the extent the Service Provider comes into
possession of any payments in respect of such accounts receivable, the Service
Provider shall transfer such payments to PHC-SUB for deposit in bank accounts
designated by PHC-SUB and as further security for PHC-SUB advances.
(e) During the first month of the term of this Agreement, PHC-SUB shall
provide to Service Provider an initial salary funding of up to $250,000 to the
extent necessary (together with Service Provider's available funds) for Service
Provider to pay its Service Provider Employees an aggregate of up to $350,000 in
compensation during the first 30 days of the term of this Agreement (the
"Initial Salary Funding"). The Initial Salary Funding shall be included as an
Operational Expense for the month immediately preceding termination of this
Agreement only in the event this Agreement is terminated pursuant to Section
8.2(c)(iv) hereof.
7.5. NEW ANCILLARY SERVICES.
The Service Provider and PHC-SUB jointly acknowledge that a primary
motivation for their entering into an affiliation is to expand the Service
Provider and develop New Ancillary Services for the Service Provider. In
consultation with the Service Provider, PHC-SUB will identify and evaluate such
New Ancillary Service opportunities, and, consistent with and subject to all
applicable state and federal laws and regulations, the Service Provider and PHC-
SUB will mutually agree upon and determine the financial arrangements with
respect to the New Ancillary Service Revenue and New Ancillary Service Expenses
related thereto. The Service Provider agrees and shall require all Covered
Physicians to agree that, subject to all applicable state and federal laws
regulations, the Service Provider and such employee shall develop, invest or
participate in New Ancillary Services and facilities only in partnership or
other business arrangement with PHC-SUB.
SECTION 8. TERM AND TERMINATION.
8.1. TERM; RENEWAL TERMS.
This Agreement shall commence on the date hereof and shall expire on the
40th anniversary hereof unless earlier terminated as provided for in Section 8.2
hereof. Unless earlier terminated pursuant to Section 8.2 hereof, the term of
this Agreement shall be automatically extended for additional terms of five (5)
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years each, unless either party delivers to the other party, not less than
twelve (12) months nor earlier than fifteen (15) months prior to the expiration
of the preceding term, written notice of such party's intention not to extend
the term of this Agreement.
8.2. TERMINATION.
(a) BY PHC-SUB. Subject to compliance with Section 8.5(a) hereof, PHC-SUB
may terminate this Agreement upon the occurrence of any of the following events:
(i) MEDICARE OR MEDICAID PROGRAM PARTICIPATION. The Service Provider is
involuntarily suspended or terminated (without right of further appeal)
from participation in the Medicare or Medicaid programs or the Service
Provider withdraws from participation in the Medicare or Medicaid programs
as a result of regulatory investigation.
(ii) BANKRUPTCY. The Service Provider 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 the Service Provider
is the subject of an involuntary petition in bankruptcy which is not set
aside within sixty (60) days of its filing.
(iii) PHYSICIAN DISCIPLINE. The Service Provider or any
physician Service Provider Employee or physician New Service Provider
Employee (A) engages in any conduct for which the physician Service
Provider Employee's or physician New Service Provider Employee's license to
practice medicine reasonably would be expected to be subject to revocation
or suspension, whether or not actually revoked or suspended or (B) is
otherwise disciplined by any licensing, regulatory or professional entity
or institution, the result of any of which event described in clause (A) or
(B) has a Material Adverse Effect on the Service Provider and provided that
the Service Provider fails to make a good faith effort to take reasonable
action to remedy or correct such noncompliance or conduct or to remove such
physician from the Service Provider within thirty (30) days after the
Service Provider obtains knowledge thereof.
(iv) DECREASE IN NET SERVICE PROVIDER REVENUE AS A RESULT OF SERVICE
PROVIDER EMPLOYEES DEPARTURE BASED ON DECREASE IN TOTAL PHYSICIAN REVENUE.
In the event that, during the first six (6) years of this Agreement, as a
result of one or more physician Service Provider Employees terminating
their professional relationship with the Service Provider and paying
Liquidated Damages to PHC-SUB as set forth in Section B of EXHIBIT 5.4(C),
the Net Service Provider Revenue is less than [50% OF ORIGINAL BASELINE NET
SERVICE PROVIDER REVENUE] for any twelve (12) month period.
(v) DECREASE IN NET SERVICE PROVIDER REVENUE AS A RESULT OF SERVICE
PROVIDER EMPLOYEES DEPARTURE ON SIXTY-FIFTH MONTH ANNIVERSARY. In the event
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that, as a result of one or more physician Service Provider Employees
terminating their professional relationship with the Service Provider at
the sixty-fifth (65th) month anniversary of this Agreement and paying
Liquidated Damages to PHC-SUB as set forth in Section A of EXHIBIT 5.4(C),
the annualized Net Service Provider Revenue is less than [50% OF ORIGINAL
BASELINE ANNUALIZED NET SERVICE PROVIDER REVENUE] for any six (6) month
period during the one (1) year immediately following the sixty-fifth (65th)
month anniversary of this Agreement.
(b) ADDITIONAL RIGHTS OF TERMINATION OF PHC-SUB. Subject to compliance with
Section 8.5(a) hereof, in the event that the Service Provider materially
breaches any term or condition of this Agreement (other than as set forth in
Section 8.2(a) hereof) and, in the opinion of PHC-SUB, such breach remains
uncured after a period of 60 days after the Service Provider's receipt of a
written notice specifying such breach, PHC-SUB shall submit the following issues
directly to arbitration in accordance with Section 14 hereof: (i) whether the
Service Provider has materially breached this Agreement and (ii) the amount of
income PHC-SUB has foregone as the result of such breach, without giving effect
to any consequential or punitive damages (the "Sub Lost Income Amount"). If the
Service Provider fails to pay to PHC-SUB the Sub Lost Income Amount within 30
days after receipt of written notice specifying the Sub Lost Income Amount, PHC-
SUB may immediately terminate this Agreement by delivery of written notice to
the Service Provider.
(c) BY THE SERVICE PROVIDER. Subject to compliance with the provisions set
forth in Section 8.5 hereof, the Service Provider may terminate this Agreement
upon the occurrence of any of the following events:
(i) FAILURE TO MAKE NON-PAYROLL PAYMENT. PHC-SUB fails to make any
payment required herein, other than a payroll obligation, and such breach
remains uncured (A) for a period of 60 days after PHC-SUB's receipt of a
written notice specifying such breach and (B) for an additional period of
15 days after the Service Provider provides the Agent with written notice
of such breach and of the Service Provider's intent to terminate this
Agreement hereunder.
(ii) FAILURE TO MAKE PAYROLL PAYMENT. PHC-SUB fails to make any
payroll payment required herein and such breach remains uncured (A) for a
period of 15 days after PHC-SUB's receipt of a written notice specifying
such breach and (B) for an additional period of 15 days after the Service
Provider provides Agent with written notice of such breach and of the
Service Provider's intent to terminate this Agreement hereunder.
(iii) BANKRUPTCY. PHC-SUB or PHC voluntarily files a petition in
bankruptcy or makes an assignment for the benefit of creditors or otherwise
seeks relief from creditors under federal or state bankruptcy, insolvency,
reorganization or moratorium statute, or PHC-SUB or PHC is the subject of
an involuntary petition in bankruptcy which is not set aside
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within sixty (60) days of its filing.
(iv) SIXTY-FIFTH MONTH ANNIVERSARY. On the sixty-fifth (65th) month
anniversary of the Effective Date; provided the Service Provider provides
notice to PHC-SUB of its intention to terminate this Agreement pursuant to
this Section 8.2(c)(iv) not less than ninety (90) days and not more than
one hundred fifty (150) days prior to the sixty-fifth (65th) month
anniversary of the Effective Date.
(v) DECREASE IN NET SERVICE PROVIDER REVENUE. In the event that,
during the first five (5) years of this Agreement, despite the good faith
effort on the part of PHC-SUB, the Service Provider, and the physician
Service Provider Employees, the Net Service Provider Revenue is less than
[30% OF ORIGINAL BASELINE NET SERVICE PROVIDER REVENUE] for any twelve (12)
month period.
(d) ADDITIONAL RIGHTS OF TERMINATION OF SERVICE PROVIDER. Subject to
compliance with the provisions set forth in Section 8.5 hereof, in the event of
a breach of the Agreement by PHC-SUB having a Material Adverse Effect upon the
Service Provider (other than as set forth in Section 8.2(c) hereof) and, if in
the opinion of the Service Provider, such breach remains uncured for a period of
60 days after PHC-SUB's receipt of a written notice specifying such breach, the
Service Provider shall submit the following issues directly to arbitration in
accordance with Section 14 hereof: (i) whether PHC-SUB has materially breached
this Agreement and (ii) if PHC-SUB has materially breached this Agreement, the
amount of income the Service Provider has foregone as a result of the breach
without giving effect to any consequential or punitive damages (the "Service
Provider Lost Income Amount"). If (i) PHC-SUB fails to pay to the Service
Provider the Service Provider Lost Income Amount within 30 days after receipt of
written notice from the arbitrator specifying the Service Provider Lost Income
Amount and (ii) the Service Provider has provided the Agent with an additional
15 days written notice of PHC-SUB's failure to pay the Service Provider Lost
Income Amount and of the Service Provider's intent to terminate this Agreement
hereunder and the Agent has not paid the Service Provider Lost Income Amount
within such time, the Service Provider may terminate this Agreement by delivery
of written notice to PHC-SUB.
(e) ADDITIONAL RIGHTS OF TERMINATION OF SERVICE PROVIDER WITHIN THE FIRST
FIVE YEARS. For purposes of this Section 8.2(e), (i) an "Event of Termination"
shall be a breach of the Agreement by PHC-SUB having a Material Adverse Effect
upon the Service Provider that constitutes a Repeated Pattern of Conduct on the
part of PHC-SUB, and (ii) a "Repeated Pattern of Conduct" shall be either (A)
more than two breaches of the same or substantially similar type of conduct, act
or omission (other than as set forth in Section 8.2(c) hereof), each having a
Material Adverse Effect upon the Service Provider, within any one (1) year
period that the Service Provider has submitted to arbitration pursuant to
Section 14 hereof or (B) a breach that is an ongoing pattern of conduct, act or
omission having a Material Adverse Effect upon the Service Provider (other than
as set forth in Section 8.2(c) hereof) that the Service Provider has submitted
to arbitration pursuant to Section 14 hereof and that PHC-SUB has been ordered
by the arbitrator to cure or remedy within a reasonable amount of time
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established by the arbitrator, and any reasonable extension thereof as
determined by the arbitrator, and that has not been cured or remedied within
such time.
Subject to compliance with the provisions set forth in Section 8.5 hereof,
in the event that, during the first five (5) years of this Agreement, in the
opinion of the Service Provider, an Event of Termination has occurred, the
Service Provider shall submit to arbitration in accordance with Section 14
hereof the issue of whether an Event of Termination has occurred. If the
arbitrator determines that an Event of Termination has occurred, the Service
Provider may terminate this Agreement by delivery of written notice to the Agent
and PHC-SUB.
8.3. DUTIES UPON EXPIRATION OR TERMINATION.
Upon expiration or termination of this Agreement, the Service Provider and
PHC-SUB hereby agree to perform, in addition to their obligations provided for
elsewhere in this Agreement and continuing after such termination or expiration
of this Agreement, such steps as are otherwise customarily required to wind up
their relationship under this Agreement in as orderly a manner as possible,
including, without limitation, PHC-SUB's provision to the Service Provider of
patient billing records. The Service Provider hereby acknowledges and agrees
that, upon termination or expiration of this Agreement: (a) PHC-SUB shall retain
all right, title and interest in and to all of its proprietary software and
systems, including software and systems licensed by PHC-SUB from others, used in
connection with the General Management Services; subject to Service Provider's
right to license such software and systems from PHC-SUB on commercially
reasonable terms for a one (1) year period, and (b) the Service Provider shall
be responsible for obtaining its own software and systems to take over the
General Management Services from PHC-SUB. Upon expiration or termination of the
Agreement (except pursuant to Section 8.2(c)(i), (ii) or (iii)) and payment of
all amounts due to the Service Provider hereunder through the date of expiration
or termination, the Service Provider shall fully and completely assign to PHC-
SUB such outstanding accounts receivable of the Service Provider as PHC
determines to be necessary to pay all Operational Expenses, General Management
Fees and Service Provider Fees not previously paid by Service Provider, the
Service Provider shall fully cooperate with PHC-SUB in PHC-SUB's efforts to
collect such accounts receivable, and the Service Provider in that regard shall
execute and deliver any reasonably necessary documents to permit PHC-SUB to
assume such receivables and realize upon them.
Except as set forth in this Section 8.3 and in Section 5.4 hereof, upon the
expiration or earlier termination of this Agreement, neither party shall have
any further obligation hereunder with the exception of obligations accruing
prior to the date of such expiration or earlier termination and obligations,
promises and covenants contained herein which extend beyond the terms hereof
including, without limitation, any indemnities, restrictive covenants, and
access to books and records. Upon the expiration or earlier termination of this
Agreement, the financial arrangements set forth in Section 7 shall be prorated
between the parties to reflect any partial fiscal year or month, and any excess
revenue received by PHC-SUB (after payment of all Operational Expenses, General
Management Fees and Service Provider Fees) from accounts receivable assigned to
it pursuant to the immediately preceding paragraph will be distributed to
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Service Provider. The funds for settlement of such financial arrangements shall
be disbursed on the closing date of the repurchase of assets provided for in
Section 8.4, but shall in no event occur later than 180 days from the date of
the notice of termination. If this Agreement is terminated pursuant to Sections
8.2(a)(i), 8.2(a)(ii), 8.2(a)(iii), 8.2(b), 8.2(c)(i), 8.2(c)(ii), 8.2(c)(iii),
8.2(d) or 8.2(e) hereof, the non-breaching party may pursue such other legal or
equitable relief as may be available in addition to such proration.
8.4 REPURCHASE OF ASSETS.
(a) Upon termination of this Agreement pursuant to Section 8.1 or 8.2
hereof, other than pursuant to Section 8.2(a)(v) or 8.2(c)(iv) or 8.2(c)(v), the
Service Provider shall purchase from PHC-SUB those tangible and intangible
assets (including the name "Parkcrest Surgical Associates, Inc.") owned by PHC-
SUB that primarily relate to the operation of the Service Provider, including
all FF&E and all real estate ("Real Estate") owned by PHC-SUB and associated
primarily with the operation of the Service Provider (collectively the
"Repurchase Assets") at a purchase price (the "Buyout Amount") as set forth in
EXHIBIT 8.4(A) attached hereto. Upon termination of this Agreement pursuant to
Section 8.2(a)(v) or 8.2(c)(iv) or 8.2(c)(v) hereof, the Service Provider shall
purchase from PHC-SUB the Repurchase Assets for the following Buyout Amount:
All the cash and all the shares of PHC "Prime Common Stock" (or Common
Stock, if the Prime Common Stock has converted into Common Stock as of
the date of termination of the Agreement) paid by PHC in connection
with the Merger Agreement (the "Total Merger Consideration") less the
aggregate amount of any Liquidated Damages previously paid to PHC-SUB
by Service Provider Employees pursuant to Section 5.4 and EXHIBIT 5.4
hereof, adjusted in cash for any increase or decrease in the book
value of the FF&E and the Real Estate (on PHC's books and records)
from the Effective Date until the date of termination (the "Tangible
Asset Cash Adjustment").
(b) In addition to the payment of the Buyout Amount as set forth in Section
8.4(a), upon termination of this Agreement, the Service Provider shall pay all
debt and assume without recourse against PHC-SUB all contracts, payables and
leases which are obligations of PHC-SUB and which relate exclusively to the
performance of its obligations under this Agreement or the properties subleased
by PHC-SUB, other than such contracts, payables and leases that are between the
Service Provider and PHC-SUB or its affiliates. The Buyout Amount shall be
reduced by the amount of debt and liabilities of PHC-SUB assumed by the Service
Provider and by any payment PHC-SUB has failed to make under this Agreement
(other than any such payments constituting all or a portion of the Service
Provider Lost Income Amount). The Service Provider and any physician
shareholder of the Service Provider shall execute such documents as may be
required to assume the liabilities set forth in this Section 8.4 and to remove
or indemnify PHC-SUB to its reasonable satisfaction from any liability with
respect to such repurchased assets and with respect to any property leased or
subleased by PHC-SUB. The closing date for the repurchase shall be determined by
the Service Provider, but shall in no event occur later than 60 days from the
date of the notice of termination. The termination of this Agreement shall
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become effective upon the closing of the sale of the assets and the Service
Provider and the Service Provider Employees shall be released from the
restrictive covenants as and to the extent set forth in Section 8.4(c) on the
closing date. PHC-SUB shall have the right, in its sole and absolute discretion,
to waive the repurchase requirements of the Service Provider, in which event,
the termination of this Agreement shall become effective upon the execution and
delivery of such waiver.
(c) Release from Certain Restrictive Covenants.
(i) Upon termination of this Agreement pursuant to Sections 8.2(a),
8.2(b), 8.2(c)(iv), 8.2(c)(v) or 8.2(e), if the Service Provider remits the
Buyout Amount to PHC-Sub in accordance with this Section 8.4 within 60 days
after determination of such Buyout Amount, the Service Provider and the
Service Provider Employees shall be released from the restrictive covenants
of Sections 5.4(a) and 5.4(d) but not 5.4(e).
(ii) Upon termination of this Agreement pursuant to Sections
8.2(c)(i), 8.2(c)(ii), 8.2(c)(iii), or 8.2(d), if the Service Provider
remits the Buyout Amount to PHC-Sub in accordance with this Section 8.4
within 60 days after determination of such Buyout Amount, the Service
Provider and the Service Provider Employees shall be released from the
restrictive covenants of Sections 5.4(a), 5.4(d) and 5.4(e).
(iii) If the Service Provider does not remit the Buyout Amount to
PHC-SUB in accordance with Section 8.4(a) hereof within 60 days after
determination of such Buyout Amount, all the provisions of Section 5.4 of
this Agreement shall survive in their entirety for a period of two years
following the date of termination of this Agreement.
8.5. CLOSING OF REPURCHASE BY THE SERVICE PROVIDER AND EFFECTIVE DATE OF
TERMINATION.
In taking action to terminate this Agreement the parties shall comply with
the following procedures:
(a) Prior to taking any action to terminate, the party seeking
termination shall provide 15 days' prior written notice to Agent, following
the expiration of any cure periods.
(b) The taking by the Practice of any action with respect to
termination of this Agreement shall require the affirmative vote of the
holders of two-thirds of the equity interests of the shareholders of the
Practice.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF SERVICE PROVIDER.
The Service Provider hereby represents and warrants to PHC as follows:
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9.1. ORGANIZATION IN GOOD STANDING; LICENSES.
The Service Provider is a Missouri corporation duly organized, validly
existing and in good standing under the laws of the State of Missouri. The
Service Provider has all necessary power to own all of its properties and assets
and all material governmental licenses, authorizations, consents, and approvals
to carry on its business as now conducted and as will be conducted (including,
without limitation, accreditations and certifications as a provider of health
care services eligible to receive payment and compensation and to participate
under Medicare, Medicaid, CHAMPUS and CHAMPVA).
9.2. NO VIOLATIONS.
The Service Provider has the corporate authority to execute, deliver and
perform this Agreement and all agreements executed and delivered by it pursuant
to this Agreement, and has taken all action required by law, its Articles or
Certificate of Incorporation, its Bylaws or otherwise to authorize the
execution, delivery and performance of this Agreement and such related
documents. The execution and delivery of this Agreement does not and, subject
to the consummation of the transactions contemplated hereby, will not, violate
any provisions of the Articles or Certificate of Incorporation or Bylaws of the
Service Provider 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 the Service Provider is a party,
or by which it is bound. This Agreement has been duly executed and delivered by
the Service Provider and constitutes the legal, valid and binding obligation of
the Service Provider, enforceable in accordance with its terms.
9.3. PROFESSIONAL LIABILITY.
Except as previously disclosed to PHC-SUB in writing, no Service Provider
Employee has ever (a) had his or her license to practice medicine or other
profession in any state or his or her Drug Enforcement Agency Number suspended,
relinquished, terminated, restricted or revoked; (b) been reprimanded,
sanctioned or disciplined by any licensing board, or any federal, state or local
society or agency, governmental body or specialty board; or (c) had his medical
staff privileges at any hospital or medical facility suspended, terminated,
restricted or revoked.
9.4. LITIGATION.
(a) There is no action, suit, or proceeding pending against, or to the best
knowledge of the Service Provider threatened against or affecting, the Service
Provider or any Service Provider Employee before any court or arbitrator or any
governmental body, agency or official which in any manner draws into question
the validity of the Professional Service Provider Security Agreement.
(b) There is no pending investigation of the Service Provider or any of its
members, partners, or Service Provider Employees, or any one or more of them, as
the case may be, by HCFA or any other governmental authority, which
investigation is not otherwise conducted in the ordinary course of business and
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no criminal, civil or administrative action, audit, or investigation by a fiscal
intermediary or by or on behalf of any governmental authority exists against the
Service Provider or any of its members, partners, or Service Provider Employees,
or any one or more of them, as the case may be, or to the best knowledge of the
Service Provider, is threatened with respect to such persons or any one of them
which could reasonably be expected to materially and adversely affect the right
of such person or persons to receive Medicare, Medicaid, CHAMPUS or CHAMPVA
reimbursement to which such person or persons would otherwise be entitled, or
right to participate in the Medicare, Medicaid, CHAMPUS or CHAMPVA programs, or
otherwise have a Material Adverse Effect on the receipt of Medicare, Medicaid,
CHAMPUS or CHAMPVA reimbursement by such person or persons.
(c) To the best knowledge of the Service Provider, neither the Service
Provider nor any of its members, partners or Service Provider Employees or any
one or more of them, as the case may be, is subject to any pending but
unassessed Medicare, Medicaid, CHAMPUS or CHAMPVA claim payment adjustments,
except to the extent that such person or persons is contesting such assessment
in good faith by appropriate proceedings diligently pursued and has established
or caused to be established by his or her employer, limited liability company,
or partnership, as the case may be, adequate reserves for such adjustments in
accordance with GAAP.
9.5. NO DEFAULT.
Neither the Service Provider nor its members, partners, Service Provider
Employees, or any one or more of them has received notification from any
governmental authority that any such governmental authority has taken or intends
to take action to revoke, terminate, or adversely amend any license,
certificate, accreditation or permit of such person to operate a healthcare
facility or to participate under Medicare, Medicaid, CHAMPUS or CHAMPVA.
9.6. THIRD PARTY REIMBURSEMENT.
If the Service Provider or any Service Provider Employee is being audited
or has been audited by Medicare, Medicaid, CHAMPUS or CHAMPVA or similar
governmental Third Party Payors:
(a) none of such audits provides for adjustments in reimbursable costs
or assets, claims for reimbursement or repayment by the Service Provider or
any Service Provider Employee of costs and/or payments theretofore made by
such governmental Third Party Payor that, if adversely determined, could
reasonably be expected to have or result in a Material Adverse Effect; and
(b) neither the Service Provider nor any Service Provider Employee has
had requests or assertions of claims for reimbursement or repayment by it,
or him or her, as the case may be, of costs and/or payments heretofore made
by any other Third Party Payor that, if adversely determined, could
reasonably be expected to have or result in a Material Adverse Effect.
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9.7. CERTIFICATES.
The Service Provider agrees to use reasonable efforts to provide, and to
use reasonable efforts to cause each Service Provider Employee to provide,
notice to PHC-SUB if any representation or warranty contained therein becomes
untrue in any material respect as of a date after the Effective Date because of
subsequent events and to provide from time to time, at the reasonable request of
PHC-SUB, a certificate stating that the representations and warranties contained
herein are true, or, if they are not true, specifying in reasonable detail the
extent to which they are not true.
SECTION 10. INSURANCE AND INDEMNITY.
10.1. INSURANCE MAINTAINED BY THE SERVICE PROVIDER.
During the term of this Agreement, the Service Provider shall provide, or
shall arrange for the provision of, and maintain comprehensive professional
liability insurance on the Service Provider and each of the physician Service
Provider Employees and agents in the minimum amount of One Million Dollars
($1,000,000) per occurrence and Three Million Dollars ($3,000,000) annual
aggregate, and in such reasonable amounts as are agreed upon by PHC-SUB and the
Service Provider for non-physician Service Provider Employees. The Service
Provider shall provide to PHC-SUB written documentation evidencing such
insurance coverage. All such professional liability insurance premiums and
deductibles related thereto shall be included in Operational Expenses. The
Service Provider shall be responsible for all liabilities in excess of the
limits of such policies. The Service Provider's obligation to maintain such
professional liability insurance coverage shall survive the expiration or
termination of this Agreement for any reason so as to cover any and all
professional liability claims or causes of action caused or asserted to have
been caused as a result of the performance of medical services by the Service
Provider and its employees or agents during the term of this Agreement. The
Service Provider shall provide, or shall arrange for the provision of, and shall
maintain throughout the entire term of this Agreement, workers' compensation
insurance coverage on the Service Provider and each of its employees and agents
in the amounts required by law. The Service Provider shall provide to PHC-SUB
written documentation evidencing such insurance coverage.
10.2. INSURANCE MAINTAINED BY PHC-SUB.
During the term of this Agreement, PHC-SUB shall provide and maintain
comprehensive professional liability insurance for all professional employees of
the PHC-SUB providing any services related to the Service Provider pursuant to
this Agreement, and comprehensive general liability and property insurance
covering the Medical Office premises and operations. The cost of such insurance
shall be an Operational Expense. If so requested by the Service Provider,
PHC-SUB shall provide written documentation evidencing such insurance coverage.
10.3. CONTINUING LIABILITY INSURANCE COVERAGE.
The Service Provider shall obtain, or shall ensure that each Service
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<PAGE>
Provider Employee or agent obtains, continuing liability insurance coverage
under either a "tail policy" or a "prior acts policy," with the same limits and
deductibles as the insurance coverage provided pursuant to Section 10.1, for
each of the Service Provider's employees and agents upon the termination of such
employee's or agent's relationship with the Service Provider for any reason.
The Service Provider shall provide to PHC-SUB written documentation evidencing
such insurance coverage. In the event the Service Provider does not obtain such
continuing liability insurance coverage, PHC-SUB may do so and the cost of such
coverage shall be included as an Operational Expense. The Service Provider's
obligation to obtain, or ensure that each of the Service Provider's employees
and agents obtains, such continuing liability insurance coverage shall survive
the termination of this Agreement for any Service Provider employee or agent
associated with the Service Provider during the term of this Agreement.
10.4. INDEMNIFICATION.
PHC-SUB hereby agrees to indemnify, hold harmless and defend the Service
Provider from and against any and all liability, loss, damages, claims, causes
of action and expenses associated therewith (including reasonable attorneys'
fees) caused or asserted to have been caused, directly or indirectly, by or as a
result of the performance of management services by PHC-SUB, its employees or
agents during the term hereof. The Service Provider hereby agrees to indemnify,
hold harmless and defend PHC-SUB from and against any and all liability, loss,
damages, claims, causes of action and expenses associated therewith (including
reasonable attorneys' fees) caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of medical services by the
Service Provider and its employees or agents during the term hereof. The
provisions of this Section 10.4 shall survive the expiration or earlier
termination of this Agreement. Each party, if so requested, shall provide the
other with written documentation evidencing notification of such party's
insurance carrier of the provisions of this Section 10.4. A party seeking
indemnification pursuant to this Section 10.4 shall promptly notify the other
party by specifying the basis on which indemnification is sought and the amount
of asserted losses as such information becomes known to such party.
10.5. KEY PERSON INSURANCE.
The Service Provider agrees, and shall cause its Service Provider Employees
to agree, that PHC-SUB may obtain, at its sole expense and for its sole benefit,
"key person" life and/or disability insurance policies on any or all Service
Provider Employees. Neither the Service Provider nor any Service Provider
Employee shall have any right, title or interest, in or to the proceeds of any
such insurance policies. The Service Provider shall cause its Service Provider
Employees to cooperate with PHC-SUB, as reasonably requested by PHC-SUB from
time to time, in obtaining any such insurance policies, including, but not
limited to, causing such Service Provider Employees to submit to such physical
examinations and providing such information relating to insurability as PHC-SUB
may reasonably request from time to time.
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SECTION 11. COMPLIANCE WITH REGULATIONS.
11.1. 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, PHC-SUB 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 PHC-SUB under this
Agreement. PHC-SUB 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
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 PHC-SUB or the Service Provider may be entitled under
law or regulation.
SECTION 12. RELATIONSHIP OF THE PARTIES.
12.1. INDEPENDENT CONTRACTOR STATUS.
(a) It is acknowledged and agreed that the Service Provider and PHC-SUB are
at all times acting and performing hereunder as independent contractors. PHC-
SUB shall neither have nor exercise any control or direction over the methods by
which the Service Provider and Service Provider Employees practice medicine.
PHC-SUB shall not, by entering into and performing its obligations under this
Agreement, become liable for any of the existing obligations, liabilities or
debts of the Service Provider unless otherwise specifically provided for under
the terms of this Agreement or the Purchase Agreement. In its management role,
PHC-SUB will have only an obligation to exercise reasonable care in the
performance of the management services. PHC-SUB shall have no liability
whatsoever for damages suffered on account of the willful misconduct or
negligence of any employee, agent or independent contractor of the Service
Provider. Each party hereto shall be solely responsible for compliance with all
state and federal laws pertaining to employment taxes, income withholding,
unemployment compensation contributions and other employment related statutes
regarding their respective employees, agents and servants.
(b) In the event any state or federal laws or regulations, now existing or
enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel in such a manner as to indicate
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<PAGE>
that this Agreement or any provision hereof may be in violation of such laws or
regulations, the Service Provider and PHC-SUB shall amend this Agreement as
necessary to preserve the underlying economic and financial arrangements between
the Practice and PHC-SUB and without substantial economic detriment to either
party. To the extent any act or service required of PHC-SUB in this Agreement
should be construed or deemed, by any governmental authority, agency or court,
to constitute the unauthorized practice of medicine, the performance of said act
or service by PHC-SUB shall be deemed waived and forever unenforceable and the
provisions of this Section 12.1(b) shall be applicable. Neither party shall
claim or assert illegality as a defense to the enforcement of this Agreement or
any provision hereof; instead, any such purported illegality shall be resolved
pursuant to the terms of this Section 12.1(b).
12.2. REFERRAL ARRANGEMENTS.
The parties hereby acknowledge and agree that no benefits to the Service
Provider 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 PHC-SUB or any of its Affiliates, to any patients of the
Service Provider, the Service Provider's employees or agents.
SECTION 13. CONFIDENTIAL INFORMATION AND INSPECTION RIGHTS.
(a) At no time during the term of this Agreement or the five (5) year
period after any termination or expiration of this Agreement for any reason
shall Service Provider or any of its employees or agents, on the one hand, or
PHC-SUB or any of its employees or agents, on the other hand, disclose to
anyone, other than its attorneys, accountants or other financial advisors, the
material terms of this Agreement or any other written agreement between the
parties hereto, or any confidential or secret information concerning (a) the
business, affairs or operations, (b) any trade secrets, new product
developments, special or unique processes or methods, or (c) any marketing,
sales, advertising or other concepts or plans, of PHC-SUB or any of its
Affiliates, on the one hand, or of the Service Provider, its Service Provider
Employees, subsidiaries or Affiliates, on the other hand.
The covenants contained in this Section 13 shall not apply to any
information which (i) was already known to such party at the time of receipt
thereof, (ii) was readily available to the general public at the time of receipt
thereof, (iii) subsequently becomes known to the general public through no fault
or omission on the part of such party, (iv) is subsequently disclosed by a third
party which has the bona fide right to make such disclosure, or (v) is required
to be disclosed by law or governmental agency.
Each of PHC-SUB and the Service Provider hereby acknowledges that if
it or any of its employees or agents engage in activities within the limitations
of this Section 13, money damages shall be an inadequate remedy, and each of
PHC-SUB and the Service Provider agree that the nonbreaching party shall be
entitled to obtain, in addition to any other remedy provided by law or equity,
an injunction against the violation of breaching party's obligation to the
nonbreaching party hereunder.
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<PAGE>
(b) The Service Provider shall have reasonable access to the files and
records relating to such revenue and expenses and the overall operation of the
Service Provider. The Service Provider, at its expense, may have its accountants
review such records, at reasonable intervals, to confirm the accuracy of such
records and fees paid by the Service Provider to PHC-SUB under this Agreement.
SECTION 14. ARBITRATION.
(a) Except as contemplated by Section 5.4(f) hereof, any and all disputes
arising out of or in connection with the negotiation, execution, interpretation,
performance, nonperformance or arbitrability of this Agreement shall be solely
and finally settled by arbitration, which shall be conducted in St. Louis,
Missouri, or at such other location as the parties may agree in writing. The
arbitrator shall conduct the proceedings in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as supplemented by
the American Arbitration Association's Supplementary Procedures for Large,
Complex Disputes (the "Rules"). The arbitration proceeding shall be initiated in
accordance with the Rules. Except as contemplated by Section 5.4(f) hereof, the
parties hereby renounce all recourse to litigation and agree that any
arbitration award shall be final and subject to no judicial review. The
arbitration shall be conducted before three arbitrators, chosen in accordance
with the Rules. The arbitrator(s) shall decide the issues submitted in
accordance with (i) the language and commercial purposes of this Agreement; and
(ii) what is just and equitable under the circumstances, provided that all
substantive questions of law (excluding principles of conflicts of laws) shall
be determined under the laws of the State of Missouri. Except as contemplated by
Section 5.4(f) hereof, all damage awards related to a breach of this Agreement
shall be monetary and based on the lost income of the nonbreaching party as the
result of the breach without giving effect to any consequential or punitive
damages. In addition, the arbitrator shall decide certain termination matters as
provided in Sections 8.2 (b), (d) and (e). Nothing in this Article 14 shall
require arbitration of matters relating to termination of this Agreement
pursuant to Section 8.2(a) or 8.2(c).
(b) The parties agree to facilitate the arbitration by: (i) making
available to one another and to the arbitrator for examination, inspection and
extraction all documents, books, records and personnel under their control
determined by the arbitrator to be relevant to the dispute (ii) conducting
arbitration hearings to the greatest extent possible on successive days; and
(iii) observing strictly the time periods established by the Rules, or by the
arbitrator, for submission of evidence or briefs.
(c) Judgment on the award of the arbitrator may be entered in any court
having jurisdiction over the party against which enforcement of the award is
being sought. All deposits and other costs (other than fees of counsel) incurred
in conducting the arbitration shall be borne equally by the parties. Each party
shall be solely responsible for its own attorney's fees incurred in connection
with the arbitration.
(d) This section shall survive completion or termination of this Agreement,
and shall be specifically enforceable in any court of competent jurisdiction.
In no event shall a demand for arbitration be made after the date when any
applicable statute of limitations, or period for claims
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<PAGE>
under the Agreement, would bar institution of a legal or equitable proceeding
based on such dispute or subject matter in question.
SECTION 15. MISCELLANEOUS.
15.1. ASSIGNMENT AND DELEGATION.
PHC-SUB shall have the right to assign its rights hereunder to any
Affiliate of PHC-SUB and to any lending institution, for security purposes or as
collateral, from which PHC, PHC-SUB or such person, firm or corporation obtains
financing. Except as set forth in this Section 15.1, neither PHC-SUB nor the
Service Provider shall have the right to assign their respective rights and
obligations hereunder without the written consent of the other party. The
Service Provider may not delegate any of its duties hereunder, except as
expressly contemplated herein; however, PHC-SUB may delegate some or all of its
duties hereunder to the extent it concludes, in its sole discretion, that such
delegation is in the mutual interest of the parties hereto.
15.2. OTHER CONTRACTUAL ARRANGEMENTS.
The parties acknowledge and agree that they have been advised and consent
to the fact that PHC-SUB or its Affiliates (i) may have, prior to the date of
this Agreement, discussed proposals with respect to, or (ii) may, from time to
time hereafter enter agreements with one or more Service Provider Employees to
provide consulting, medical direction, advisory or similar services relating to
activities of PHC-SUB or its Affiliates in clinical areas. The parties agree
that such agreements, if any, shall be entered into at the sole discretion of
the parties thereto and subject to such terms and conditions to which such
parties may agree, and any compensation payable to or by PHC-SUB, on the one
hand, and such Service Provider Employees, on the other hand, shall not
constitute Service Provider Revenues and shall otherwise not be subject to the
provisions of this Agreement. Each current physician shareholder of the Service
Provider by his or her execution of this Agreement as provided on the signature
page hereof, agrees that neither the negotiation nor the entry into any
agreement or arrangement of a type described in this Section 15.2 shall
constitute a breach of fiduciary or other duty owed by any such physician to
another or to any Service Provider Employee, or by PHC-SUB, to the Service
Provider or any such physician or Service Provider Employee.
15.3. NOTICES.
Any notice required or permitted by this Agreement or any agreement or
document executed and delivered in connection with this Agreement shall be
deemed to have been served properly received if hand delivered upon actual
receipt, or if sent by overnight express, one (1) business day after
transmittal, or if mailed by certified mail, return receipt requested, proper
postage prepaid, then five (5) business days after posting, at the following
addresses:
If to the Service Provider: [NEW CORPORATION]
675 Old Ballas Road, Suite 200
St. Louis, Missouri 63141
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Attn: President
with a copy to: Gallop, Johnson & Neuman, L.C.
Interco Corporate Tower
101 South Hanley
St. Louis, Missouri 63105
Attn: Randy S. Gerber, Esq.
If to PHC-SUB: PHC - Midwest, Inc.
c/o Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attn: Sarah C. Garvin, President
with a copy to: Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attn: Daniel Epstein, M.D., Esq.
If to Agent: [TO BE PROVIDED IN WRITING TO SERVICE
PROVIDER BY PHC]
with a copy to: [TO BE PROVIDED IN WRITING TO SERVICE
PROVIDER BY PHC]
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.
15.4. 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.
15.5 GOVERNING LAW.
This Agreement shall be interpreted, construed and enforced in accordance
with the laws of the State of Missouri, applied without giving effect to any
conflicts of law principles.
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15.6. 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.
15.7. 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.
15.8. ENTIRE AGREEMENT.
This Agreement, the Merger Agreement and the documents contemplated thereby
and hereby contain the entire agreement of the parties and supersedes any and
all prior or contemporaneous negotiations, understandings or agreements between
the parties, written or oral, with respect to the transactions contemplated
hereby and thereby. 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 PHC-SUB if PHC-SUB is the party against whom enforcement of any such
waiver, change, modification, extension, discharge or termination is sought, or
by the Service Provider if the Service Provider is the party against whom
enforcement of any such waiver, change, modification, extension, discharge or
termination is sought.
15.9. WAIVER OF PROVISIONS.
Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
15.10. NO RULE OF CONSTRUCTION.
The parties acknowledge that this Agreement was initially prepared by PHC-
SUB 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.
15.11. 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.
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15.12. 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. For the purposes of this Section 15.13, a
successor shall include, without limitation, any entity owned by more than fifty
percent (50%) of the Covered Physicians which is operated for the purposes of
providing professional medical services.
15.13. OTHER CONTRACT MODIFICATIONS AT THE REQUEST OF PHC-SUB.
In the event that PHC-SUB requests an amendment of this Agreement other
than a request for an amendment pursuant to or covered by Section 12.1(b)
hereof, then, provided the Service Provider agrees to such an amendment and the
Agreement is amended as requested by PHC-SUB, PHC-SUB shall reimburse the
Service Provider for its reasonable legal fees, as approved in advance by PHC-
SUB, incurred by the Service Provider in connection with the amendment of the
Agreement.
SECTION 16. GUARANTY BY PHC.
PHC hereby absolutely and unconditionally and irrevocably guarantees the
full, prompt and faithful performance by PHC-SUB of all covenants and
obligations to be performed by PHC-SUB under this Agreement, including, but not
limited to, the payment of all sums to be paid by PHC-SUB pursuant to this
Agreement. If PHC-SUB fails to fully perform all such covenants and obligations
in accordance with their terms or pay all or any part of such sums when due upon
written demand from the Service Provider, PHC will perform immediately all such
covenants and obligations in accordance with their terms or immediately pay to
the Service Provider the amount due and unpaid by PHC-SUB. In the event of
termination, liquidation or dissolution of PHC-SUB, this unconditional guaranty
shall continue in full force and effect.
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THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE.
IN WITNESS WHEREOF, the Service Provider and PHC-SUB have duly executed
this Agreement on the day and year first above written.
P.S.A. Medical Group, Inc.
By:
--------------------------
Name:
------------------------
Title:
------------------------
PHC - Midwest, Inc.
By:
--------------------------
Name:
-------------------------
Title:
------------------------
Physician Health Corporation
By:
--------------------------
Name:
-------------------------
Title:
------------------------
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EXHIBIT 5.4(A)
I. EXCLUSIONS
----------
A. The Service Provider shall not be required to obtain or maintain
restrictive covenant agreements as set forth in Section 5.4(a) with Kenneth
J. Bennett, M.D.
B. In addition, it is hereby acknowledged and agreed that the
restrictive covenants as set forth in Section 5.4(a) shall not prohibit
Kurt Kaufman, D.P.M. ("Dr. Kaufman") from continuing to conduct a portion
of his medical practice at either 111 Florissant Oaks, Florissant, MO 63031
or 1995 Zumbehl Road, St. Charles, MO 63303, provided however, that taking
the aggregate of all the Total Physician Revenues (as defined herein)
generated by Dr. Kaufman, whether or not on behalf of the Service Provider,
not less than 25% of such aggregate of Dr. Kaufman's Total Physician
Revenue during any fiscal quarter shall be generated on behalf of Service
Provider and shall be subject to the General Management Fee and Practice
Development Fee determinations as set forth in Exhibit 7.1 hereof.
II. TRANSITION TO EXCLUDED PHYSICIAN STATUS
---------------------------------------
In the event that, during the first five (5) years of this Agreement:
(i) the Service Provider relocates its primary office to 415 North New
Ballas Road, Creve Coeur, Missouri and (ii) a Covered Physician satisfies
the requirements of Section A or B of EXHIBIT 5.4(C) and makes the
Liquidated Damages payment as calculated pursuant to Section C of EXHIBIT
5.4(C), then, with the consent of the Service Provider, such physician may
then renew his or her relationship with the Service Provider Employee as a
Service Provide Employee provided such Physician is added to list of
physicians in Part A of Section I of this EXHIBIT 5.4(A) and agrees to be
bound by the terms of this Agreement as it applies to a physician Service
Provider Employee listed in Part A of Section I of this EXHIBIT 5.4(A).
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EXHIBIT 5.4(B)
SECTION 5.4(B) LIQUIDATED DAMAGES
---------------------------------
The Liquidated Damages payment shall be A multiplied by (i) number of
shares of PHC Prime Common Stock (or of PHC Common Stock, if PHC Prime Common
Stock has been converted to Common Stock) and (ii) the cash, if any, received by
the Covered Physician in connection with the conversion of all of the then
outstanding shares of capital stock of Old P.C into the PHC Shares pursuant to
the Merger Agreement, other than the shares and cash attributable to the FF&E
and the accounts receivable of Old P.C. pursuant to the Merger Agreement, where
A equals:
Years From Effective Date
To Termination Date A Equals
--------------------------- --------
0-1 1.0
1-2 0.8
2-3 0.6
3-4 0.4
4-5 0.2
Covered Physician acknowledges and agrees that the Liquidated Damages
payment does not constitute a penalty and is a fair and reasonable payment to
PHC-SUB in light of the substantial expenditure of capital and other resources
the PHC-SUB will make under this Agreement to maintain, develop and expand the
medical practice of the Covered Physician and the Service Provider. Covered
Physician further acknowledges and agrees that the actual losses to be suffered
by PHC-SUB in the event of termination of Covered Physician's relationship with
the Service Provider will be difficult to ascertain, and that the Liquidated
Damages have been arrived at after a good faith effort to estimate such losses
and are reasonable.
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EXHIBIT 5.4(C)
SECTION 5.4(C) LIQUIDATED DAMAGES
---------------------------------
A. On the sixty-fifth (65th) month anniversary of the Effective Date,
provided the physician Service Provider Employee (the "Physician") provides
notice to PHC-SUB of his or her intention to terminate the relationship between
the Service Provider and the Physician not less than ninety (90) days and not
more than one hundred fifty (150) days prior to the sixty-fifth (65th) month
anniversary of the Effective Date, and further provided the Physician pays to
PHC-SUB the Liquidated Damages as set forth in this EXHIBIT 5.4(C) below within
thirty (30) days of the sixty-fifth (65th) month anniversary of the Effective
Date, the Service Provider shall no longer be required to maintain the
restrictive covenant agreements as set forth in Section 5.4(a) hereof (the
"Restrictive Covenant") with the Physician and PHC-SUB shall be removed as a
third-party beneficiary to any such Restrictive Covenant agreements between the
Service Provider and the Physician.
B. In the event that, during the first five (5) years of this Agreement,
despite the good faith effort on the part of PHC-SUB and the Physician, the
Total Physician Revenue (as defined in EXHIBIT 7.1 to the Agreement) is less
than 70% of Physician's "Baseline Physician Net Income" as set forth on Table 2
to Exhibit 7.1 hereto for any twelve (12) month period, provided the Physician
provides six (6) months notice to PHC-SUB of his or her intention to terminate
the relationship between PHC-the Service Provider and the Physician, and further
provided the Physician pays to PHC-SUB the Liquidated Damages as set forth in
this EXHIBIT 5.4(C) below within thirty (30) days of the termination of the
relationship between the Service Provider and the Physician, the Service
Provider shall no longer be required to maintain the Restrictive Covenant
agreement as set forth in Section 5.4(a) hereof with the Physician and PHC-SUB
shall be removed as a third-party beneficiary to any such Restrictive Covenant
agreements between the Service Provider and the Physician.
C. The Liquidated Damages payment shall be (i) the number of shares of PHC
Prime Common Stock (or of PHC Common Stock, if PHC Prime Common Stock has been
converted to Common Stock) and (ii) the cash, if any, received by the Covered
Physician in connection with the conversion of all of the then outstanding
shares of capital stock of Old P.C into the PHC Shares pursuant to the Merger
Agreement, other than the shares and cash attributable to the FF&E and the
accounts receivable of Old P.C. pursuant to the Merger Agreement.
Covered Physician acknowledges and agrees that the Liquidated Damages
payment does not constitute a penalty and is a fair and reasonable payment to
PHC-SUB in light of the substantial expenditure of capital and other resources
the PHC-SUB will make under this Agreement to maintain, develop and expand the
medical practice of the Covered Physician and the Service Provider. Covered
Physician further acknowledges and agrees that the actual losses to be suffered
by PHC-SUB in the event of termination of Covered Physician's relationship with
the Service Provider will be difficult to ascertain, and that the Liquidated
Damages have been arrived at after a good faith effort to estimate such losses
and are reasonable.
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EXHIBIT 7.1
PHC-SUB COMPENSATION AND GUARANTY
---------------------------------
I. DEFINED TERMS
-------------
For the purposes of this Agreement:
"Direct Physician Revenue" shall mean, for any period, the Net
Service Provider Revenue (as defined in Section 2.20 hereof)
attributable to professional services rendered by a physician Service
Provider Employee on behalf of the Service Provider during such
period;
"Common Physician Revenue" shall mean, for any period, a
physician Service Provider Employee's share of the Net Service
Provider Revenue attributable to any other services performed by the
Service Provider during such period, as such share is determined by
the Service Provider as set forth in TABLE 1 attached hereto; provided
such share shall be in compliance with all state and federal
regulations;
"Total Physician Revenue" shall mean Direct Physician Revenue
plus Common Physician Revenue.
"Direct Operational Expenses" shall mean, for any period, the
Operational Expenses (as defined in Section 2.25 hereof) paid for such
period directly attributable to a physician Service Provider Employee;
"Common Operational Expenses" shall mean, for any period, a
physician Service Provider Employee's allocable share of any common
Operational Expenses paid by the Service Provider for such period, as
determined by the Service Provider as set forth in TABLE 1 attached
hereto;
"Total Operational Expenses" shall mean Direct Operational
Expenses plus Common Operational Expenses; and
"Physician Net Income" shall mean, for any period, Total
Physician Revenue less the Total Operational Expenses.
II. GENERAL MANAGEMENT FEE
----------------------
The Service Provider shall pay to PHC-SUB a General Management Fee
equal to
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sum of all the individual PHYSICIAN GENERAL MANAGEMENT FEES for all the
physician Service Provider Employees, as such fees may be adjusted pursuant to
this Agreement.
A. ORIGINAL PHYSICIAN SERVICE PROVIDER EMPLOYEES
---------------------------------------------
For each physician ORIGINAL PHYSICIAN SERVICE PROVIDER EMPLOYEE
listed on TABLE 2 attached hereto, the PHYSICIAN GENERAL MANAGEMENT
FEE shall be calculated as follows:
For the first five (5) years of this Agreement, the Physician
General Management Fee shall be equal to the [PHYSICIAN'S INITIAL
GENERAL MANAGEMENT FEE].
At all times following the fifth anniversary of the Effective
Date of this Agreement, the Physician General Management Fee shall be
equal [PHYSICIAN'S GENERAL MANAGEMENT FEE PERCENTAGE] of the first
[PHYSICIAN'S BASELINE PHYSICIAN NET INCOME] of such physician's annual
Physician Net Income.
For each physician Original Service Provider Employee, the
PHYSICIAN'S INITIAL GENERAL MANAGEMENT FEE, PHYSICIAN'S GENERAL
MANAGEMENT FEE PERCENTAGE, and the PHYSICIAN'S BASELINE PHYSICIAN NET
INCOME shall be as set forth on TABLE 2 attached hereto.
B. PHYSICIAN NEW SERVICE PROVIDER EMPLOYEES
----------------------------------------
For each physician NEW SERVICE PROVIDER EMPLOYEE (as defined in
Section 2.23 hereof), there shall be no PHYSICIAN GENERAL MANAGEMENT
FEE.
III. PRACTICE DEVELOPMENT FEE
------------------------
The Service Provider shall pay to PHC-SUB a PRACTICE DEVELOPMENT FEE
equal to sum of all the individual PHYSICIAN PRACTICE DEVELOPMENT FEES for all
the physician Service Provider Employees, as such fees may be adjusted pursuant
to this Agreement.
A. ORIGINAL PHYSICIAN SERVICE PROVIDER EMPLOYEE
--------------------------------------------
For each physician listed on TABLE 2 attached hereto (the
"ORIGINAL SERVICE PROVIDER EMPLOYEES"), the PHYSICIAN PRACTICE
DEVELOPMENT FEE shall be calculated as follows:
Subject to Article IV hereof, for the first five (5) years of
this Agreement, the PHYSICIAN PRACTICE DEVELOPMENT FEE shall be equal
to: (i) twenty percent (20%) of such physician's annual Physician Net
Income between [PHYSICIAN'S BASELINE PHYSICIAN NET INCOME PLUS THE
PHYSICIAN'S INITIAL GENERAL MANAGEMENT FEE] AND [TWO TIMES PHYSICIAN'S
BASELINE PHYSICIAN NET INCOME]; (ii) seventeen and one-half percent
(17.5%) of such physician's annual Physician Net Income between [TWO
TIMES PHYSICIAN'S BASELINE PHYSICIAN NET
47
<PAGE>
INCOME] and [THREE TIMES PHYSICIAN'S BASELINE NET INCOME] and (iii)
fifteen percent (15%) of such physician's annual Physician Net Income
in excess of [THREE TIMES PHYSICIAN'S BASELINE PHYSICIAN NET INCOME].
At all times following the fifth anniversary of the Effective
Date of this Agreement, the Physician Practice Development Fee shall
be equal to: (i) twenty percent (20%) of such physician's annual
Physician Net Income between [PHYSICIAN'S BASELINE PHYSICIAN NET
INCOME] AND [TWO TIMES PHYSICIAN'S BASELINE PHYSICIAN NET INCOME];
(ii) seventeen and one-half percent (17.5%) of such physician's annual
Physician Net Income between [TWO TIMES PHYSICIAN'S BASELINE PHYSICIAN
NET INCOME] and [THREE TIMES PHYSICIAN'S BASELINE PHYSICIAN NET
INCOME]; and (iii) fifteen percent (15%) of such physician's annual
Physician Net Income in excess of [THREE TIMES PHYSICIAN'S BASELINE
PHYSICIAN NET INCOME].
B. PHYSICIAN NEW SERVICE PROVIDER EMPLOYEE
---------------------------------------
For each physician NEW SERVICE PROVIDER EMPLOYEE (as defined in
Section 2.23 hereof), the PHYSICIAN PRACTICE DEVELOPMENT FEE shall be
equal to such physician's Total Physician Revenue minus (a) and
physician's New Physician Employee Compensation and (b) such
physician's Common Operational Expenses attributable to the physician
New Service Provider Employees.
IV. LIMITATION ON SINGLE PHYSICIAN FEES
-----------------------------------
Notwithstanding anything to the contrary in this Exhibit 7.1, except for
physician New Service Provider Employees, in no event shall any single
physician's General Management Fees plus Practice Development Fees for any
calendar year of this Agreement exceed Two and One-half times such physician's
Initial General Management Fee.
V. GUARANTY
--------
Contemporaneously with the execution of this Agreement, the Service
Provider shall cause each of the Covered Physicians to execute and deliver to
PHC-SUB a guaranty of payment of such physician's PHYSICIAN GENERAL MANAGEMENT
FEE for the first five (5) years of this Agreement in the form attached hereto.
Notwithstanding the foregoing, in the event of death or permanent disability of
a physician Service Provider Employee, the guarantee of payment of such
physician's PHYSICIAN GENERAL MANAGEMENT FEE for the first five (5) years of
this Agreement shall be released; provided, however, that in such event the
Joint Policy Board shall agree to the addition of a New Service Provider
Employee if so requested by PHC-SUB.
48
<PAGE>
TABLE 1 TO EXHIBIT 7.1
----------------------
PARKCREST PHYSICIAN EXPENSE AND COMPENSATION FORMULA
SEE ATTACHED
49
<PAGE>
TABLE 2 TO EXHIBIT 7.1
----------------------
ORIGINAL PHYSICIAN SERVICE PROVIDER EMPLOYEES AND FEE ELEMENTS
<TABLE>
<CAPTION>
ORIGINAL PHYSICIAN GENERAL
SERVICE PROVIDER INITIAL GENERAL MANAGEMENT FEE BASELINE PHYSICIAN NET
EMPLOYEE MANAGEMENT FEE PRECENTAGE INCOME
- ------------------- --------------- --------------- ----------------------
<S> <C> <C> <C>
Donald Bassman, M.D. $ 25,000 4.7% $529,189
David Caplin, M.D. $100,000 14.4% $694,026
James Emanuel, M.D. $100,000 12.8% $779,977
Cesar Gomez, M.D. $ 30,000 14.6% $206,117
Glen Johnson, M.D. $ 36,000 12.4% $290,728
Kurt Kaufman, .D.P.M. $100,000 61.9% $161,534
Alan Londe, M.D. $ 40,000 12.6% $318,149
Stanley L. London, M.D. $ 12,000 5.2% $231,970
Mark Ludwig, M.D. $ 38,000 13.8% $274,432
Patricia McGuire, M.D. $ 30,000 10.7% $280,034
Charles Nathan, M.D. $ 15,000 11.9% $125,878
Diane Radford, M.D. $ 18,000 10.9% $165,878
Marlys Schuh, M.D. $ 60,000 19.8% $303,353
Sandra Tate, M.D. $ 27,000 16.3% $166,092
- ------------------------- --------
Total $631,000
</TABLE>
PHC, PHC-SUB and Service Provider hereby agree to amend this Baseline
Physician Net Income Table 2 to Exhibit 7.1 on or prior to January 31, 1998 to
reflect the estimated fiscal year end March 31, 1998 physician net income
amounts for such physicians, as determined in good faith by Service Provider.
50
<PAGE>
EXHIBIT 7.2
RECRUITMENT AND PRODUCTIVITY INCENTIVES
---------------------------------------
I. COVERED PHYSICIANS WHO ARE ORIGINAL PHYSICIAN SERVICE PROVIDER
--------------------------------------------------------------
EMPLOYEES
---------
A. At the end of the seventh year of the Agreement, the physician
will be granted the following:
Options to purchase 200 shares of common stock of PHC at the
then-current share price at the end of year seven for each $1,000
of management fees generated by the physician during year seven
of the Agreement. Twenty-five percent (25%) of the options
earned in year seven would vest annually at the end of each of
the four years after the year in which they were earned (i.e.,
the end of years eight through eleven).
B. At the end of year eleven of the Agreement, the physician will be
granted options to purchase the following number of shares of the common
stock of PHC at the then-current share price:
Three (3) times the management fees generated by the physician in
year eleven divided by the current market price per share of PHC
Stock at the end of year eleven (e.g., if the Physician generates
$100,000 in management fees in year eleven and the price per
share of PHC Stock at the end of year eleven is $30, then the
Physician would be granted options to purchase [3 x 100,000]/30
= 10,000 shares of PHC Stock). Twenty-five percent (25%) of the
options earned in year eleven would vest annually at the end of
each of the four years after the year in which they were earned
(i.e., the end of years twelve through fifteen).
II. PHYSICIANS JOINING THE PRACTICE AFTER THE EFFECTIVE DATE
--------------------------------------------------------
At the end of the fourth year after the new physician joins the practice,
the physician will be granted options to acquire the following number of shares
of PHC Stock:
200 shares per $1,000 of management fees generated by the
physician in year four at the then-current share price at the end
of year four. The options earned in year four would vest pro-
rata annually at the end of each of years five through ten after
the physician joins the practice.
51
<PAGE>
[NOTE: THE GUARANTY FOR STANLEY LONDON, M.D. SHALL HAVE A THREE
(3) YEAR TERM.]
GUARANTY
THIS GUARANTY is made as of the day of , 1997 by [NEW
------ ------------
CORPORATION SHAREHOLDER], an individual resident of the State of Missouri
("Guarantor"), in favor of PHC - Midwest, Inc., a Georgia corporation ("PHC-
SUB") and its affiliates.
ARTICLE I - BACKGROUND AND AGREEMENT
------------------------------------
1.01 Background. PHC-SUB and Guarantor acknowledge that [NEW
----------
CORPORATION], a Missouri corporation (the "Service Provider") has agreed to pay
a General Management Fee (as herein defined) to PHC-SUB in the aggregate amount
of $[ ]. Each party further acknowledges that Guarantor's
--------------------
share of the General Management Fee is equal to the PHYSICIAN'S INITIAL GENERAL
MANAGEMENT FEE (as set forth on TABLE 2 to this EXHIBIT 7.1). It is the
expressed intentions of PHC-SUB and Guarantor that the obligations of Guarantor
hereunder be solely and exclusively a guarantee of Guarantor's PHYSICIAN'S
INITIAL GENERAL MANAGEMENT FEE (plus any expenses). It is further agreed that
Guarantor shall not be liable or responsible directly or indirectly for any
other physician's PHYSICIAN'S INITIAL GENERAL MANAGEMENT FEE. Service Provider
has entered into that certain Practice Management Agreement dated as of
--------
, 1997 (the "PM Agreement"). This Guaranty is executed and
- -------------------
delivered pursuant to Section 7.1(a) of the PM Agreement.
1.02 Statement of Agreement. For and in consideration of the sum of
----------------------
$10.00 and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Guarantor, and for the purpose of seeking to induce
PHC-SUB to enter into the PM Agreement, Guarantor does hereby make the
following guarantees to and agreements with PHC-SUB.
ARTICLE II - GUARANTEES
-----------------------
2.01 Guaranty of Payment. Except as limited by Sections 2.02 and 4.05
-------------------
below, (a) Guarantor does hereby unconditionally guarantee to PHC-SUB the full
and prompt payment when due of an amount not to exceed up to $[PHYSICIAN'S
INITIAL GENERAL MANAGEMENT FEE] per year (the "Fee Amount"), which Fee Amount
represents Guarantor's share of the General Management Fee payable by the
Service Provider to PHC-SUB pursuant to Section 7.1(a) of the PM Agreement (the
"General Management Fee") when due, during the five (5) year period following
the date hereof; (b) Guarantor does hereby agree that if Service Provider does
not pay Guarantor's share of the General Management Fee as required by the PM
Agreement, Guarantor will immediately make such payments and (c) Guarantor
further agrees to pay PHC-SUB all expenses (including, without limitation,
reasonable attorneys' fees actually paid) paid by PHC-SUB in endeavoring to
collect all or any portion of the indebtedness evidenced by the General
Management Fee, to enforce any other obligations guaranteed hereby, or to
enforce this Guaranty.
52
<PAGE>
2.02 Limitations on Guaranty. Notwithstanding anything to the contrary in
-----------------------
this Guaranty, (a) PHC-SUB shall not be entitled to enforce its rights under
this Guaranty against Guarantor if Guarantor is then generating sufficient net
revenues for Service Provider to pay Guarantor's share of the General Management
Fee equal to the Fee Amount, or Service Provider otherwise causes to be paid the
entire General Management Fee; and (b) PHC-SUB shall not be entitled to enforce
its rights under this Guaranty as to any portion of the General Management Fees
first becoming due after the date on which Guarantor dies or becomes
"Permanently Disabled" or if this Guaranty is terminated pursuant to Section
4.05 hereof. For the purpose of this Agreement, Permanent Disability or
Permanently Disabled shall have the same meaning as is given to the term in the
permanent disability policy maintained by the Guarantor for himself or herself
on the date of such permanent disability, provided the physician has such a
policy and provided the policy is a commercially reasonable one, or, in the
event no such policy exists, then permanent disability shall be determined by an
independent physician mutually agreed upon between Guarantor (or his/her
representative, if he/she is unable) and PHC-SUB.
ARTICLE III - AGREEMENTS AND WARRANTIES
---------------------------------------
3.01 Consents. Guarantor hereby consents and agrees that PHC-SUB may at
--------
any time, and from time to time, without notice to or further consent from
Guarantor, either with or without consideration: release and surrender any
property or other security of any kind or nature whatsoever hereafter held by it
or by any person or entity on its behalf or for its account, securing any
indebtedness or liability hereby guaranteed, if any; extend or renew the time
for payment of the General Management Fee for any period; grant releases,
compromises and indulgences with respect to the General Management Fee to any
other persons or entities now or hereafter liable thereunder or hereunder;
release any other guarantor or endorser of or other person or entity liable for
the General Management Fee; or take or fail to take any action of any type
whatsoever. No such action which PHC-SUB shall take or fail to take in
connection with the General Management Fee, nor any course of dealing with the
Service Provider or any other person, shall limit, impair or release Guarantor's
obligations hereunder, affect this Guaranty in any way or afford Guarantor any
recourse against PHC-SUB. Nothing contained in this section shall be construed
to require PHC-SUB to take or refrain from taking any action referred to herein.
3.02 Waiver. Guarantor hereby expressly waives any right of contribution
------
from or indemnity against the Service Provider, whether at law or in equity,
arising from any payments made by Guarantor pursuant to the terms of this
Guaranty, and Guarantor acknowledges that Guarantor has no right whatsoever to
proceed against the Service Provider for reimbursement of any such payments.
3.03 Waiver of Defenses. Guarantor hereby waives and agrees not to assert
------------------
or take advantage of any defense based upon: (a) any incapacity or lack of
authority (b) any failure of PHC-SUB to commence an action against the Service
Provider or any other person or entity (including, without limitation, other
guarantors, if any), or to file or enforce a claim against the estate (either in
administration, bankruptcy, or any other proceeding) of the Service Provider or
any other person or entity, whether or not demand is made upon PHC-SUB to file
or enforce such claim; (c) any lack of acceptance or notice of acceptance of
this Guaranty by PHC-SUB; (d) any
53
<PAGE>
lack of presentment, demand, protest, or notice of demand, protest or nonpayment
with respect to any indebtedness or obligations under the PM Agreement; (e) any
invalidity, irregularity or unenforceability in part, of the PM Agreement; and
(f) any action, occurrence, event or matter consented to by Guarantor under
Section 3.01 hereof, under any other provision hereof, or otherwise.
3.04 Liability of Guarantor. This is a guaranty of payment and
----------------------
performance and not of collection. The liability of Guarantor under this
Guaranty shall be direct and immediate and not conditional or contingent upon
the pursuit of any remedies against the Service Provider or any other person
(including, without limitation, other guarantors, if any). Guarantor waives any
right to require that an action be brought against the Service Provider or any
other person or to require that resort be had to any collateral or to any
balance of any deposit account or credit on the books of PHC-SUB in favor of the
Service Provider or any other person. In the event that, on account of the
Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law
(whether statutory, common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable, the
Service Provider shall be relieved of or fail to incur any debt, obligation or
liability as provided in the PM Agreement, Guarantor shall nevertheless be fully
liable therefor. In the event of a default under the PM Agreement, PHC-SUB
shall have the right to enforce its rights, powers and remedies thereunder or
hereunder, in any order, and all rights, powers and remedies available to PHC-
SUB in such event shall be nonexclusive and cumulative of all other rights,
powers and remedies provided thereunder or hereunder or by law or in equity. If
the indebtedness guaranteed hereby is partially paid by reason of the election
of PHC-SUB to pursue any of the remedies available to PHC-SUB, or is otherwise
partially paid, this Guaranty shall nevertheless remain in full force and
effect, and Guarantor shall remain liable for the entire remaining unpaid
balance of the indebtedness guaranteed hereby, even though any rights which
Guarantor may have against the Service Provider may be destroyed or diminished
by the exercise of any such remedy.
ARTICLE IV - GENERAL CONDITIONS
-------------------------------
4.01 Irrevocability and Revival. Subject to the termination provisions
--------------------------
contained in Section 4.05, this Guaranty shall be irrevocable by Guarantor and
shall remain in effect until all indebtedness guaranteed hereby has been
completely repaid. This Guaranty shall continue to be effective or be revived
and reinstated, as the case may be, in the event that any payment received by
PHC-SUB of any of the indebtedness guaranteed hereby is returned or rescinded by
reason of any present or future federal, state or other law or regulation
relating to bankruptcy, insolvency or other relief of debtors or for any other
reason.
4.02 Limit of Validity. If from any circumstances whatsoever fulfillment
-----------------
of any provisions of this Guaranty, at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently
prescribed by any applicable usury statute or any other applicable law, with
regard to obligations of like character and amount, then ipso facto the
---- -----
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Guaranty that is in
excess of the current limit of such validity, but such obligation shall be
fulfilled to the limit of such validity. The provisions of this section shall
54
<PAGE>
control every other provision of this Guaranty.
4.03 Applicable Law. This Guaranty shall be interpreted, construed and
--------------
enforced according to the laws of the State of Georgia.
4.04 Miscellaneous. This Guaranty may not be changed orally, and no
-------------
obligation of Guarantor can be released or waived by PHC-SUB or any officer or
agent of PHC-SUB, except by a writing signed by a duly authorized officer of
PHC-SUB. Guarantor has executed this Guaranty individually and not as a partner
of the Service Provider or any other guarantor. All personal pronouns used
herein, whether used in the masculine, feminine or neuter gender, shall include
all other genders; and the singular shall include the plural and vice versa.
Titles of articles and sections are for convenience only and in no way define,
limit, amplify or describe the scope or intent of any provisions hereof. This
Guaranty contains the entire agreement between Guarantor and PHC-SUB relating to
the guarantying of the General Management Fee by Guarantor and supersedes
entirely any and all prior written or oral agreements with respect thereto; and
Guarantor and PHC-SUB acknowledge that there are no contemporaneous oral
agreements with respect to the subject matter hereof.
4.05 Termination. This Guaranty shall terminate on the later of (a) the
-----------
fifth anniversary of the date hereof or (b) the date that Guarantor's Fee Amount
(plus any applicable expenses as provided herein) of Guarantor's share of the
General Management Fee payable during such period have been paid. Prior
thereto, this Guaranty may be terminated at any time and for any reason by
Guarantor paying to PHC-SUB (or its assigns) Guarantor's portion of delinquent
management fees, if any, plus the following percentage of all shares of PHC
Prime Common Stock (or of PHC Common Stock, if PHC Prime Common Stock has been
converted to Common Stock) (either, "PHC Stock") free and clear of all claims,
liens and encumbrances:
During Year 1 100%
During Year 2 80%
During Year 3 60%
During Year 4 40%
During Year 5 20%
In addition, this Guaranty shall terminate on the date of the death or
permanent disability of Guarantor and the date on which all amounts payable
hereunder have been paid in full by Guarantor. Such termination shall not
require the return of any PHC Stock.
55
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the date first above written.
__________________________(SEAL)
Name:_____________________
56
<PAGE>
EXHIBIT 7.4(D)
SECURITY AGREEMENT
This Security Agreement and the conveyances contemplated herein (the
"Security Agreement") are intended to constitute a written security agreement as
required under the Uniform Commercial Code as enacted in the State of Georgia.
1.1 DEFINITIONS. For all purposes of this Security Agreement the following
terms shall have the meanings set forth below:
"Debtor" means [NEW CORPORATION], a Missouri corporation.
"Collateral" means and includes all of the Debtor's right, title and
interest in and to the accounts receivable of the Debtor, but shall not include
any funds properly delivered by the Secured Party to the Debtor, or to any
person at the direction of the Debtor (other than PHC) pursuant to the terms of
the Practice Management Agreement (as hereinafter defined).
"Default" shall have the meaning set forth in Section 7.1(a) hereof.
"Lien" means, with respect to the property of any Person:
(a) Any mortgage, deed to secure debt, deed of trust, lien, pledge,
charge, lease constituting a capitalized lease obligation, conditional sale
or other title retention agreement, or other security interest, security
title or encumbrance of any kind in respect of any property of such Person,
or upon the income or profits therefrom, or
(b) Any arrangement, express or implied, under which any property of
such person is transferred, sequestered or otherwise identified for the
purpose of subjecting the same to the payment of indebtedness or
performance of any other obligation in priority over the payment of the
general, unsecured creditors of such Person,
(c) Any indebtedness which is unpaid more than thirty (30) days after
the same shall have become due and payable and which if unpaid might by law
(including, but not limited to, bankruptcy and insolvency laws) or
otherwise, be given any priority whatsoever over the claims of general
unsecured creditors of such Person, and
(d) The filing of, or any agreement to give, any financing statement
under the Uniform Commercial Code or its equivalent in any jurisdiction.
"Person" means an individual, corporation, partnership, association, trust
or unincorporated organization, or a government or any agency or political
subdivision thereof.
"Security Interest" means the Liens of the Secured Party on and in the
Collateral effected hereby and pursuant to the terms hereof.
57
<PAGE>
"Secured Party" means PHC - Midwest, Inc., a Georgia corporation.
1.2 OTHER DEFINITIONS. All capitalized terms not otherwise defined in this
Security Agreement shall have the meanings ascribed to them in the Practice
Management Agreement dated as of the date hereof between Secured Party and
Debtor (the "Practice Management Agreement"), which is incorporated herein by
this reference. Whenever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and plural,
and pronouns stated in the masculine, feminine or neuter gender shall include
the masculine, the feminine and the neuter.
2.1 CREATION OF SECURITY INTEREST. In consideration for new value received
by the Debtor from the Secured Party, the Debtor hereby conveys to the Secured
Party, intending to create in favor of and to grant to the Secured Party a first
priority security interest and a continuing Lien upon, all Debtor's right, title
and interest, both legal and equitable, in and to all the Collateral.
2.2 CONTINUED PRIORITY OF SECURITY INTEREST.
(a) The Security Interest granted herein to the Secured Party by the
Debtor shall at all times be first priority, valid, perfected and
enforceable by the Secured Party against the Debtor and all third parties
in accordance with the terms of this Security Agreement.
(b) The Debtor shall, at its cost and expense, take all action that
may be reasonably necessary or desirable in the opinion of the Secured
Party so as at all times to maintain the validity, perfection, and
enforceability of the Security Interest in the Collateral or to enable the
Secured Party to exercise or enforce its rights hereunder, including but
not limited to:
(i) paying all taxes, assessments and other claims lawfully
levied or assessed on any of the Collateral; and
(ii) executing and delivering financing statements in form and
substance reasonably satisfactory to the Secured Party relating to the
creation, validity, perfection, maintenance or continuation of the
Security Interest under the Uniform Commercial Code or other
applicable law.
(c) Upon the failure of the Debtor to do so promptly upon the written
request of the Secured Party, the Secured Party is hereby authorized to
file one or more financing or continuation statements or amendments thereto
without the signature of or in the name of the Debtor for any purpose
described in Section 2.2 hereof.
(d) The Debtor shall mark its books and records as may be reasonably
necessary or appropriate in the opinion of the Secured Party to evidence,
protect and perfect the Security Interest.
58
<PAGE>
(e) The Debtor shall not create in favor of or grant to any person,
firm, corporation or entity, other than the Secured Party, a security
interest in the Debtor's right, title and interest, both legal and
equitable, in and to all the Collateral without receipt of the Secured
Party's prior written consent.
3.1 OWNERSHIP AND DEFENSE OF TITLE. The Debtor shall at all times be the
sole owner of each and every item of Collateral and shall not create any lien
on, or sell, lease, exchange, assign, transfer, pledge, hypothecate, grant a
security interest or security title in or otherwise dispose of, any of the
Collateral or any interest therein, except for the collection of cash for
Accounts in the ordinary course of business.
4.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEBTOR.
(a) The Debtor warrants that the Debtor's name is [NEW CORPORATION]
and that the Debtor is a corporation organized under the laws of the State
of Missouri having its principal place of business located at
_______________________________________.
(b) The Debtor covenants and agrees that the Debtor will furnish the
Secured Party with notice of any change in name, identity, legal structure,
and principal place of business of the Debtor within thirty (30) days of
the effective date of any such change, and the Debtor will promptly execute
any financing statements or other instruments or documents deemed
reasonably necessary by the Secured Party to prevent any filed financing
statement from becoming misleading or losing its perfected status.
5.1 LOCATION OF OFFICES; COLLATERAL. The Debtor will not change the
location of its principal place of business or the place where it keeps its
books and records relating to the Collateral without giving the Secured Party at
least ten (10) days' prior written notice thereof.
6.1 RECORDS RELATING TO COLLATERAL.
(a) The Debtor will at all times keep complete and accurate records of
all the Collateral.
(b) The Debtor will make such information available for inspection by
the Secured Party at the offices of the Debtor upon the receipt by the
Debtor of at least five (5) days' prior written notice from the Secured
Party.
7.1 DEFAULT.
(a) Any of the following events shall constitute a default by the
Debtor under this Security Agreement ("Default"):
(i) The Debtor's failure to comply with any material provision of
this Security Agreement or the Practice Management Agreement;
(ii) A general assignment by the Debtor for the benefit of its
59
<PAGE>
creditors or the commencement of any proceeding, voluntary or
involuntary, under the federal Bankruptcy Code or any other law
existing for the relief of creditors by or against the Debtor, which
if involuntarily is not stayed;
(iii) Appointment of a receiver or trustee for the Debtor or the
institution of any proceeding for the dissolution or the full or
partial liquidation of the Debtor, unless set aside within sixty (60)
days after; or
(iv) Any sale or transfer, directly or indirectly, of
substantially all the stock or assets of the Debtor without the prior
written consent of the Secured Party.
(b) Whenever a Default shall be existing under the terms hereof, the
Secured Party may exercise from time to time any rights and remedies
available to it under the Secured Obligations or under applicable law only
after the receipt by the Debtor of five (5) calendar days prior written
notice from the Secured Party of the Secured Party's intent to exercise
such rights and remedies and the Debtor has failed reasonably to cure such
default within such five (5) day period.
8.1 MISCELLANEOUS.
(a) Severability. If any term, covenant, condition or provision of
------------
this Security Agreement, or the application thereof to any party or
circumstance shall to any extent be held invalid or unenforceable by a
judicial order, the remainder of the Security Agreement or application of
such term or provision to parties or circumstances other than those as to
which it is held invalid or unenforceable shall not be affected thereby,
and each term, covenant, condition or provision of this Security Agreement
shall be valid and be enforced to the fullest extent permitted by
Applicable Law. In the event that any provision of this Security Agreement
relating to the term, geographic territory or business activities
encompassed by the restrictions hereto shall exceed the maximum which a
court of competent jurisdictions or any such other addresses as the party
to whom the notice is to be sent may from time to time designate in
writing.
(b) Assigns. This Security Agreement shall be binding upon and inure
-------
to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither party may assign or delegate any rights or
duties hereunder without the consent of the other party.
(c) Applicable Law. This Security Agreement shall be governed,
--------------
construed and enforced in accordance with the laws of the State of Georgia
without regard to its applicable principles of conflicts of laws.
(d) Headings. The headings of the paragraphs of this Security
--------
Agreement are inserted as a matter of convenience and for reference
purposes only and in no respect define, limit or describe the scope of this
Security Agreement or the intent of any paragraph hereof.
60
<PAGE>
(e) Entire Agreement. This Security Agreement may only be amended,
----------------
supplemented or changed only by an agreement in writing which makes
specific reference to this Security Agreement and which is signed by the
party against whom enforcement of any such amendment, supplement or
modification is sought.
(f) Waiver. Failure of any party to complain of any act or omission
------
on the part of any other party in breach or default of this Security
Agreement, no matter how long the same may continue, and a single or
partial exercise by the Secured Party of any right or remedy, shall not be
deemed to be a waiver by said party its rights hereunder. No waiver by any
party at any time, express or implied, of any breach of any provision of
this Security Agreement shall be deemed a waiver of a breach of any other
provision of this Security Agreement or a consent to any subsequent breach
of the same or other provisions.
(g) Notices. All notices and other communications required or
-------
permitted to be made under this Agreement shall be in writing and deemed
received personally upon actual receipt, or, if sent by registered or
certified mail, proper postage prepaid, five (5) business days after
posting, addressed as follows:
If to the Service Provider: [NEW CORPORATION]
675 Old Ballas Road, Suite 200
St. Louis, Missouri 63141
Attn: President
with a copy to: Gallop, Johnson & Neuman, L.C.
Interco Corporate Tower
101 South Hanley
St. Louis, Missouri 63105
Attn: Randy S. Gerber, Esq.
If to the Secured Party: PHC - Midwest, Inc.
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attn: Daniel M. Epstein, M.D., Esq.
with a copy to: Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326-1044
Attn: John F. Sandy Smith, Esq.
Any party may change the person and address to which notices or other
communications are to be delivered hereunder to such party by giving written
notice of any such change in the manner provided herein for giving notice.
61
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Security Agreement this
day of , 1997.
- ----- -----------
"DEBTOR"
[NEW CORPORATION]
Attest:
By: BY:
------------------- ----------------------
Secretary
TITLE:
--------------------
[Corporate Seal]
"SECURED PARTY"
PHC -Midwest, Inc.
Attest:
By:
By ----------------------
--------------------
Secretary Title:
---------------------
[Corporate Seal]
62
<PAGE>
EXHIBIT 8.4(A)
CERTAIN REPURCHASE AND TERMINATION PROVISIONS
---------------------------------------------
Upon termination of this Agreement pursuant to Section 8.1 or 8.2,
other than pursuant to Section 8.2(a)(v) or 8.2(c)(iv), the Service Provider
shall purchase from PHC-SUB the Repurchase Assets as set forth in Section
8.4(a), except that the Buyout Amount shall be calculated and shall be paid as
follows:
A. TERMINATION DURING FIRST FIVE YEARS. If this Agreement is terminated
during the first five years of this Agreement, the Buyout Amount shall be
determined and paid as follows:
(i) the "fair market value" (as defined below) on the date of
termination of this Agreement of (x) all the shares of PHC Prime Common Stock
(or PHC Common Stock, if the PHC Prime Common Stock has converted into PHC
Common Stock as of the date of termination of this Agreement) paid by PHC
pursuant to the Merger Agreement, minus (y) those shares of PHC stock delivered
pursuant to the Merger Agreement to physicians who are deceased or "permanently
disabled" (as defined in the Guaranty) on the date of termination, minus (z)
those shares of PHC stock previously repaid to PHC as Liquidated Damages (the
"PHC Stock Value");
(ii) if this Agreement is terminated pursuant to Section 8.2(c)(i) or
(ii), or 8.2(d) or 8.2(e), the PHC Stock Value will be reduced by (x) all
General Management Fees paid under this Agreement prior to termination, (y) the
reasonable legal and accounting costs to the Practice to accomplish the
repurchase, and (z) the Service Provider Lost Income Amount (if not otherwise
paid to Service Provider);
(iii) if this Agreement is terminated pursuant to Section 8.2(b), the
PHC Stock Value will be increased by the Sub Lost Income Amount (if not
otherwise paid to PHC-SUB); and
(iv) the PHC Stock Value, as adjusted pursuant to items (ii) and (iii)
above, shall be multiplied by the following amounts based on the date of
termination of this Agreement to determine the Buyout Amount:
During Year 1 of the Agreement: .9
During Year 2 of the Agreement: .8
During Year 3 of the Agreement: .7
During Year 4 of the Agreement: .6
63
<PAGE>
During Year 5 of the Agreement: .5
(v) the Buyout Amount shall be paid in shares of PHC Prime Common
Stock (or PHC Common Stock, if the PHC Prime Common Stock has converted into PHC
Common Stock as of the date of termination of this Agreement) at fair market
value.
B. TERMINATION AFTER FIRST FIVE YEARS. If this Agreement is terminated
after the first five years of this Agreement, the Buyout Amount shall be:
(i) All the PHC Prime Common Stock paid by PHC to the Shareholders
pursuant to the Merger Agreement (the "Merger Agreement Consideration"), less
the number of shares of PHC Prime Common Stock equal to (based on an assumed
$4.00 value per share): (A) the total General Management Fees paid by the
Service Provider prior to such termination; (B) minus the Service Provider Lost
Income Amount (if applicable); (C) plus the PHC-SUB Lost Income Amount (if
applicable); plus or minus (as applicable) the Tangible Asset Cash Adjustment;
provided, however, that the Buyout Amount shall not be less than 50% of the
- -------- -------
Merger Agreement Consideration.
(ii) If prior to the date of Termination of this Agreement, PHC has
completed an initial public offering of PHC Common Stock, the Service Provider
may pay such portion of the Buyout Amount through paying cash in the amount of
$4.00 per share of PHC Prime Common or PHC Common Stock not paid to PHC.
C. GENERAL. For purposes of this Exhibit 8.4(a), "fair market value" of
PHC Prime Common Stock or PHC Common Stock: (i) if determined prior to any
initial public offering of PHC Common Stock, shall be determined by PHC's Board
of Directors in good faith based on the most recently completed sale of PHC
Prime Common Stock (or PHC Common Stock, as applicable) by PHC, and (ii) if
determined after any initial public offering of PHC Common Stock, shall be the
average closing sale price of PHC Common Stock for the ten trading days prior to
the closing of the repurchase.
For purposes of this Exhibit 8.4(a), all share amounts and assumed values
per share shall be adjusted as necessary to reflect any stock splits, dividends,
reverse splits or other recapitalizations to the PHC Prime Common Stock or PHC
Common Stock (as applicable) after the date hereof.
64
<PAGE>
EXHIBIT 10.12
ASSET PURCHASE AGREEMENT
BY AND AMONG
PHYSICIAN HEALTH CORPORATION
A DELAWARE CORPORATION,
PHC REGIONAL ONCOLOGY CARE, INC.
A GEORGIA CORPORATION,
SOUTHERN DEPENDACARE, INC.
AN ALABAMA CORPORATION,
AND
JACK G. HILTON, M.D.
EFFECTIVE AS OF SEPTEMBER 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I...................................................................................... 1
DEFINITIONS................................................................................ 1
ARTICLE II..................................................................................... 4
ASSETS..................................................................................... 5
2.1 Purchase of the Practice Group Assets........................................ 5
-------------------------------------
2.2 Excluded Practice Group Assets............................................... 7
------------------------------
2.3 Closing Date................................................................. 8
------------
2.4 Assumption of Practice Group Liabilities..................................... 8
----------------------------------------
2.5 Closing Date Actions and Deliveries.......................................... 10
-----------------------------------
2.6 Further Assurances........................................................... 10
------------------
2.7 Referrals.................................................................... 11
---------
2.8 Employees.................................................................... 11
---------
ARTICLE III.................................................................................... 11
PURCHASE PRICE, OTHER AGREEMENTS........................................................... 11
3.1 Purchase Price............................................................... 11
--------------
3.2 Government Receivables Advance............................................... 13
------------------------------
3.3 Allocation of Purchase Price................................................. 14
----------------------------
ARTICLE IV..................................................................................... 14
REPRESENTATIONS AND WARRANTIES OF PHYSICIAN
AND PRACTICE GROUP................................................................. 14
4.1 Organization, Standing and Authority of Practice Group....................... 14
------------------------------------------------------
4.2 Absence of Conflicting Agreements or Required Consents Relating to
------------------------------------------------------------------
Physician and Practice Group's Respective Obligations........................ 14
-----------------------------------------------------
4.3 Licenses and Authorizations.................................................. 15
---------------------------
4.4 Lease Agreements............................................................. 15
----------------
4.5 Financial Statements......................................................... 15
--------------------
4.6 Absence of Changes........................................................... 16
------------------
4.7 Litigation and Claims........................................................ 17
---------------------
4.8 No Undisclosed Liabilities................................................... 17
--------------------------
4.9 No Violation of Law, Generally............................................... 17
------------------------------
4.10 Properties................................................................... 19
----------
4.11 Indebtedness................................................................. 20
------------
4.12 Employee Contracts........................................................... 20
------------------
4.13 Labor Relations.............................................................. 21
---------------
4.14 Contracts and Commitments.................................................... 21
-------------------------
4.15 Environmental Protection..................................................... 22
------------------------
4.16 Filing of Reports............................................................ 23
-----------------
4.17 Insurance Policies........................................................... 23
------------------
4.18 Accounts Receivable.......................................................... 23
-------------------
4.19 Accounts Payable............................................................. 24
----------------
4.20 Inventory.................................................................... 24
---------
4.21 Inspections and Investigations............................................... 24
------------------------------
4.22 Ownership of Medical Service Practice(s)..................................... 24
----------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.23 Agreements in Full Force and Effect.......................................... 25
-----------------------------------
4.24 Taxes........................................................................ 25
-----
4.25 Corporate Documents.......................................................... 27
-------------------
4.26 Statements True and Correct.................................................. 27
---------------------------
ARTICLE V...................................................................................... 28
REPRESENTATIONS AND WARRANTIES OF PHC AND PHC-SUB.......................................... 28
5.1 Organization, Standing and Authority of PHC and PHC-SUB...................... 28
-------------------------------------------------------
5.2 Absence of Conflicting Agreement or Required Consents Relating to PHC's
-----------------------------------------------------------------------
Obligations.................................................................. 28
-----------
5.3 Capital Stock of PHC......................................................... 29
--------------------
5.4 Representations Regarding Disclosure Documents............................... 29
----------------------------------------------
5.5 No Violation of Law.......................................................... 30
-------------------
5.6 Litigation and Claims........................................................ 30
---------------------
5.7 Financial Statements of PHC.................................................. 30
---------------------------
5.8 No Violation of Law, Generally............................................... 30
------------------------------
5.9 Filing of Reports............................................................ 31
-----------------
5.10 Taxes........................................................................ 31
-----
5.11 Statements True and Correct.................................................. 32
---------------------------
ARTICLE VI..................................................................................... 33
ADDITIONAL AGREEMENTS...................................................................... 33
6.1 Access and Inspection........................................................ 33
---------------------
6.2 Cooperation in Meeting Filing Requirements................................... 33
------------------------------------------
6.3 Post Closing Audit of Practice Group......................................... 33
------------------------------------
6.4 Audit of PHC-SUB............................................................. 33
----------------
6.5 Further Assurances........................................................... 34
------------------
6.6 Benefit Plans................................................................ 34
-------------
6.7 Best Efforts to Close........................................................ 34
---------------------
ARTICLE VII.................................................................................... 34
CONDUCT OF BUSINESS OF PRACTICE GROUP AND PHYSICIAN
PENDING CLOSING.................................................................... 34
7.1 Disposition of Assets........................................................ 34
---------------------
7.2 Sale of Shares............................................................... 34
--------------
7.3 Contracts.................................................................... 34
---------
7.4 Condition of Assets.......................................................... 34
-------------------
7.5 Liens; Encumbrances.......................................................... 35
-------------------
ARTICLE VIII................................................................................... 35
CONDITIONS TO OBLIGATIONS OF PHC AND PHC-SUB............................................... 35
8.1 Necessary Approvals.......................................................... 35
-------------------
8.2 Representations and Warranties............................................... 35
------------------------------
8.3 Performance; Covenants....................................................... 35
----------------------
8.4 Closing Deliveries........................................................... 35
------------------
8.5 PHC Due Diligence............................................................ 37
-----------------
ARTICLE IX..................................................................................... 37
CONDITIONS TO OBLIGATIONS OF PHYSICIAN AND PRACTICE GROUP.................................. 37
9.1 Representations and Warranties............................................... 37
------------------------------
9.2 Performance; Covenants....................................................... 37
----------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
9.3 Closing Deliveries........................................................... 37
------------------
ARTICLE X...................................................................................... 39
INDEMNIFICATION............................................................................ 39
10.1 Indemnification by Physician................................................. 39
----------------------------
10.2 Indemnification by PHC and PHC-SUB........................................... 39
----------------------------------
10.3 Definition of Losses......................................................... 40
--------------------
10.4 Notice and Opportunity to Defend............................................. 40
--------------------------------
10.5 Effect of Investigation by PHC............................................... 41
------------------------------
ARTICLE XI..................................................................................... 42
MISCELLANEOUS PROVISIONS................................................................... 42
11.1 Notices...................................................................... 42
-------
11.2 Successors and Assigns....................................................... 43
----------------------
11.3 Entire Agreement............................................................. 43
----------------
11.4 Governing Law; Severability.................................................. 44
---------------------------
11.5 No Brokers................................................................... 44
----------
11.6 Schedules and Exhibits....................................................... 44
----------------------
11.7 Waivers...................................................................... 44
-------
11.8 Headings..................................................................... 44
--------
11.9 Counterparts................................................................. 44
------------
11.10 Confidentiality.............................................................. 44
---------------
11.12 Expenses..................................................................... 46
--------
11.13 No Third Party Beneficiaries................................................. 46
----------------------------
11.14 Survival..................................................................... 46
--------
11.15 Post Closing Covenants of Physician.......................................... 46
-----------------------------------
11.16 Post Closing Covenants of PHC and PHC-SUB.................................... 47
------------------------------------------
</TABLE>
iii
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A Assignment and Assumption Agreement
- ---------
EXHIBIT B-1 Physician Owner Employment Agreement
- -----------
EXHIBIT B-2 Physician Employment Agreements
- -----------
EXHIBIT B-3 Termination of Professional Employment and General Release
- ----------- Agreements
EXHIBIT C Acquisition Restrictive Covenant Agreement
- ---------
EXHIBIT D Practice Management Agreement
- ---------
EXHIBIT E-1 Opinion of Counsel of Practice Group
- -----------
EXHIBIT E-2 Opinion of Alabama Counsel of Practice Group
- -----------
EXHIBIT F Investment Agreement
- ---------
EXHIBIT G Registration Rights Agreement
- ---------
EXHIBIT H-1 Opinion of Counsel of PHC and PHC-SUB
- -----------
EXHIBIT H-2 Opinion of Georgia Counsel of PHC-SUB
- -----------
EXHIBIT I-1 First Promissory Note
- -----------
EXHIBIT I-2 Second Promissory Note
- -----------
EXHIBIT J Receivables Promissory Note
- ---------
EXHIBIT K Government Receivables Security Agreement
- ---------
iv
<PAGE>
LIST OF SCHEDULES
-----------------
SCHEDULE 2.1(h) Fixtures, Furniture, Equipment, Supplies and Inventory
- ---------------
SCHEDULE 2.2(e) Contracts Not Assumed
- ---------------
SCHEDULE 2.2(h) Excluded Assets - Equipment and Personal Property
- ---------------
SCHEDULE 2.4(a)(i) Liabilities Assumed
- ------------------
SCHEDULE 2.8 Offers of Employment
- ------------
SCHEDULE 4.2 Required Consents Relating to Seller's Obligations
- ------------
SCHEDULE 4.3 Licenses and Authorizations
- ------------
SCHEDULE 4.4 Lease and License Agreements
- ------------
SCHEDULE 4.5 Financial Statements of Practice Group
- ------------
SCHEDULE 4.6 Absence of Changes
- ------------
SCHEDULE 4.7 Litigation and Claims
- ------------
SCHEDULE 4.8 Undisclosed Liabilities
- ------------
SCHEDULE 4.9(a) Violations of Law
- ---------------
SCHEDULE 4.9(b)(i) Exceptions to Billing Practices
- ------------------
SCHEDULE 4.9(b)(ii) Exceptions to Regulatory Compliance
- -------------------
SCHEDULE 4.9(c) Transactions with Referral Sources
- ---------------
SCHEDULE 4.10(a) Owned Assets
- ----------------
SCHEDULE 4.10(b) Leased Equipment
- ----------------
SCHEDULE 4.10(c) Equipment, Utility and Other Deposits
- ----------------
SCHEDULE 4.10(d) Exceptions to Title to Assets
- ----------------
SCHEDULE 4.11 Indebtedness
- -------------
SCHEDULE 4.12 Employment Contracts, Union Agreements and Benefit Plans
- -------------
SCHEDULE 4.13 Exceptions to Labor Relations
- -------------
v
<PAGE>
SCHEDULE 4.14 Contracts and Agreements of Practice Group
- -------------
SCHEDULE 4.15 Environmental Protection
- -------------
SCHEDULE 4.17 Insurance Policies
- -------------
SCHEDULE 4.18.1 Private Accounts Receivable
- ---------------
SCHEDULE 4.18.2 Government Accounts Receivable
- ---------------
SCHEDULE 4.19 Accounts Payable
- -------------
SCHEDULE 4.21 Inspections and Investigations
- -------------
SCHEDULE 4.22 Ownership of Medical Service Practice(s)
- -------------
SCHEDULE 4.24 Taxes
- -------------
SCHEDULE 5.2 Absence of Conflicting Agreement or Retired Consents
- ------------
SCHEDULE 5.3 PHC Capital Stock
- ------------
SCHEDULE 5.6 Litigation and Claims of PHC and PHC-SUB
- ------------
SCHEDULE 5.7 Financial Statements of PHC
- ------------
SCHEDULE 5.9 Taxes
- ------------
SCHEDULE 7.1 Disposition of Assets
- ------------
vi
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into to
be effective as of September 1, 1997, by and between Physician Health
Corporation, a Delaware corporation ("PHC"), PHC Regional Oncology Care, Inc., a
Georgia corporation ("PHC-SUB"), Southern Dependacare, Inc., an Alabama
corporation ("Practice Group"), and Jack G. Hilton, M.D. ("Physician").
R E C I T A L S:
---------------
WHEREAS, Practice Group is currently engaged in the practice of medicine
specializing in oncology in the areas of Carbondale, Illinois; Marion, Illinois;
Abingdon, Virginia; and Natchez, Mississippi, (collectively, the "Practice Group
Business"); and
WHEREAS, PHC-SUB wishes to acquire, and Practice Group wishes to sell,
substantially all of the tangible and intangible assets associated with the
Practice Group Business as more specifically set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, it is hereby agreed between Practice Group, Physician,
PHC and PHC-SUB:
ARTICLE I
DEFINITIONS
-----------
Definitions. As used in this Agreement, the following terms shall have the
-----------
meanings set forth below:
"Agreement" shall have the meaning set forth in the preamble.
"Allocation Schedule" shall have the meaning set forth in Section 3.3.
-----------
"Assumed Contract" shall have the meaning set forth in Section 2.4(a)(ii).
------------------
"Cap Amount" shall have the meaning set forth in Section 10.4(b).
---------------
"Cash Payment" shall have the meaning set forth in Section 3.1(a).
--------------
"CHAMPUS" shall have the meaning set forth in Section 10.4(b).
---------------
"CHAMPVA" shall have the meaning set forth in Section 10.4(b).
---------------
"Closing" shall have the meaning set forth in Section 2.3.
-----------
"Closing Date" shall have the meaning set forth in Section 2.3.
-----------
"Code" shall be defined as the Internal Revenue Code of 1986, as amended,
and any successor statute thereto.
"Contract Not Assumed" shall have the meaning as set forth in Section
-------
2.2(e).
------
"Due Diligence Inspection" shall have the meaning as set forth in Section
-------
6.1.
---
1
<PAGE>
"Effective Date" shall mean September 1, 1997.
"ERISA" shall be defined as the Employee Retirement Income Security Act of
1974, as amended.
"Excluded Government Receivables" shall have the meaning set forth in
Section 4.9(b)(i).
-----------------
"Excluded Practice Group Assets" shall have the meaning set forth in
Section 2.2.
-----------
"First Promissory Note" shall have the meaning set forth in Section
-------
3.1(b)(i).
---------
"Former SDC Workforce" shall have the meaning set forth in Section 2.8.
-----------
"Fraud and Abuse Statute" shall have the meaning set forth in Section
-------
4.9(b)(ii).
----------
"Government Accounts Receivable" shall have the meaning set forth in
Section 4.18.
------------
"Government Receivables Advance" shall have the meaning set forth in
Section 3.2(a).
--------------
"Government Receivables Security Agreement" shall have the meaning set
forth in Section 3.2(b).
--------------
"Indemnified Party" shall have the meaning as set forth in Section 10.4(a).
---------------
"Indemnifying Party" shall have the meaning as set forth in Section
10.4(a).
-------
"Interim Financial Date" shall have the meaning set forth in Section 4.5.
-----------
"Interim Financial Statements" shall have the meaning set forth in Section
-------
4.5.
---
"Investment Agreement" shall mean that certain Investment Agreement,
attached hereto as Exhibit F, dated as of the 12/th/ day of September, 1997
---------
by and between PHC and Physician.
"Lease Agreements" shall have the meaning set forth in Section 4.4.
-----------
"Leased Equipment" shall have the meaning set forth in Section 4.10(b).
---------------
"Losses" shall have the meaning set forth in Section 10.3.
------------
"Material Adverse Effect" shall have the meaning set forth in Section
-------
4.6(a).
------
"Medicare Withheld Amount" shall have the meaning set forth in Section
-------
2.2(i).
------
"Payment Account" shall have the meaning set forth in Section 3.2(c).
--------------
"PHC Financial Statements" shall have the meaning set forth in Section 5.7.
-----------
"PHC Common Shares" shall mean PHC's Voting Common Stock, $.0025 par value,
20,000,000 shares authorized, of which 4,463,964 shares are issued and
outstanding as of September 2, 1997.
"PHC Prime Shares" shall mean PHC's Prime Common Stock, $.0025 par value,
20,000,000 shares authorized, of which 3,112,166 shares are issued and
outstanding as of September 2, 1997.
2
<PAGE>
"PHC-SUB" shall have the meaning set forth in the preamble to this
Agreement.
"Physician Employment Agreement" shall mean each Employment Agreement,
attached hereto as Exhibit B-2, by and between each Practice and the
-----------
physician to be employed by the Practice.
"Physician Owner Employment Agreement" shall mean that certain Employment
Agreement, attached hereto as Exhibit B-1, dated as of the 12/th/ day of
-----------
September, 1997, by and between Physician and PHC-SUB.
"Practice" shall mean each of PHC-Illinois 1, S.C., an Illinois medical
corporation, ("IL-SC"), SDC's Virginia Operations ("SDC-VA"), and PHC-
Mississippi, P.L.L.C., a Mississippi professional liability company ("MS-
PLLC"). IL-SC,SDC-VA and MS-PLLC shall be collectively referred to herein
as the "Practices".
"Practice Group" shall have the meaning set forth in the preamble to this
Agreement.
"Practice Group Assets" shall have the meaning set forth in Section 2.1.
-----------
"Practice Group Assumed Liabilities" shall have the meaning set forth in
Section 2.4.
-----------
"Practice Group Business" shall have the meaning set forth in the recitals
to this Agreement.
"Practice Group's Financial Statements" shall have the meaning set forth in
Section 4.5.
-----------
"Practice Management Agreement" shall mean that certain Practice Management
Agreement, attached hereto as Exhibit D, effective as of the 12/th/ day of
---------
September, 1997, by and among PHC, PHC-SUB, and the Practices.
"Private Accounts Receivable" shall have the meaning set forth in Section
-------
4.18.
----
"Professional Agreements" shall be defined collectively as the Physician
Owner Employment Agreement and the Physician Employment Agreement.
"Promissory Notes" shall be defined collectively as the First Promissory
Note and the Second Promissory Note.
"Purchase Price" shall have the meaning set forth in Section 3.1.
-----------
"Receivables Promissory Note" shall have the meaning set forth in Section
-------
3.2(a).
------
"Required Consents" shall have the meaning set forth in Section 2.4(a).
--------------
"SDC's Virginia Operations" shall mean the offices rendering medical
services and qualified to do business in the State of Virginia as a
division of Practice Group.
"Second Promissory Note" shall have the meaning set forth in Section
-------
3.1(b)(i).
---------
"Tax(es)" shall have the meaning set forth in Section 4.24(a).
---------------
"Tax Returns" shall have the meaning set forth in Section 4.24(b).
---------------
"Transaction Documents" shall have the meaning set forth in Section 4.1.
-----------
3
<PAGE>
ARTICLE II
ASSETS
------
2.1 Purchase of the Practice Group Assets. Upon the terms and subject to
-------------------------------------
the conditions of this Agreement, PHC-SUB hereby purchases, and Practice Group
hereby sells, transfers, assigns, conveys and delivers to PHC-SUB, free and
clear of all encumbrances, liens and obligations (excepting only the Practice
Group Assumed Liabilities, as defined herein), a 100% undivided interest in all
of the assets and properties (excepting only the Excluded Practice Group Assets,
as defined herein) of every kind and description, wherever located, real,
personal or mixed, tangible or intangible, owned or held by Practice Group
relating to the Practice Group Business as the same shall exist on the Closing
Date (collectively, the "Practice Group Assets"), including, without limitation,
all right, title and interest of Practice Group in, to and under:
(a) The real property leases, leasehold improvements and personal property
leases listed or described in SCHEDULE 4.4;
------------
(b) All trademarks, trade names, service marks and copyrights (and all
goodwill associated with such trademarks, trade names, service marks and
copyrights), registered or unregistered, owned by Practice Group relating to the
Practice Group Business, with the exception of the Practice Group's name of
"Southern Dependacare, Inc.", and the applications for registration thereof and
all patents and applications therefor owned by Practice Group and the licenses
relating to any of the foregoing including, without limitation, the items listed
in SCHEDULE 4.4;
------------
(c) All of Practice Group's rights, claims or causes of action against
third parties arising under warranties from manufacturers, vendors and others in
connection with the Practice Group Assets;
(d) All prepaid expenses arising from payments made by Practice Group in
the ordinary course of the operation of the Practice Group Business prior to the
Closing Date for goods or services where such goods or services have not been
received at the Closing Date;
(e) Excluding patient records, all books and records (including all
computer programs and personnel records of current employees of Practice Group
who are hired by PHC on or following the Closing Date) of Practice Group
relating to the assets, business and operations of the Practice Group Business;
it being understood by all of the parties to this Agreement that Practice Group
and Physician shall have access to such books and records at all reasonable
times, provided, any duplicating or non-employee expense incurred therewith
shall be borne solely by Practice Group;
(f) All telephone and telecopy numbers used by Practice Group in connection
with the Practice Group Business including, without limitation, the following
numbers:
(i) Carbondale, Illinois: (618) 457-4492
(ii) Herrin, Illinois: (618) 942-2171 x255
(iii) Marion, Illinois: (618) 993-1030
(iv) Abingdon, Virginia: (540) 623-9281
(v) Marion, Virginia: (540) 782-1920
(vi) Richlands, Virginia: (540) 963-8122
(vii) Lebanon, Virginia: (540) 889-3906
(viii) Natchez, Mississippi: (601) 442-9210
(g) All goodwill associated with the Practice Group Business and all
intangible assets associated with the conduct of the Practice Group Business,
including Practice Group's workforce in place, with the exception of the
physician employees, business know-how, and information base;
4
<PAGE>
(h) All machinery, equipment (including computers and office equipment),
supplies, inventory, advertising and promotional materials, all collection and
credit records, medical literature, engineering plans, records and data
(excluding patient records as required under applicable law), vehicles,
furniture, office supplies and other personal property of Practice Group used in
or relating to the Practice Group Business including, but not limited to, those
items listed or referred to in SCHEDULE 2.1(h);
---------------
(i) All rights, titles or any property interests, if any, in any inventions
and/or patents developed by Practice Group or any such rights, titles or
property interests subsequently acquired by Practice Group; and
(j) All other assets or properties not referred to above which are
reflected on the Practice Group Financial Statements, except (i) any such assets
or properties disposed of in the ordinary course of business consistent with
past practice since the date of the Interim Financial Statements (as defined
herein) and (ii) the Excluded Practice Group Assets.
The parties acknowledge that the management of the non-medical aspects of
the Practice Group Business will change simultaneously with the closing of the
transactions contemplated hereby. Accordingly, under applicable law and
professional ethical standards appropriate arrangements need to be made for the
custody and maintenance of patient records. Each of the Practices has agreed to
take and retain custody of its respective patient medical records to assure that
the records are properly handled and readily available to patients and their
treating physicians. Practice Group, Physician and each Practice shall
cooperate with and assist in copying any patients' records, to the extent
permitted by applicable law, as necessary to assist PHC-SUB in performing and
enforcing its rights under the power of attorney granted to PHC-SUB by the
Practice Management Agreement. The parties agree and acknowledge that the
patient medical records are subject to legal and ethical principles governing
their confidentiality. Accordingly, to the extent reasonably required, patients
may be requested to sign appropriate record transfer forms.
2.2 Excluded Practice Group Assets. Notwithstanding the foregoing, the
------------------------------
Practice Group Assets shall not include the following (herein referred to as the
"Excluded Practice Group Assets"):
(a) Any of Practice Group's cash and cash equivalents (including any
marketable securities or certificates of deposit) as of the close of business on
the Effective Date;
(b) All claims, rights and interests of Practice Group in and to any
refunds for federal, state or local franchise, income or other taxes or fees of
any nature whatsoever for periods prior to the Effective Date;
(c) Any of Practice Group's rights, claims or causes of action against
third parties relating to the assets, properties, business or operations of the
Practice Group Business arising out of transactions occurring prior to the
Effective Date, except to the extent any such claims relate to the Practice
Group Assets;
(d) Practice Group's corporate records relating to its formation, corporate
tax returns and related documents, and supporting work papers and any other
records and returns relating to taxes, assessments and similar governmental
levies (other than real and personal property taxes, assessments and levies
imposed on the Practice Group Assets), except tax-related records, documents and
work papers relating to the Practice Group Assets, access to which shall be
provided to PHC-SUB during normal business hours;
(e) The contracts, agreements or understandings of Practice Group listed in
SCHEDULE 2.2(e) and designated on such SCHEDULE 2.2(e) as a "Contract Not
- --------------- ---------------
Assumed" and any other contract, agreement or understanding of Practice Group
(i) in existence on the date hereof which is not listed in SCHEDULE 2.2(e) but
---------------
is required to be so listed or (ii) entered into by Practice Group after the
date hereof in violation of ARTICLE VI of this Agreement (each, a "Contract Not
----------
Assumed");
(f) The Government Accounts Receivable;
5
<PAGE>
(g) Any of Practice Group's rights under or pursuant to this Agreement
(including any interests in PHC acquired pursuant to this Agreement) or the
other agreements with PHC contemplated hereby;
(h) Any asset the use of which by PHC or PHC-SUB would be in violation of
Illinois, Virginia, Mississippi or other applicable law, including, but not
limited to, the Practice Group's medical records;
(i) The amount being withheld by the Mississippi Medicare Carrier as of the
Closing Date ("Medicare Withheld Amount"); and
(j) The use of the Practice Group's name of "Southern Dependacare, Inc.".
2.3 Closing Date. The consummation of the transactions contemplated
------------
herein (the "Closing") shall be consummated at 10 a.m. on September 12, 1997
(such date and time being hereinafter called the "Closing Date"), which shall be
effective as of the 1/st/ day of September, 1997, the Effective Date.
2.4 Assumption of Practice Group Liabilities. (a) On the Closing Date,
----------------------------------------
PHC-SUB shall deliver to Practice Group an assignment and assumption agreement,
substantially in the form attached hereto as EXHIBIT A, pursuant to which PHC-
---------
SUB shall assume and be obligated for, and shall agree to pay, perform, defend
and discharge in accordance with their terms:
(i) all liabilities listed in SCHEDULE 2.4(a)(i); and
------------------
(ii) all liabilities of Practice Group arising after the Effective
Date (other than any liability or obligation for breach or default which
occurred prior to the Closing) under the leases, contracts and other
agreements entered into by Practice Group with respect to the Practice
Group Business prior to the date hereof consistent with the terms of
ARTICLE VI of this Agreement (each an "Assumed Contract").
----------
Notwithstanding the foregoing, PHC-SUB shall assume no liability or
obligation arising as a result of the transfer or assignment to PHC-SUB of any
Assumed Contract or agreement contemplated in SECTION 2.4(a)(ii) above without
------------------
any consent required by the terms thereof if PHC, not more than 30 days
following the Closing Date, has indicated to Practice Group, in writing, that
PHC-SUB will not assume such liability or obligation without the consent
required pursuant to the Assumed Contract (such consents being collectively
referred to herein as the "Required Consents"). Such liabilities or obligations
for which consent to transfer is required and not obtained shall be considered a
Practice Expense, as that term is defined in the Practice Management Agreement.
All of the foregoing to be assumed by PHC-SUB under this SECTION 2.4(a)
--------------
are referred to herein as the "Practice Group Assumed Liabilities."
(b) Neither PHC nor PHC-SUB shall assume or be obligated for any, and
Practice Group shall solely retain, pay, perform, defend and discharge all of,
Practice Group's liabilities or obligations of any and every kind whatsoever,
direct or indirect, disclosed or undisclosed, liquidated or unliquidated,
absolute or contingent, not expressly assumed by PHC-SUB under SECTION 2.4(a)
--------------
and, notwithstanding anything to the contrary in SECTION 2.4(a), none of the
--------------
following shall be "Practice Group Assumed Liabilities" for purposes of this
Agreement and Practice Group shall remain responsible for all such matters and
shall indemnify PHC-SUB and PHC with respect thereto:
(i) any liabilities of Practice Group in respect of accounts
payable, accrued equipment rentals, accrued salary, payroll and wages,
accrued sick or vacation pay or accounting and legal fees or expenses, in
each case which arise from the operation of the Practice Group Business or
the ownership of the Practice Group Assets prior to the Effective Date;
6
<PAGE>
(ii) any foreign, federal, state, county or local income,
excise, withholding, property, sales, use, franchise and other taxes which
arise from the operation of the Practice Group Business or the ownership of
the Practice Group Assets prior to the Effective Date;
(iii) except as listed in SCHEDULE 2.4(a)(i), any liability or
------------------
obligation of Practice Group in respect of indebtedness for borrowed money,
including, without limitation, any liability or obligation of Practice
Group owing to any partner or affiliate of Practice Group;
(iv) any costs and expenses incurred by Practice Group
incident to its negotiation and preparation of this Agreement or the other
documents contemplated hereby and its performance and compliance with the
agreements and conditions contained herein or therein;
(v) except to the extent the parties hereto shall otherwise
specifically agree in writing, any liabilities or obligations, whenever
arising, related to, associated with or arising out of the employee benefit
agreements, plans or arrangements listed in SCHEDULE 4.12;
-------------
(vi) any liability or obligation of Practice Group to make or
provide severance pay or benefits to any employee of the Practice Group
Business prior to the Closing Date who is not extending his or her
employment with PHC or PHC-SUB after the Closing Date (it being understood
that nothing contained herein is intended to create any obligation of
Practice Group, PHC-SUB, or PHC to make or provide severance pay or
benefits to any employee);
(vii) any liabilities or obligations arising as a result of the
transfer or assignment of any Practice Group lease, contract or other
agreement entered into by Practice Group with respect to the Practice Group
Business after the date hereof consistent with the terms of ARTICLE V of
---------
this Agreement, in each case without any consent required by the terms
thereof;
(viii) any liabilities in respect of the claims, suits,
proceedings or investigations described in SCHEDULE 4.7 or SECTION 4.9;
------------ -----------
(ix) any of Practice Group's liabilities or obligations under
this Agreement or the other agreements contemplated hereby including,
without limitation, the liabilities and obligations of Practice Group under
the Physician Owner Employment Agreement, as defined herein; and
(x) any of Practice Group's liabilities or obligations in
respect of claims, suits, proceedings or investigations in relation to the
treatment or diagnosis of patients or the failure to treat or diagnose
patients or otherwise in relation to health care services rendered by or on
behalf of Practice Group.
2.5 Closing Date Actions and Deliveries. Upon the terms and subject to
-----------------------------------
the conditions set forth in this Agreement, on the Closing Date:
(a) Practice Group or Physician, as appropriate, shall execute and deliver
(i) a bill of sale and any other appropriate documents evidencing transfer of
the Practice Group Assets, (ii) all of the documents, instruments and opinions
required to be delivered by Practice Group or Physician, as appropriate,
pursuant to this Agreement and (iii) all such other instruments of assignment,
transfer or conveyance as PHC or PHC-SUB may reasonably request or as may be
otherwise necessary to evidence and effect the sale, assignment, transfer and
delivery of the Practice Group Assets to PHC-SUB; and
(b) PHC shall pay the Cash Payment portion of the Purchase Price payable at
Closing. PHC or PHC-SUB, as applicable, shall deliver or execute and deliver (i)
all of the documents and instruments contemplated to be
7
<PAGE>
delivered by PHC or PHC-SUB on the Closing Date pursuant to this Agreement and
(ii) all such other instruments of assignment, transfer or conveyance as
Practice Group may reasonably request or as may be otherwise necessary to
evidence and effect the sale, assignment, transfer and delivery to PHC or PHC-
SUB, as the case may be, of the Practice Group.
2.6 Further Assurances. On the Closing Date, Practice Group shall (a)
------------------
deliver to PHC or PHC-SUB, as the case may be, such other bills of sale, deeds,
endorsements, assignments and other good and sufficient instruments of
conveyance and transfer, in form reasonably satisfactory to PHC and its counsel,
as PHC may reasonably request or as may be otherwise reasonably necessary to
vest in PHC all the right, title and interest of Practice Group in, to or under
any or all of the Practice Group Assets, and (b) take all steps as may be
reasonably necessary to put PHC or PHC-SUB, as the case may be, in actual
possession and control of all the Practice Group Assets. From time to time
following the Closing, Practice Group shall execute and deliver, or cause to be
executed and delivered, to PHC such other instruments of conveyance and transfer
as PHC may reasonably request or as may be otherwise necessary to convey more
effectively and transfer to, and vest in, PHC and put PHC in possession of, any
part of the Practice Group Assets and, in the case of licenses, certificates,
approvals, authorizations, agreements, contracts, leases, easements and other
commitments included in the Practice Group Assets which cannot be transferred or
assigned effectively without the consent of third parties which consent has not
been obtained prior to the Closing, to cooperate with PHC and PHC-SUB at their
reasonable request in endeavoring to obtain such consent. Notwithstanding
anything in this Agreement to the contrary, this Agreement shall not constitute
an agreement to assign any license, certificate, approval, authorization,
agreement, contract, lease, easement or other commitment included in the
Practice Group Assets if (i) such assignment is prohibited by applicable law or
(ii) an attempted assignment thereof without the consent of a third party
thereto would constitute a breach thereof, unless such consent is obtained.
2.7 Referrals. The parties hereto acknowledge and agree that it is not a
---------
purpose of this Agreement or any of the transactions contemplated herein to
exert influence in any way over the reason or judgment of any party hereto with
respect to the referral of patients or business of any nature whatsoever, and
that neither Practice Group nor Physician are under any obligation whatsoever to
refer any patients or business to PHC or a parent, subsidiary or affiliate of
PHC. Likewise, neither PHC nor any of its parent, subsidiaries or affiliates
are under any obligation whatsoever to refer any patients or business to
Practice Group or its partners or any of their parents, subsidiaries or
affiliates (as applicable). It is the intent of all parties hereto that any
referrals made among them will continue to be based on the medical judgment and
discretion of individual physicians acting in the best interests of the
pertinent patient.
2.8 Employees. The parties acknowledge and agree that Practice Group
---------
intends to terminate all of its employees immediately prior to the Closing Date.
PHC-SUB shall offer "at will" employment to all personnel of Practice Group
listed on SCHEDULE 2.8 attached hereto (collectively, the "Former SDC
------------
Workforce") provided that all Former SDC Workforce: (i) are immediately able
and qualified to perform the available work and (ii) demonstrate that they are
authorized to work in compliance with the Immigration Reform and Control Act of
1986, as amended. All Former SDC Workforce so hired shall be considered "new
hires" by PHC-SUB for all purposes and PHC-SUB shall establish all terms and
conditions relating to their employment. Notwithstanding the foregoing, the
date each employee was hired by the Practice Group Business will be used by PHC-
SUB for purposes of determination of eligibility and vesting under all employee
benefit plans of PHC-SUB for which such employees are eligible, and such
employees shall be initially compensated at the same or greater salary or hourly
wage as they received from Practice Group immediately prior to the Closing Date.
PHC-SUB shall not, unless it specifically agrees to do so in writing, assume any
past or future obligations of Practice Group to such employees, including
specifically by way of example, and not limitation, any obligations to pay
severance pay to such employees or to provide COBRA continuation benefits, and
such obligations shall be and remain obligations of Practice Group. Nothing
contained in this SECTION 2.8 or elsewhere in this Agreement shall obligate PHC-
-----------
SUB to continue to employ any such former employees for any length of time, and
the employment of any such former employees by PHC-SUB, if any, shall be
terminable at will for any or no reason at any time after the Closing Date.
8
<PAGE>
ARTICLE III
PURCHASE PRICE, OTHER AGREEMENTS
--------------------------------
3.1 Purchase Price. The purchase price for the Purchased Assets (the
--------------
"Purchase Price") shall be payable as follows:
(a) Three Million Seven Hundred Seven Thousand Two Hundred and No/100
Dollars ($3,707,200) paid by PHC to Practice Group at the Closing in cash or
other immediately available funds (the "Cash Payment");
(b) The product of 19.6% multiplied by the sum of the Private Accounts
Receivable and the Government Accounts Receivable, as of the Effective Date, not
to exceed One Hundred Seventy Five Thousand and No/100 Dollars ($175,000)
payable by PHC on April 15, 1998;
(c) An aggregate of $1,440,000 paid pursuant to the terms of two promissory
notes, which shall be executed and delivered by PHC-SUB at Closing,
substantially in the forms attached hereto as EXHIBIT I-1 (the "First Promissory
-----------
Note") and EXHIBIT I-2 (the "Second Promissory Note") (collectively, the
-----------
"Promissory Notes"), which shall bear interest at the rate of 7% per annum. In
addition:
(i) the First Promissory Note in the amount of $720,000 to Practice
Group shall be payable in full 24 months after the Closing Date; and
(ii) the Second Promissory Note in the amount of $720,000 to Practice
Group shall be payable in full 36 months after the Closing Date;
(d) 432,000 of the PHC Prime Shares;
(e) Within 120 days after the fourth anniversary of the Effective Date,
based upon the General Management Fees (as defined in the Practice Management
Agreement) as determined by the Atlanta, Georgia office of Arthur Andersen, LLP,
and under the following terms and conditions:
(i) $1,600,000 shall be paid to SDC, or its designee, upon the
receipt by PHC-SUB of General Management Fees from the first through the
fourth year of operations of the Practices in the cumulative amount of at
least $12,000,000; or
(ii) If PHC-SUB has not received a cumulative amount of at least
$12,000,000 in General Management Fees from the first through the fourth
years of operations of the Practices, but it has received no less than
$7,200,000 and no more than $9,600,000 in cumulative General Management
Fees from the first through the fourth years of operations of the
Practices, then SDC, or its designee, shall receive eight percent (8%) of
the difference between the cumulative General Management Fees received by
PHC-SUB during the first four (4) years of operations of the Practices and
$7,200,000; or
(iii) If PHC-SUB has received more than $9,600,000 but less than
$12,000,000 in cumulative General Management Fees from the first through
the fourth years of operations of the Practices, then SDC, or its designee,
shall receive $192,000 plus sixteen percent (16%) of the difference between
the cumulative General Management Fees received by PHC-SUB during the
first four (4) years of operations of the Practices and $9,600,000.
(f) Within 120 days after the fifth anniversary of the Effective Date,
based upon the General Management Fees as determined by the Atlanta, Georgia
office of Arthur Andersen, LLP, and under the following terms and conditions:
9
<PAGE>
(i) $1,600,000 shall be paid to SDC, or its designee, upon the
receipt by PHC-SUB of General Management Fees from the first through the
fifth year of operations of the Practices in the cumulative amount of at
least $15,000,000; or
(ii) If PHC-SUB has not received a cumulative amount of at least
$15,000,000 in General Management Fees from the first through the fifth
years of operations of the Practices, but it has received no less than
$9,000,000 and no more than $12,000,000 in cumulative General Management
Fees from the first through the fifth years of operations of the Practices,
then SDC, or its designee, shall receive eight percent (8%) of the
difference between the cumulative General Management Fees received by PHC-
SUB during the first five (5) years of operations of the Practices and
$9,000,000; or
(iii) If PHC-SUB has received no more than $12,000,000 but less than
$15,000,000 in cumulative General Management Fees from the first through
the fifth years of operations of the Practices, then SDC, or its designee,
shall receive $240,000 plus sixteen percent (16%) of the difference between
the cumulative General Management Fees received by PHC-SUB during the first
five (5) years of operations of the Practices and $12,000,000.
3.2 Government Receivables Advance.
------------------------------
(a) In addition to the Purchase Price, PHC shall advance $800,000 to the
Practice Group in immediately available funds (the "Government Receivables
Advance"). The Government Receivables Advance shall be evidenced by a
promissory note executed by the Practice Group, payable to the order of PHC-SUB
in the form as attached hereto as EXHIBIT J (the "Receivables Promissory Note").
---------
(b) Repayment of the indebtedness evidenced by the Receivables Promissory
Note shall be secured by a security agreement in the form as attached hereto as
EXHIBIT K executed by the Practice Group to PHC-SUB, covering the Government
- ---------
Accounts Receivables (the "Government Receivables Security Agreement").
(c) The Practice Group shall, until repayment of the Receivables Promissory
Note, deposit all proceeds of the Government Accounts Receivables into Account
No. 10001953, maintained at First National Bank and Trust of Carbondale,
Illinois, in the name of Southern Dependacare - Note Payment Account, in the
name of the Practice Group (the "Payment Account"). The depository agreement
---------------
for the Payment Account shall provide that the account balance in such account
shall be "swept" daily into Account No. 10001899, maintained at First National
Bank and Trust of Carbondale, Illinois by PHC-SUB. Amounts so swept shall be
applied by PHC-SUB first to accrued but unpaid interest and then to outstanding
principal evidenced by the Receivables Promissory Note in the inverse order of
maturity.
3.3 Allocation of Purchase Price. Within 30 days following the Closing
----------------------------
Date, PHC, PHC-SUB and Practice Group shall agree to an Allocation Schedule (the
"Allocation Schedule") allocating the Purchase Price among the Purchased Assets
for accounting and other purposes. PHC, PHC-SUB and Practice Group further
agree that the Allocation Schedule shall be prepared in accordance with Section
1060 of the Code and any tax returns or other tax information they may file or
cause to be filed with any governmental agency shall be prepared and filed
consistently with the Allocation Schedule. In this regard, PHC and Practice
Group agree that, to the extent required, they will each properly prepare and
file Form 8594 in accordance with Section 1060 of the Code and applicable state
law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PHYSICIAN
-------------------------------------------
AND PRACTICE GROUP
------------------
As a material inducement to PHC to enter into this Agreement, Physician and
Practice Group hereby, jointly, severally and unconditionally, represent and
warrant to PHC as follows:
10
<PAGE>
4.1 Organization, Standing and Authority of Practice Group. Practice
------------------------------------------------------
Group is a corporation duly organized and validly existing under the laws of the
State of Alabama. Practice Group has the full requisite corporate power and
authority to (a) own all its assets and properties on the date hereof and (b)
execute and deliver this Agreement and each other document or instrument
contemplated hereby (collectively, the "Transaction Documents") and perform its
obligations hereunder and thereunder according to their respective terms.
Practice Group is not a participant in any joint venture, partnership,
association or similar business arrangement with any other person or party.
4.2 Absence of Conflicting Agreements or Required Consents Relating to
------------------------------------------------------------------
Physician and Practice Group's Respective Obligations. The execution, delivery
- -----------------------------------------------------
and performance by Physician and Practice Group, respectively, of the
Transaction Documents (with or without the giving of notice, the lapse of time,
or both): (a) except as expressly set forth on SCHEDULE 4.2, do not require the
------------
consent of any governmental or regulatory authority or any other third party;
(b) will not conflict with any provision of Practice Group's articles of
incorporation, regulations or other organizational documents; (c) will not
conflict with, result in a breach of, or constitute a default under any law,
ordinance, regulation, ruling, judgment, order or injunction of any court or
governmental instrumentality to which Physician or Practice Group is a party or
by which Physician or Practice Group or their respective properties are bound;
(d) will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, or accelerate or permit the acceleration
of any performance required by the terms of any agreement, instrument, license
or permit, material to this transaction, to which Physician or Practice Group is
a party or by which Physician, Practice Group or their respective properties are
bound; and (e) will not create any claim, lien, charge or encumbrance upon any
of the assets or properties of Practice Group.
4.3 Licenses and Authorizations. Each physician member of Practice Group
---------------------------
holds all valid licenses, permits and other rights and authorizations required
by any federal law, ordinance, regulation or ruling of any governmental
regulatory authority necessary to practice medicine in the jurisdictions in
which each physician practices medicine. A correct and complete list of all such
licenses, permits and other authorizations is set forth in SCHEDULE 4.3 hereto.
------------
None of such licenses has been revoked or suspended or is the subject of any
proceeding or action for revocation or suspension.
4.4 Lease Agreements. SCHEDULE 4.4 hereto contains a current list of all
---------------- ------------
the lease agreements and license and sublicense agreements to which Practice
Group and/or Physician are parties and pursuant to which the Practice Group
and/or Physician lease (whether as lessor or lessee) or license (whether as
licensor or licensee) any real or personal property related to the operation of
the Practice Group Business (the "Lease Agreements"). Practice Group has
delivered to PHC true and complete copies of all of the Lease Agreements. Each
of the Lease Agreements is valid and effective in accordance with its terms, and
there is not under any of such Lease Agreements (a) any existing or claimed
default by Practice Group or Physician or event of default or event which with
notice or lapse of time, or both, would constitute a default by Practice Group
or Physician, or (b) any existing default by any other party under any of the
Lease Agreements or any event of default or event which with notice or lapse of
time, or both, would constitute a default by any such party.
4.5 Financial Statements. Attached hereto as SCHEDULE 4.5 are Practice
-------------------- ------------
Group's unaudited financial statements ("Interim Financial Statements")for the
twelve months ending March 31, 1997 and for the period ending June 30, 1997 (the
"Interim Financial Date"), reflecting the results of the operations and
financial condition of Practice Group Business at such dates which have been
prepared in accordance with the federal income tax basis of accounting (cash
method) consistently applied (collectively, the "Practice Group's Financial
Statements"). The Practice Group's Financial Statements: (i) present fairly in
all material respects the financial position of Practice Group and the Practice
Group Business as of the dates indicated and present fairly in all material
respects the results of Practice Group's operations for the periods then ended
in accordance with the federal income tax basis of accounting (cash method) and
(ii) are in accordance with the books and records of the Practice Group, as the
case may be, which have been properly maintained and are complete and correct in
all material respects.
11
<PAGE>
4.6 Absence of Changes. Except as expressly set forth in SCHEDULE 4.6
------------------ ------------
hereto and as permitted or contemplated by this Agreement, since the Interim
Financial Date, Physician and Practice Group have conducted the Practice Group
Business only in the ordinary course of business consistent with past practices,
and have not:
(a) Suffered any material adverse change in its working capital,
condition (financial or otherwise), assets, liabilities, reserves,
business or operations (such change, a "Material Adverse Effect");
(b) Paid, discharged or satisfied any material liability other than
the payments, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) Written off as uncollectible any receivable, except for
contractual discounts and write-offs in the ordinary course of
business, exceeding Five Thousand and No/100 Dollars ($5,000) in
the aggregate;
(d) Canceled or compromised any debts or waived or permitted to lapse
any claims or rights or sold, transferred or otherwise disposed of
any of its properties or assets, exceeding Five Thousand and
No/100 Dollars ($5,000) in the aggregate;
(e) Entered into any commitment or transaction not in the ordinary
course of business or made any capital expenditure or commitment
in excess of Five Thousand and No/100 Dollars ($5,000.00);
(f) Made any change in any method of accounting or accounting practice
for financial or income tax purposes;
(g) Incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of Five Thousand and No/100 Dollars
($5,000.00), except for trade payables incurred in the ordinary
course of business;
(h) Mortgaged, pledged, subjected or agreed to subject, any of its
assets, tangible or intangible, to any lien, claim or encumbrance,
except for liens of current personal property taxes not yet due
and payable;
(i) Sold or otherwise transferred any ownership interest in Practice
Group;
(j) Increased any salaries, wages or any employee benefits for any
employee except in the ordinary course of business;
(k) Hired, committed to hire or terminated any employee except in the
ordinary course of business; or
(l) Agreed, whether in writing or otherwise, to take any action
particularly described in this SECTION 4.6.
-----------
4.7 Litigation and Claims. Except as expressly set forth in SCHEDULE 4.7
--------------------- ------------
hereto, there are no claims, lawsuits, counterclaims, proceedings, or
investigations pending, and to Physician's or Practice Group's knowledge
threatened, against or affecting Physician, Practice Group, the Practice Group
Business or any licensed professional or other individual employed by or under
contract with the Practice Group Business in any court or before any arbitrator
or governmental authority or agency, and to Physician's or Practice Group's
knowledge, there is no reasonable basis for any such action or any state of
facts or occurrence of any event which would be likely to give rise to the
foregoing which
12
<PAGE>
has or would be likely to have a Material Adverse Effect on the Practice Group,
on Physician's or Practice Group's performance hereunder, or on the continued
operation of the Practice Group Business. There are no unsatisfied judgments
against Physician, Practice Group, the Practice Group Business, or any licensed
professional or other individual affiliated with the Practice Group, or any
consent decrees to which any of the foregoing are subject which would reasonably
be likely to have a Material Adverse Effect on the Practice Group, on Practice
Group's or Physician's performance hereunder, or on the continued operation of
the Practice Group Business.
4.8 No Undisclosed Liabilities. Except as and to the extent reflected in
--------------------------
the Practice Group's Financial Statements or as expressly shown in SCHEDULE 4.8
------------
hereto, Practice Group has no material liability or obligation whatsoever,
whether matured, unmatured, absolute, contingent or otherwise, except for
liabilities and obligations incurred in the ordinary course of its business
since the Interim Financial Date, which do not in the aggregate have a Material
Adverse Effect on the Practice Group or the Practice Group Business.
4.9 No Violation of Law, Generally.
------------------------------
(a) Except as expressly set forth in SCHEDULE 4.9(a) hereto, to the
---------------
Physician's or Practice Group's knowledge, neither Practice Group nor
Physician has been or shall be as of the Closing Date (by virtue of any
action, omission to act, contract to which it is a party or any occurrence
or state of facts whatsoever) in violation of any applicable local, state
or federal law, ordinance, regulation, order, injunction or decree, or any
other requirement of any governmental body, agency or authority or court
binding on it, or relating to its property or business or its advertising,
sales, referral or pricing practices (including, without limitation, Titles
18 and 19 of the Social Security Act and all applicable zoning and use
laws).
(b) Billing Practices/Regulatory Compliance.
---------------------------------------
(i) Billing Practices Generally. Except as expressly set forth
---------------------------
in SCHEDULE 4.9(b)(i) hereto, neither to Physician's nor
------------------
Practice Group's knowledge, all billing practices by Practice
Group to all third party payors, including, but not limited
to, the federal Medicare program, state Medicaid programs and
private insurance companies, have been true, fair and correct
and in compliance with all applicable laws, regulations and
policies of all such third party payors, and Practice Group
has not billed for or received any payment or reimbursement
in excess of amounts allowed by law. Except for the accounts
receivable expressly set forth on Schedule 4.9(b)(i) hereto
------------------
(the "Excluded Government Receivables") none of the accounts
receivable are subject to any right of offset or are being
contested by any payer, including without limitation,
Medicare or Medicaid.
(ii) Fraud and Abuse. Except as expressly set forth in SCHEDULE
--------------- --------
4.9(b)(ii) hereto, Practice Group, its officers and
----------
directors, and persons and entities providing professional
services for Practice Group, have not engaged in any
activities which are prohibited under the federal Fraud and
Abuse Statute, 42 U.S.C. (S) 1320 a-7b and Regulations
contained in 42 CFR (S) 1001 et seq. (the "Fraud and Abuse
Statute"), or related state or local statutes or regulations,
or which are prohibited by rules of professional conduct,
including, but not limited, to the following: (a) knowingly
and willfully making or causing to be made a false statement
or representation of a material fact in any application for
any benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of a
material fact for use in determining rights to any benefit or
payment; (c) knowingly and willfully soliciting or receiving
any remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly,
13
<PAGE>
in cash or in kind (1) 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 (2) 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; and (d) knowingly
and willfully offering or paying any remuneration (including
any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind to any person to
induce such person (1) to refer an individual to a person for
the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part
under Medicare or Medicaid or (2) to purchase, lease, order,
or arrange for or recommend purchasing, leasing, or ordering
any good, facility, service, or item for which payment may be
made in whole or in part under Medicare or Medicaid.
(c) Transactions with Referral Sources. Except as expressly set forth
----------------------------------
in SCHEDULE 4.9(c), neither Physician nor Practice Group nor any
---------------
affiliate of Practice Group, nor any director, officer or employee
thereof, is a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or
consulting agreement with any physician, hospital, nursing
facility, home health agency or other person who is in a position
to make or influence referrals to or otherwise generate business
for Practice Group to provide services, lease space, lease
equipment or engage in any other venture or activity.
4.10 Properties.
----------
(a) SCHEDULE 4.10(a) hereto sets forth a current and complete list and
----------------
description of all of the tangible and intangible assets owned by
Practice Group as of the Interim Financial Date.
(b) SCHEDULE 4.10(b) hereto sets forth a current and complete list of
----------------
all property, equipment and other assets leased, subleased, or
licensed or sublicensed by Practice Group including, without
limitation, all computer hardware and software (collectively, the
"Leased Equipment").
(c) To the extent not expressly itemized in the Interim Financial
Statements, SCHEDULE 4.10(c) hereto sets forth a current and
----------------
complete list and description of all equipment, utility and other
deposits owned by Practice Group.
(d) Except as expressly set forth and described on SCHEDULE 4.10(d),
----------------
Practice Group: (i) has good, valid and indefeasible title to all
of the Practice Group Assets which it purports to own, including
all the personal property and assets reflected, but not shown as
leased or encumbered, in the Interim Financial Statements (except
for inventory and assets sold in the ordinary course of business
consistent with past practice and supplies consumed in the
ordinary course of business consistent with past practice since
the Interim Financial Date) and (ii) owns the Practice Group
Assets free and clear of all title defects or objections, liens,
restrictions, claims, charges, security interest, or other
encumbrances of any nature whatsoever, including any mortgages,
leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest
retention arrangements.
(e) All of the Leased Equipment and tangible assets owned by Practice
Group are in good operating condition and repair and will be in
such condition on the Closing Date.
14
<PAGE>
(f) All of the durable and nondurable supplies owned by Practice Group
are of a quality and quantity usable in the ordinary and usual
course of the business of Practice Group.
(g) No assets, rights or interests are required in addition to those
tangible assets, Leased Equipment, rights and interests owned by
Practice Group in order to manage or operate the Practice Group
Business.
4.11 Indebtedness. SCHEDULE 4.11 sets forth a current and complete list
------------ -------------
and description of all instruments or other documents relating to any direct or
indirect indebtedness for borrowed funds of Practice Group in excess of Five
Thousand and No/100 Dollars ($5,000.00), as well as indebtedness by way of lease
purchase arrangements, guarantees, undertakings on which others rely in
extending credit and all conditional sales contracts, chattel mortgages and
other security arrangements with respect to personal property used or owned by
Practice Group. Practice Group has not loaned funds to or guaranteed a loan to
any employee or shareholder of Practice Group or other investor in Practice
Group that is in a position, directly or indirectly to make or influence
referrals of patients to, furnish items or services to, or otherwise generate
business for the Practice Group.
4.12 Employee Contracts, Union Agreements and Employee Benefits. Except as
----------------------------------------------------------
set forth on SCHEDULE 4.12 hereto, Practice Group is not a party to any
-------------
employment contract (except for oral employment agreements which are terminable
by Practice Group at will), consulting or collective bargaining contracts,
deferred compensation, pension (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended, and all rules and
regulations from time to time promulgated thereunder ("ERISA")), profit sharing,
bonus or other nonqualified benefit or compensation commitments, benefit plans,
arrangements or plans (whether written or oral), including all welfare plans, as
defined in Section 3(l) of ERISA, of or pertaining to any present or former
employee of Practice Group, or its predecessors in interest, that have been in
effect at any time within the past five (5) years.
4.13 Labor Relations. Except as expressly set forth in SCHEDULE 4.13
--------------- -------------
hereto:
(a) There is no unfair labor practice, charge or complaint or any
other matter against or involving Practice Group pending or, to
the Physician's or Practice Group's knowledge, threatened before
the National Labor Relations Board or any court of law;
(b) There are no charges, investigations, administrative proceedings
or formal complaints of discrimination (including discrimination
based upon sex, age, marital status, race, national origin, the
making of workers' compensation claims, sexual preference,
handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local
agency or court against Practice Group. There have been no
governmental audits of the equal employment opportunity practices
of Practice Group, and to Physician's or Practice Group's
knowledge, no reasonable basis for any such audit exists; and
(c) There are no inquiries, investigations or monitoring activities of
any licensed, registered, or certified professional personnel
employed by, credentialed or privileged, or under contract with
Practice Group or the Practice Group Business pending or, to
Physician's or Practice Group's knowledge, threatened by any state
professional board or agency charged with regulating the
professional activities of health care practitioners or providers.
4.14 Contracts and Commitments. Except as expressly set forth in SCHEDULE
------------------------- --------
4.14 hereto:
- ----
(a) No written or oral contract or commitment to which Practice Group
is a party or is bound continues for a period of more than six (6)
months from the date hereof or requires payments
15
<PAGE>
by Practice Group after the Closing Date, in the aggregate, in
excess of Five Thousand and No/100 Dollars ($5,000.00);
(b) There are no written or oral contracts or agreements to which
Practice Group is a party or is bound:
(i) With any of the directors, officers or shareholders of the
Practice Group, or
(ii) With any person related by blood or marriage to any
director, officer or shareholder of Practice Group or with
any company or other organization in which anyone related by
blood or marriage to Practice Group has a direct or indirect
financial interest;
(c) Neither Practice Group nor Physician is a party to or bound by
any contracts or agreements containing covenants prohibiting or
limiting the freedom of Physician and/or Practice Group to
compete in any line of business or to subject the employees or
patients of any business in any geographic area or requiring
Physician and/or Practice Group to share any profits;
(d) Neither Practice Group nor Physician is a party to any existing
agreement for the management or administration of the Practice
Group Business, and neither Practice Group nor the Physician are
obligated to become a party to any such management or
administration agreement;
(e) Neither Practice Group nor Physician is a party to or bound by
any contract, agreement or other arrangement that has had or may
in the future have a Material Adverse Effect upon the Practice
Group; and
(f) Neither Practice Group nor Physician is a party to or bound by
any contract, agreement or other arrangement, requiring the
personal services of another person or entity which would be
reasonably likely to violate any of the provisions of the Fraud
and Abuse Statute.
4.15 Environmental Protection. Except as would not reasonably be expected
------------------------
to have a Material Adverse Effect, Practice Group has obtained all permits,
licenses and other authorizations and filed all notices which are required to be
obtained or filed by Physician and/or Practice Group for the operation of the
Practice Group Business under federal, state and local laws relating to
pollution, protection of the environment or the generation or disposal of waste.
Except as would not reasonably be expected to have a Material Adverse Effect,
Practice Group is in compliance in all material respects with all terms and
conditions of such required permits, licenses and authorizations. Except as
would not reasonably be expected to have a Material Adverse Effect, Practice
Group is in compliance with all other applicable limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in those laws or contained in any law, regulation, code,
plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. Except as expressly disclosed on SCHEDULE
--------
4.15 hereto and, except as would not reasonably be expected to have a Material
- ----
Adverse Effect, there are no past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans which may interfere with or
prevent continued compliance, or which may give rise to any common law or
statutory liability or, to Physician's or Practice Group's knowledge, otherwise
form the basis of any claim, action, suit, proceeding, hearing or investigation,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, or any pollutant,
contaminant, or hazardous or toxic material or waste (including medical waste)
with respect to Practice Group or the Practice Group Business.
4.16 Filing of Reports. All returns, reports, plans and filings of any
-----------------
kind or nature necessary to be filed by Practice Group with any governmental
authority have been properly completed and timely filed in compliance with
16
<PAGE>
all applicable requirements where failure to so file would have a Material
Adverse Effect on the Practice after the Closing.
4.17 Insurance Policies. SCHEDULE 4.17 hereto sets forth a complete and
------------------ -------------
accurate list and description of all insurance policies in force naming Practice
Group, the Physician or any director, officer or employee thereof, as an insured
or beneficiary or as a loss payee or for which Practice Group has paid or is
obligated to pay all or any part of the premiums including, without limitation,
all general liability, malpractice, fire, health, disability and life insurance
policies. Practice Group has not received notice of any pending or threatened
termination or premium increase (retroactive or otherwise) with respect thereto,
and Practice Group and Physician are in compliance with all conditions contained
therein. Except as expressly set forth on SCHEDULE 4.17 hereto, there are no
-------------
pending claims against such insurance by Practice Group as to which insurers are
defending under reservation of rights or have denied liability, and except as
set forth on SCHEDULE 4.17 hereto, there exists no claim under such insurance
-------------
that has not been properly filed or reported by Practice Group.
4.18 Accounts Receivable. Attached hereto as SCHEDULE 4.18.1 is a true,
------------------- ---------------
complete and accurate list and aging of all accounts receivable of Practice
Group as of the dates provided on SCHEDULE 4.18.1, which are payable by private
---------------
payors (the "Private Accounts Receivable"). Attached hereto as SCHEDULE 4.18.2
---------------
is a list and aging of accounts receivable of Practice Group as of the dates
provided on SCHEDULE 4.18.2, which are payable by Medicare or Medicaid. The
---------------
accounts set forth on SCHEDULE 4.18.2 less the Medicare Withheld Amount shall be
---------------
the "Government Accounts Receivable". All such accounts receivable arose in
the ordinary course of the business of Practice Group for the provision of
professional services, have not been previously written off as bad debts and are
properly recorded in the Interim Financial Statements.
4.19 Accounts Payable. Attached hereto as SCHEDULE 4.19 is a current and
---------------- -------------
complete list of all accounts payable of Practice Group as of the Interim
Financial Date, including each individual indebtedness of Five Hundred and
No/100 Dollars ($500.00) or more and setting forth the payee, the amount of
indebtedness and such additional information as may be material with respect to
any such account payable.
4.20 Inventory. All items of inventory of the Practice Group Business
---------
reflected on the Interim Financial Statements consisted, all such items on hand
on the date of this Agreement consist, and all such items on hand on the Closing
Date will consist, of items of a quality and a quantity usable in the ordinary
course of the Practice Group's business and conform to generally accepted
standards for physician medical practices. The purchase commitments of Practice
Group for inventory are not materially in excess of normal requirements, and
none of such purchase commitments were made at prices in excess of prevailing
market prices at the time of purchase.
4.21 Inspections and Investigations. Neither the Physician's nor Practice
------------------------------
Group's right nor the right of any licensed professional or other individual
employed by or under contract with the Practice to receive Medicare and Medicaid
reimbursements has been terminated or otherwise adversely affected as a result
of any investigation or action by any federal or state governmental regulatory
authority. Except as expressly set forth and described on SCHEDULE 4.21, to
-------------
Physician's or Practice Group's knowledge, neither Practice Group nor the
Physician nor any licensed professional or other individual affiliated with the
Practice Group Business has, during the past three (3) years, been the subject
of any inspection, investigation, survey, audit or monitoring by any
governmental regulatory entity, trade association, professional review
organization, accrediting organization or certifying agency, nor has Practice
Group, the Physician or the Practice Group Business received from any such
entity any notice of deficiency in connection with the operation of the Practice
Group Business. No physician of the Practice Group has been the subject of a
"medical malpractice action or claim" or a "professional review action" within
the last three (3) years as those terms are defined in the Health Care Quality
Improvement Act of 1986, as amended. Attached as part of SCHEDULE 4.21 hereto
-------------
are copies of all reports, correspondence, notices and other documents relating
to any such inspection, investigation, survey, audit, monitoring or other form
of review to which any of the foregoing has been subject.
17
<PAGE>
4.22 Ownership of Medical Service Practice(s). Except as expressly set
----------------------------------------
forth in SCHEDULE 4.22 hereto, neither Physician nor any member of Physician's
-------------
family owns any interest in nor has a financial relationship with any health
care facility, practice or entity other than Practice Group (including, without
limitation, any physician or physician practice, allied professional services
related to oncology, or any physician management services organization, or any
provider of ancillary or specialty services including, but not limited to,
laboratory and radiology services).
4.23 Agreements in Full Force and Effect. Except as expressly set forth in
-----------------------------------
the Schedules to this Agreement, all contracts, agreements, plans, leases,
policies and licenses referred to, or required to be referred to, in any
Schedule delivered hereunder are valid and binding and are in full force and
effect and are enforceable in accordance with their terms, except to the extent
that the validity or enforceability thereof may be limited by bankruptcy,
insolvency, reorganization and other similar laws affecting creditors' rights
generally. There is no pending or, to Physician's or Practice Group's
knowledge, threatened bankruptcy, insolvency or similar proceeding with respect
to any party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by Practice Group, Physician or any
other party thereto.
4.24 Taxes.
-----
(a) As used in this Agreement, "Taxes" means all taxes, fees,
assessments, levies, duties and other charges of any nature
imposed by any federal, state, local or foreign taxing authority,
together with all interest, penalties, fines and other additions
imposed in respect thereof, with the exception of any federal or
state employment or unemployment taxes, fees, assessments, levies,
duties or other charges.
(b) As used in this Agreement, "Tax Returns" means all original and
amended returns, declarations, certifications, statements,
notices, elections, estimates, reports, claims for refund and
information returns relating to or required to be filed or
maintained in connection with any Tax, together with all schedules
and attachments thereto, with the exception of any federal or
state employment or unemployment tax or information returns.
(c) All Tax Returns required to have been filed by the Practice Group
have been timely filed (taking into account duly granted
extensions) and are true, correct and complete in all material
respects. Except as disclosed in SCHEDULE 4.24, (i) the
-------------
Practice Group is not currently the beneficiary of any extension
of time within which to file any Tax Return, and (ii) no claim
has ever been made by any governmental authority in a
jurisdiction where the Practice Group does not file Tax Returns
that the Practice Group is or may be subject to taxation by that
jurisdiction.
(d) All Taxes of the Practice Group which have become due (without
regard to any extension of the time for payment and whether or not
shown on any Tax Return) have been paid. The Practice Group has
withheld and paid over to the applicable taxing authority all
Taxes required to have been withheld and paid over and has
complied with all information reporting and back-up withholding
requirements relating to Taxes. There are no liens with respect to
Taxes on any of the assets of the Practice Group, other than liens
for Taxes not yet due and payable or for Taxes disclosed in
SCHEDULE 4.24 that are being contested in good faith through
-------------
appropriate proceedings and for which adequate reserves have been
established in the Practice Group's Financial Statements.
(e) The accrued unpaid Taxes of the Practice Group at the Closing Date
will not exceed the amount of the current liability accruals for
Taxes (exclusive of reserves for deferred Taxes established to
reflect timing differences) reflected in the calculation of the
Closing Working
18
<PAGE>
Capital Amount. For this purpose, the portion of any Tax imposed
on a periodic basis that is attributable to a taxable period
beginning before and ending after the Closing Date shall be
determined by apportioning the Tax for the entire period based
upon the number of days in the period, except that any such Tax
measured by income or receipts shall be apportioned based upon
actual results of operations through the end of the Closing Date.
(f) No deficiencies exist or have been asserted or are expected to be
asserted (verbally or in writing) with respect to Taxes of the
Practice Group and the Practice Group has not received notice nor
does it expect to receive notice (verbally or in writing) that it
has not filed a Tax Return or paid any Taxes required to be filed
or paid by it. No audit, examination, investigation, action, suit,
claim or proceeding relating to the determination, assessment or
collection of any Tax of the Practice Group is currently in
process, pending or, to Physician's or Practice Group's knowledge,
threatened (verbally or in writing). No waiver or extension of any
statute of limitations relating to the assessment or collection of
any Tax of the Practice Group is in effect. There are no
outstanding requests for rulings with any taxing authority
relating to Taxes of the Practice Group.
(g) The Practice Group is not and has never been (i) a party to any
tax sharing agreement or arrangement (formal or informal, verbal
or in writing), or (ii) a member of an affiliated group of
corporations (within the meaning of Section 1504 of the Code)
filing a consolidated federal income Tax Return, or any similar
group under analogous provisions of other law.
(h) The Practice Group has delivered to PHC true and complete copies
of all federal, state, local and foreign income Tax Returns filed
by the Practice Group for its three most recently ended taxable
years, together with all related examination reports, statements
of deficiencies and closing and other agreements. SCHEDULE 4.24
-------------
indicates which, if any, of such returns have been, or currently
are, the subject of any audit, examination or other Tax
proceeding.
(i) The Practice Group (i) has not filed a consent under Code Section
341(f) concerning collapsible corporations; (ii) is not a "foreign
person" as defined in Code Section 1445(f)(3); (iii) is not and
has not been a United States real property holding corporation
within the meaning of Code Section 897(c)(2) during the applicable
period specified in Code Section 897(c)(1)(A)(ii); (iv) does not
own and has not owned any interest in any "controlled foreign
corporation" as defined in Code Section 957 or "passive foreign
investment company" as defined in Code Section 1296; (v) is not
and has not been a party to any agreement or arrangement for which
partnership Tax Returns are required to have been filed; (vi) does
not own any asset that is subject to a "safe harbor lease" within
the meaning of Code Section 168(f)(8), as in effect prior to
amendment by the Tax Equity and Fiscal Responsibility Act of 1982;
(vii) does not own any "tax-exempt use property" within the
meaning of Code Section 168(h) or "tax exempt bond financed
property" within the meaning of Code Section 168(g)(5); and (vii)
has not agreed to and is not required to make any adjustment under
Code Section 481(a) by reason of a change in accounting method or
otherwise.
(j) As used in this SECTION 4.24 only, "Practice Group" shall be
------------
deemed to include any and all subsidiaries and predecessor
entities.
4.25 Corporate Documents. The corporate minute books of Practice Group,
-------------------
made available by Practice Group to PHC prior to the date hereof, accurately
reflect all significant corporate actions taken by the directors and shareholder
of Practice Group or any committee of the Board of Directors of Practice Group,
and contain true and accurate copies of or originals of the respective minutes
of all meetings or consent actions of the directors and shareholder of Practice
Group and any committee of the Board of Directors of Practice Group.
19
<PAGE>
4.26 Statements True and Correct. No representation or warranty made by
---------------------------
Physician or Practice Group herein, nor any statement, certificate or instrument
furnished or to be furnished by Physician or Practice Group to PHC pursuant to
this Agreement or any other document, agreement or instrument referred to herein
or therein, contains or will contain any untrue statement of material fact or
omits or will omit any material fact necessary to make the statements contained
therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PHC AND PHC-SUB
-------------------------------------------------
As an inducement to Physician and Practice Group to enter into this
Agreement, PHC and PHC-SUB hereby represent and warrant to Physician and to
Practice Group as follows:
5.1 Organization, Standing and Authority of PHC and PHC-SUB. PHC is a
-------------------------------------------------------
corporation duly organized and validly existing under the laws of the State of
Delaware and qualified to do business in all locations where the nature of its
business or the ownership of its assets or properties requires such
qualification. PHC-SUB is a corporation duly organized and validly existing
under the laws of the State of Georgia and qualified to do business in all
locations where the nature of its business or the ownership of its assets or
properties requires such qualification. PHC and PHC-SUB have the full requisite
corporate power and authority to (a) own all their respective assets and
properties and to operate their respective businesses as conducted on the date
hereof and (b) execute and deliver the Transaction Documents and perform their
respective obligations hereunder and thereunder according to their respective
terms. Neither PHC nor PHC-SUB is a participant in any joint venture,
partnership, association or similar business arrangement with any other person
or party, other than the various management services agreements and similar
agreements which it has entered into and enters into from time to time as part
of its business. This Agreement has been duly authorized, executed and
delivered by PHC and PHC-SUB and is the legal, valid and binding obligation of
PHC and PHC-SUB, as applicable, enforceable in accordance with its terms, and
each of the Transaction Documents has been duly authorized by PHC and PHC-SUB,
where applicable, and upon execution and delivery by PHC and/or PHC-SUB, as
applicable, will be a legal, valid and binding obligation of PHC and, where
applicable, PHC-SUB.
5.2 Absence of Conflicting Agreement or Required Consents Relating to
-----------------------------------------------------------------
PHC's Obligations. Except as expressly set forth on SCHEDULE 5.2, the
- ----------------- ------------
execution, delivery and performance by PHC and PHC-SUB of the Transaction
Documents (with or without the giving of notice, the lapse of time, or both):
(a) do not require the consent of any governmental or regulatory authority or
any other third party; (b) will not conflict with any provision of either (i)
PHC's restated certificate of incorporation, bylaws or other organizational
documents or (ii) PHC-SUB's certificate of incorporation, bylaws or other
organizational documents; (c) will not conflict with, result in a breach of, or
constitute a default under any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which either
PHC or PHC-SUB is a party or by which either PHC or PHC-SUB is bound; (d) will
not conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of any
performance required by the terms of any agreement, instrument, license or
permit, material to this transaction, to which either PHC or PHC-SUB is a party
or by which either PHC or PHC-SUB is bound and (e) will not create any claim,
lien, charge or encumbrance upon any of the assets or properties of either PHC
or PHC-SUB.
5.3 Capital Stock of PHC. The PHC Prime Shares and the PHC Common Shares
--------------------
are duly authorized, and when issued to Physician by PHC, will be validly
issued, fully paid and nonassessable. As of the date of this Agreement, PHC
has: a total of 20,000,000 of the PHC Prime Shares authorized of which 3,112,166
are issued and outstanding; a total of 20,000,000 shares of the PHC Common
Shares authorized of which 4,463,964 are issued and outstanding, a total of
20,000,000 shares of its Non-Voting Common Stock authorized of which zero (0)
are issued and outstanding; a total of five hundred thousand (500,000) shares
of its Class A Stock authorized of which 200,000 are issued and outstanding; and
a total of 15,000,000 shares of Preferred Stock authorized of which 2,906,679 of
the Series B Voting Preferred Stock and 917,814 of the Series B Non-Voting
Preferred Stock are issued and outstanding. Except
20
<PAGE>
as set forth in SCHEDULE 5.3 and except for the transactions contemplated by
------------
this Agreement, there are no agreements, arrangements, options, warrants, call,
rights or commitments of any character relating to the issuance, sale, purchase
or redemption of any of the PHC Prime Shares or the PHC Common Shares. All of
the outstanding PHC Prime Shares or the PHC Common Shares are validly issued,
fully paid and nonassessable. All of the outstanding PHC Prime Shares and the
PHC Common Shares are validly issued, fully paid and nonassessable. All of the
outstanding PHC Prime Shares and the PHC Common Shares are owned of record and,
to the best knowledge of PHC and PHC-SUB, beneficially as set forth in SCHEDULE
--------
5.3, and, to the best knowledge of PHC and PHC-SUB, are free from any
- ---
encumbrances, liens, security interests or pledges, except (i) for the Second
Amended and Restated Stockholders' Agreement and (ii) as set forth in SCHEDULE
--------
5.3. The name of each of the holders of record of the outstanding PHC Prime
- ---
Shares and the PHC Common Shares and the respective number of outstanding shares
held of record by each holder are set forth in SCHEDULE 5.3.
------------
5.4 Representations Regarding Disclosure Documents. PHC has provided to
----------------------------------------------
Physician and to Practice Group a Third Restated Certificate of Incorporation of
PHC, Bylaws of PHC, Second Amended and Restated Stockholders' Agreement, dated
June 16, 1997, Marketing Materials, Stock Analysis, and Options and Warrants
Analysis dated as of September 2, 1997. PHC-SUB has provided to Physician and
to Practice Group the Certificate of Incorporation and Bylaws of PHC-SUB. PHC
and PHC-SUB represent that none of these documents are false or misleading in
any material respect or fails to state a fact necessary to make the statement
therein not misleading in any respect. PHC and PHC-SUB acknowledge and agree
that Physician and Practice Group have relied upon representations in the
foregoing documents in connection with the execution of the Agreement and the
Transaction Documents. To the best knowledge of PHC and PHC-SUB, there is no
fact which adversely affects or in the future is likely to adversely affect the
assets or in the future is likely to adversely affect the assets or property of
PHC or PHC-SUB or their respective businesses which has not been set forth or
referred to in this Agreement or in the Schedules attached hereto.
5.5 No Violation of Law. To PHC's or PHC-SUB's knowledge, neither PHC
-------------------
nor PHC-SUB have been or shall be, as of the Closing Date (by virtue of any act,
omission to act, contract to which it is a party or any current state of facts
whatsoever) in violation of any applicable material local, state or federal law,
ordinance, regulation, order, injunction or decree, or any other requirement of
any other governmental body, agency, authority or court binding on either PHC or
PHC-SUB, or relating to PHC's or PHC-SUB's property or business which could have
a Material Adverse Effect.
5.6 Litigation and Claims. Except as expressly set forth in SCHEDULE
--------------------- --------
5.6, there are no claims, lawsuits, counterclaims, proceedings, or
- ---
investigations pending, or to PHC's or PHC-SUB's knowledge, threatened, against
or affecting PHC or PHC-SUB in any court or before any arbitrator or
governmental authority or agency, and, to PHC's or PHC-SUB's knowledge, there is
no basis for any such action or state of facts or occurrence of any event which
might give rise to the foregoing which has or could have a Material Adverse
Effect on PHC. There are no unsatisfied judgments against PHC or PHC-SUB or any
consent decrees to which PHC or PHC-SUB are subject which would have a Material
Adverse Effect on PHC or PHC-SUB.
5.7 Financial Statements of PHC. Attached hereto as SCHEDULE 5.7 are
--------------------------- ------------
PHC's audited financial statements for the calendar year ending December 31,
1996, and the interim financial statements for the six (6) month period ending
June 30, 1997 (collectively, the "PHC Financial Statements"), reflecting the
results of the operations and financial condition of PHC as of such date, which
have been prepared in accordance with generally accepted accounting principles
consistently applied, subject, in the case of PHC's interim financial
statements, to normal year-end adjustments. The PHC Financial Statements: (i)
present fairly in all material respects the financial position of PHC as of the
dates indicated and present fairly in all material respects the results of PHC's
operations for the periods then ended in accordance with GAAP and (ii) are in
accordance with the books and records of PHC which have been properly maintained
and are complete and correct in all material respects.
21
<PAGE>
5.8 No Violation of Law, Generally.
------------------------------
(a) Billing Practices Generally. To PHC's and PHC-SUB's knowledge,
---------------------------
all billing practices by either PHC or PHC-SUB to all third
party payors, including, but not limited to, the federal
Medicare program, state Medicaid programs and private insurance
companies, have been true, fair and correct and in compliance
with all applicable laws, regulations and policies of all such
third party payors, and neither PHC nor PHC-SUB have billed for
or received any payment or reimbursement in excess of amounts
allowed by law.
(b) Fraud and Abuse. Neither PHC nor PHC-SUB have engaged in any
---------------
activities that are prohibited under the federal Fraud and Abuse
Statute, or related state or local statutes or regulations, or
which are prohibited by rules of professional conduct,
including, but not limited, to the following: (a) knowingly and
willfully making or causing to be made a false statement or
representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of a
material fact for use in determining rights to any benefit or
payment; (c) 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
(1) 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 (2) 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; and (d) knowingly and willfully offering or paying any
remuneration (including any kickback, bribe, or rebate),
directly or indirectly, overtly or covertly, in cash or in kind
to any person to induce such person (1) to refer an individual
to a person for the furnishing or arranging for the furnishing
of any item or service for which payment may be made in whole or
in part under Medicare or Medicaid or (2) to purchase, lease,
order, or arrange for or recommend purchasing, leasing, or
ordering any good, facility, service, or item for which payment
may be made in whole or in part under Medicare or Medicaid.
5.9 Filing of Reports. All returns, reports, plans and filings of any
-----------------
kind or nature necessary to be filed by either PHC or PHC-SUB with any
governmental authority have been properly completed and timely filed in
compliance with all applicable requirements where failure to so file would have
a Material Adverse Effect on either PHC or PHC-SUB, as applicable.
5.10 Taxes.
-----
(a) All Tax Returns required to have been filed by PHC have been
timely filed (taking into account duly granted extensions) and
are true, correct and complete in all respects. Except as
disclosed in SCHEDULE 5.10, (i) PHC is not currently the
-------------
beneficiary of any extension of time within which to file any
Tax Return, and (ii) no claim has ever been made by any
governmental authority in a jurisdiction where PHC does not file
Tax Returns that PHC is or may be subject to taxation by that
jurisdiction.
(b) All Taxes of PHC which have become due (without regard to any
extension of the time for payment and whether or not shown on
any Tax Return) have been paid. PHC has withheld and paid over
to the applicable taxing authority all Taxes required to have
been withheld and paid over and has complied with all
information reporting and back-up withholding requirements
relating to Taxes. There are no liens with respect to Taxes on
any of the assets of PHC, other than liens for Taxes not yet due
and payable or for Taxes disclosed in
22
<PAGE>
SCHEDULE 5.10 that are being contested in good faith through
-------------
appropriate proceedings and for which adequate reserves have
been established in the Financial Statements.
(c) No deficiencies exist or have been asserted or are expected to
be asserted (verbally or in writing) with respect to Taxes of
PHC and PHC has not received notice nor does it expect to
receive notice (verbally or in writing) that it has not filed a
Tax Return or paid any Taxes required to be filed or paid by it.
No audit, examination, investigation, action, suit, claim or
proceeding relating to the determination, assessment or
collection of any Tax of PHC is currently in process, pending or
threatened (verbally or in writing). No waiver or extension of
any statute of limitations relating to the assessment or
collection of any Tax of PHC is in effect. There are no
outstanding requests for rulings with any taxing authority
relating to Taxes of PHC.
(d) PHC has delivered to the Practice Group and the Physician true
and complete copies of all federal, state, local and foreign
income Tax Returns filed by PHC for its three (3) most recently
ended taxable years, together with all related examination
reports, statements of deficiencies and closing and other
agreements. SCHEDULE 5.10 indicates which, if any, of
-------------
such returns have been, or currently are, the subject of any
audit, examination or other Tax proceeding.
5.11 Statements True and Correct. No representation or warranty made by
---------------------------
PHC or PHC-SUB herein, nor any statement, certificate or instrument furnished or
to be furnished by PHC or PHC-SUB pursuant to this Agreement or any other
document, agreement or instrument referred to herein or therein, contains or
will contain any untrue statement of material fact or omits or will omit any
material fact necessary to make the statements contained therein not misleading.
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
6.1 Access and Inspection. From and after the date of this Agreement,
---------------------
PHC, PHC-SUB and their representatives and agents, on the one hand, and
Practice Group and Physician and their representatives and agents, on the other
hand, shall each have the right to enter the other's premises during regular
business hours to review, inspect and copy any and all books, records, documents
or other information concerning the operation of the Practice or PHC (as the
case may be) as the other may reasonably request (the "Due Diligence
Inspection"). Following Closing, Physician, on the one hand, and PHC and PHC-
SUB, on the other hand, shall continue to provide the other with access to any
and all financial and other records of the other as the other may reasonably
request in order to operate the Practice or the business of PHC or PHC-SUB, as
the case may be, to file any reports or respond to inquiries or investigations
including, without limitation, (i) the preparation or examination of tax
returns, (ii) the preparation of documents in connection with any proposed
public offering of any class of the capital stock of PHC or of debt instruments
of PHC, or (iii) for any other reasonable business purpose in connection with
the operation of the Practice or the business of PHC.
6.2 Cooperation in Meeting Filing Requirements. Physician, Practice
------------------------------------------
Group, PHC-SUB and PHC shall cooperate in preparing, executing and filing such
requests, applications, information and other submittals as may be required by
any federal or state governmental agency or authority having jurisdiction over
the assets or properties of Practice Group or the Practice, for the purpose of
consummating the transactions contemplated herein and operation of the Practice
Group Business.
6.3 Post Closing Audit of Practice Group. Physician shall cooperate
------------------------------------
with and assist PHC and its accountants and other representatives in preparing
audited financial statements of Practice Group for any time period ending prior
to the Closing Date. Should the cost of any audit of the Practice Group exceed
Twenty-Five Thousand and
23
<PAGE>
No/100 Dollars ($25,000.00), then such excess shall be offset against any
consideration or payment(s) owed Physician under this or any other agreement
between or among any of the parties hereto.
6.4 Audit of PHC-SUB. PHC-SUB shall cooperate with and assist Physician
----------------
and Practices, and their representatives, in an accounting or review of PHC-
SUB's activities as they relate to the Practices; provided, however, that such
accounting shall not be requested by the Physician or the Practices more than
twice during each calendar year unless otherwise reasonably necessary.
Physician and Practices shall have full access to all information during normal
business hours related to PHC-SUB's performance of its management functions
pursuant to the Practice Management Agreement.
6.5 Further Assurances. Each party covenants that it will, in
------------------
connection with the Closing and from time to time after the Closing Date,
execute such additional instruments and take such actions as may be reasonably
requested by the other party to confirm or perfect or otherwise to carry out the
intent and purposes of this Agreement.
6.6 Benefit Plans. As of the Closing Date, Physician shall cause all of
-------------
the Former SDC Workforce, during their employment with PHC-SUB, to be covered as
"leased employees" under any plans, agreements, arrangements and understandings
which each Practice maintains thereafter from time to time for its similarly
situated common law employees in accordance with the applicable provisions of
state and federal law. Notwithstanding the foregoing, the Practices shall not
maintain a self-insured group health plan after the Closing Date if such plan
would be in violation of any state or federal law.
6.7 Best Efforts to Close. Each party covenants that it will use its
---------------------
best efforts to fulfill the conditions precedent to closing as set forth in
Articles VIII and IX and to consummate the transactions contemplated hereby as
soon as is practicably possible.
ARTICLE VII
CONDUCT OF BUSINESS OF PRACTICE GROUP AND PHYSICIAN
---------------------------------------------------
PENDING CLOSING
---------------
Physician and Practice Group jointly and severally covenant and agree
that, without the prior written consent of PHC, between the date of this
Agreement and the Closing:
7.1 Disposition of Assets. The operation of the Practice Group Business
---------------------
shall be conducted only in the ordinary course, and, except for the assets and
properties set forth in SCHEDULE 7.1 hereto or inventory or supply items
------------
disposed of in the ordinary course of business, Practice Group shall not dispose
of any interest of any kind in the assets or properties of Practice Group nor
incur nor guarantee any obligations for borrowed money, except as otherwise
permitted by this Agreement.
7.2 Sale of Shares. Physician and Practice Group shall not sell or
--------------
transfer, or consent to the issuance, sale or transfer of, any shares of capital
stock in Practice Group or any option, warrant or other right to acquire an
equity interest in Practice Group.
7.3 Contracts. Practice Group will not enter into any contract or other
---------
arrangement except in the ordinary course of business and then only if such
contract or arrangement would not have a Material Adverse Effect on the
operation of the Practice Group Business.
7.4 Condition of Assets. Practice Group will maintain its assets in
-------------------
substantially the same condition as they are in on the date of this Agreement,
ordinary wear and tear excepted.
7.5 Liens; Encumbrances. Practice Group will not sell, transfer or
-------------------
otherwise dispose of, nor mortgage, pledge or subject to any lien, charge or
other encumbrance, any of the assets or any interest in the rights, except (i)
as
24
<PAGE>
otherwise permitted by this Agreement and (ii) for inventory or supply items
disposed of in the ordinary course of business.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PHC AND PHC-SUB
--------------------------------------------
The obligations of PHC and PHC-SUB to close the transactions contemplated
hereby are subject to the satisfaction, at or prior to Closing, of each of the
following conditions:
8.1 Necessary Approvals. PHC and PHC-SUB shall have received all (i)
-------------------
licenses, consents, permits and approvals, if any, necessary in order for PHC-
SUB to own the Practice Group Asset; (ii) consents necessary to consummate the
transactions contemplated by this Agreement, including the consents of (x)
Weston Presidio Capital II, L.P. and certain other investors under the
Securities Purchase Agreement dated as of June 16, 1997 and (y) E.G.L. Holdings,
Inc., an investor in PHC; and (iii) the approval of the Board of Directors of
PHC.
8.2 Representations and Warranties. The representations and warranties
------------------------------
of Physician and Practice Group set forth in this Agreement, or any document or
instrument delivered to PHC hereunder, that are qualified as to materiality
shall have been true and correct in all respects when initially made and shall
be true and correct in all respects as of the Closing Date and all other
representations and warranties of Physician and Practice Group set forth in this
Agreement, or any document or instrument delivered to PHC hereunder, shall have
been true and correct in all material respects when initially made and shall be
true and correct in all material respects at the Closing Date.
8.3 Performance; Covenants. All of the terms, covenants and conditions
----------------------
of this Agreement to be complied with or performed by Physician or Practice
Group at or prior to Closing shall have been complied with and performed in all
material respects.
8.4 Closing Deliveries. The following documents shall have been
------------------
delivered to PHC:
(a) An Assignment and Assumption Agreement executed by Practice
Group, PHC and PHC-SUB in substantially the form of EXHIBIT A;
---------
(b) An employment agreement executed by Physician ("Physician Owner
Employment Agreement"), employment agreements executed by all
physicians employed by the Practice Group ("Physician Employment
Agreements") and a Termination of Professional Employment and
General Release Agreement executed by the physician who will be
employed by MS-PLLC immediately prior to the Closing Date
("Termination & Release Agreement"), in substantially the forms
of EXHIBIT B-1, EXHIBIT B-2, and EXHIBIT B-3 respectively;
----------- ----------- -----------
(c) An Acquisition Restrictive Covenant Agreement executed by
Physician, PHC and PHC-SUB in substantially the form of EXHIBIT
-------
C;
-
(d) A Practice Management Agreement executed by the Physician, PHC
and PHC-SUB in substantially the form of EXHIBIT D;
---------
(e) The Receivables Promissory Note dated the Closing Date, executed
by the Practice Group, in the form as attached hereto as EXHIBIT
-------
J;
-
(f) The Government Receivables Security Agreement dated the Closing
Date, executed by the Practice Group, in the form as attached
hereto as EXHIBIT K;
---------
25
<PAGE>
(g) A certificate dated the Closing Date signed by a duly authorized
officer of Practice Group certifying that the representations
and warranties are true and correct as of the date of such
certificate and that Physician and Practice Group have fulfilled
the conditions of this SECTION 8.4;
-----------
(h) Unanimous Consent Resolutions of the Board of Directors of
Practice Group in form and substance satisfactory to PHC approving
the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, certified by
a duly authorized representative of Practice Group;
(i) Written consents of all third parties necessary for the
consummation of the transactions contemplated by this Agreement
and the ownership by PHC-SUB of the Practice Group Business;
provided, that the parties to this Agreement will use their best
efforts to obtain the consents required to obtain assignment of
all leases set forth on SCHEDULE 4.2 hereto and failure to obtain
------------
all of such consents by the Closing Date shall not constitute a
breach of this Agreement;
(j) An opinion of counsel of Practice Group from Sidley & Austin and
from Alabama Counsel in substantially the forms of EXHIBIT E-1 and
-----------
EXHIBIT E-2, respectively, attached hereto;
-----------
(k) The Investment Agreement in substantially the form of EXHIBIT F
---------
attached hereto executed by SDC, Physician and PHC pursuant to
this Agreement;
(l) Such other documents as counsel for PHC shall reasonably request,
including, without limitation, any documents required to be filed
with any governmental body;
(m) The Articles of Incorporation, Bylaws and Stock Certificates of
IL-SC, and the Certificate of Formation and the Operating
Agreement of MS-PLLC; and
(n) The Option Agreements that allow PHC or PHC-SUB, as the case may
be, purchase Physician's stock or membership interests in IL-SC
and MS-PLLC two (2) years after Closing.
8.5 PHC Due Diligence. Closing shall only occur upon the complete and
-----------------
sole satisfaction of PHC as to the Due Diligence Inspection pursuant to SECTION
-------
6.1; provided, however, nothing herein is intended to extend the date by which
- --- -------- -------
the Closing is to occur.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF PHYSICIAN AND PRACTICE GROUP
---------------------------------------------------------
The obligations of Physician and Practice Group to close the transaction
contemplated hereby are subject to the satisfaction, at or prior to Closing, of
each of the following conditions:
9.1 Representations and Warranties. The representations and warranties of
------------------------------
PHC and PHC-SUB set forth in this Agreement, or any document or instrument
delivered to Physician and Practice Group hereunder, that are qualified as to
materiality shall have been true and correct in all respects when initially made
and shall be true and correct in all respects as of the Closing Date and all
other representations and warranties of PHC and PHC-SUB set forth in this
Agreement, or any document or instrument delivered to Physician and Practice
Group hereunder, shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects at the
Closing Date.
26
<PAGE>
9.2 Performance; Covenants. All of the terms, covenants and conditions of
----------------------
this Agreement to be complied with or performed by PHC and PHC-SUB at or prior
to Closing shall have been complied with and performed in all material respects.
9.3 Closing Deliveries. The following documents shall have been delivered
------------------
to Physician and Practice Group:
(a) The Third Amended and Restated Articles of Incorporation and
Bylaws of PHC and the Articles of Incorporation, Bylaws and Stock
Certificates of PHC- SUB;
(b) Certificates dated the Closing Date signed by duly authorized
representatives of PHC and PHC-SUB certifying that the
representations and warranties are true and correct on the date of
such certificates and that PHC and PHC-SUB have fulfilled all of
the conditions of this SECTION 9.3;
-----------
(c) Consent Resolutions of the Board of Directors of PHC and PHC-SUB
approving the execution, delivery and performance of this
Agreement, the Promissory Notes, the other Transaction Documents
and the consummation of the transactions contemplated hereby,
certified by a duly authorized representative of PHC and PHC-SUB;
(d) Opinions of counsel of PHC and PHC-SUB in substantially the form
of EXHIBIT H-1 AND H-2 attached hereto;
-------------------
(e) The Investment Agreement in substantially the form of EXHIBIT F
---------
attached hereto executed by Physician and PHC pursuant to this
Agreement;
(f) The Cash Payment;
(g) Four Hundred Thirty Two Thousand (432,000) PHC Prime Shares;
(h) The Registration Rights Agreement in substantially the form of
EXHIBIT G attached hereto;
---------
(i) The Promissory Notes in substantially the forms of EXHIBIT I-1 and
-----------
EXHIBIT I-2, respectively, attached hereto executed by PHC-SUB;
-----------
(j) Wire transfer instructions for the payoff on the note payable by
SDC to the First National Bank and Trust of Carbondale, Illinois
("FNB of Carbondale"), an executed copy of the FNB of Carbondale
payoff letter and the State of Illinois UCC-3 terminating FNB of
Carbondale's security interest in certain SDC assets executed by
the appropriate bank officer; and
(k) Such other documents necessary for the consummation of the
transactions contemplated herein as counsel for Physician shall
reasonably request, including, without limitation, any documents
required to be filed with any governmental body.
ARTICLE X
INDEMNIFICATION
---------------
10.1 Indemnification by Physician. Subject to the terms and conditions of
----------------------------
this ARTICLE X, Physician agrees to indemnify, defend, and hold PHC harmless
---------
from, against, for, and in respect of any and all Losses (as defined below)
27
<PAGE>
asserted against, relating to, imposed upon, or incurred by PHC by reason of,
resulting from, based upon, or arising out of:
(a) The inaccuracy, untruth, or incompleteness of any representation
or warranty of Practice Group and/or Physician contained in or
made pursuant to this Agreement;
(b) The failure of Practice Group and/or any physician to comply with
any of the covenants made by Practice Group and/or Physician in
this Agreement; and
(c) The conduct of the Practice Group Business on or prior to the
Closing Date, other than for liabilities expressly assumed under
the terms of this Agreement.
In the event that any Losses are asserted against, imposed upon, or incurred by
PHC prior to the date on which PHC is obligated to remit the Practice Group
amounts payable under the Promissory Notes to Physician pursuant to SECTION 3.1,
-----------
and for which the Physician would be required to indemnify PHC pursuant to this
Section, PHC shall have the option, but not the obligation, to subtract the
amount of the Losses from the Promissory Notes. The preceding sentence provides
for a non-exclusive remedy and shall in no way limit PHC's right to be
indemnified by the Physician for any and all Losses that may be asserted
against, imposed upon, or incurred by PHC at any time. No investigation or
inquiry made by Practice Group or Physician of PHC or PHC-SUB or its books and
records and financial condition shall, regardless of the closing of the
transactions contemplated hereby, affect or limit any representation or warranty
made by PHC or PHC-SUB in this Agreement or any Schedules delivered by any of
them pursuant hereto or any right of indemnification of Physician under Section
-------
10.2 hereof.
- ----
10.2 Indemnification by PHC and PHC-SUB. Subject to the terms and
----------------------------------
conditions of this ARTICLE X, PHC and PHC-SUB agree jointly and severally, to
---------
indemnify, defend and hold Physician and Practice Group harmless from, against,
for and in respect of any and all Losses (as defined below) asserted against,
relating to, imposed upon, or incurred by Practice Group and/or Physician by
reason of, resulting from, based upon, or arising out of:
(a) The inaccuracy, untruth, or incompleteness of any representation
or warranty of PHC or PHC-SUB contained in or made pursuant to
this Agreement; and
(b) The failure of PHC or PHC-SUB to comply with any of the covenants
made by PHC in this Agreement.
10.3 Definition of Losses. For the purposes of this ARTICLE X, "Losses"
-------------------- ---------
shall mean any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs, and expenses, including,
without limitation, interest, penalties, and reasonable attorneys' and other
professional fees, and expenses incurred in the investigation, preparation,
defense, and settlement of any claim, loss, damage, or liability as to which a
party is entitled to indemnification hereunder.
10.4 Notice and Opportunity to Defend.
--------------------------------
(a) The party indemnified hereunder (the "Indemnified Party") shall
notify in writing the indemnifying party (the "Indemnifying
Party") within thirty (30) days after a claim is presented to the
Indemnified Party, and the Indemnifying Party shall defend such
claim at its expense. If the Indemnifying Party does not defend or
settle such claim, the Indemnified Party may do so without the
Indemnifying Party's participation, in which case the Indemnifying
Party shall pay the reasonable expenses of such defense, and the
Indemnified Party may settle or compromise such claim without the
Indemnifying Party's consent. If the Indemnified Party fails to
notify the Indemnifying Party, and if the Indemnifying Party is
thereby materially prejudiced by such failure of notice in its
defense of the claim, the
28
<PAGE>
Indemnifying Party's obligation of indemnity hereunder shall be
extinguished with respect to such claim to the extent that the
Indemnifying Party has been prejudiced by the failure to give such
notice.
(b) Anything herein to the contrary notwithstanding, no party shall
make any claim against any other party pursuant to this ARTICLE X
---------
unless the dollar amount of all Losses suffered or incurred by the
party seeking such indemnity hereunder shall exceed, in the
aggregate, the amount of Twenty-Five Thousand and No/100 Dollars
($25,000.00), but, if such amount is exceeded, the Indemnifying
Party shall be required to pay the full amount of such aggregate
Losses (up to nine million dollars ($9,000,000) (the "Cap Amount")
and without deduction for such Twenty-Five Thousand and No/100
Dollars ($25,000.00) threshold amount) for which indemnification
rights and obligations are provided under this ARTICLE X.
---------
The foregoing notwithstanding, the Cap Amount shall not apply to
Losses suffered or incurred in connection with (i) medical
malpractice or professional liability claims in excess of the
insured limits provided for in the professional liability
insurance policies maintained for the benefit of the Practice
Group and professional employees and/or Physician of the
Practice; (ii) violations by the Practice Group or the Physician
of any of the billing practices under Fraud and Abuse laws, rules
and regulations referred to in SECTION 4.9 hereof; (iii)
-----------
violations by the Practice Group or the Physicians of the Civilian
Health and Medical Program of the Uniformed Service ("CHAMPUS")
and all laws, rules, regulations, manuals, orders, guidelines or
requirements pertaining to such program including (a) all federal
statutes (whether set forth in 10 U.S.C. (S)(S)1071-1106 or
elsewhere) affecting such program; and (b) all rules, regulations,
(including 32 C.F.R. (S)199), manuals, orders and administrative,
reimbursement and other guidelines of all governmental authorities
promulgated in connection with such program (whether or not having
the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time (iv) the
Civilian Health and Medical Program of the Department of Veteran
Affairs ("CHAMPVA") and all laws, rules, regulations, manuals,
orders, guidelines or requirements pertaining to such program,
including (a) all federal statutes (whether set forth in 38 U.S.C.
(S)1713 or elsewhere) affecting such program or, to the extent
applicable to CHAMPVA, CHAMPUS; and (b) all rules, regulations
(including 38 C.F.R. (S)17.54), manuals, orders and
administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such
program (whether or not having the force of law), in each case as
the same may be amended, supplemented or otherwise modified from
time to time and (v) violations by the Practice Groups or
Physician of the representations and warranties contained in
SECTION 4.24.
------------
(c) Anything herein to the contrary notwithstanding, no party shall
be liable to any other party under this ARTICLE X for punitive or
---------
consequential damages, including lost profits, except to the
extent contained in a final settlement, award or judgment
obtained by a third party.
10.5 Effect of Investigation by PHC. No investigation or inquiry made by
------------------------------
PHC of Physician or Practice Group or its books and records and financial
condition shall, regardless of the Closing of the transactions contemplated
hereby, affect or limit any representation or warranty made by Physician or
Practice Group to PHC in this Agreement or in any Schedule delivered by any of
them pursuant hereto or any right of indemnification of PHC under SECTION 10.1
------------
hereof.
29
<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
------------------------
11.1 Notices. Any notice required or permitted by this Agreement or any
-------
agreement or document executed and delivered in connection with this Agreement
shall be deemed to have been served properly if transmitted by certified mail,
return receipt requested, with proper postage prepaid or sent by overnight
carrier or by personal delivery, addressed to the respective party to whom such
notice relates at the following addresses:
If to PHC: Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah C. Garvin, President
Fax No.: (770) 673-1970
With a copy to: Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: General Counsel
Fax No.: (770) 673-1970
And a copy to: Jackson Walker, L.L.P.
901 Main Street, Suite 600
Dallas, Texas 75202
Attention: James S. Ryan, III
Fax No.: (214) 953-5822
If to PHC-SUB PHC Regional Oncology Care, Inc.
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah C. Garvin
Fax No.: (770) 673-1970
With a copy to: Jackson Walker, L.L.P.
901 Main Street, Suite 600
Dallas, Texas 75202
Attention: James S. Ryan, III
Fax No.: (214) 953-5822
If to Practice Group: Southern Dependacare, Inc.
202 West Jackson Street
Carbondale, Illinois 62901
Attention: Jack G. Hilton, M.D.
Fax No.: (618) 457-3560
30
<PAGE>
If to the Physician: Jack G. Hilton, M.D.
202 West Jackson Street
Carbondale, Illinois 62901
Attention: Jack G. Hilton, M.D.
Fax No.: (618) 457-3560
With a copy to: Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Latham Williams, Esq.
Fax No.: (312) 853-7036
or such other address as shall be furnished in writing by any party to the other
party. All such notices shall be considered received: (a) if transmitted by
certified mail, return receipt requested, with proper postage prepaid, upon the
fifth (5/th/) business day after mailing; (b) if transmitted by overnight
carrier, on the next business day and (c) if transmitted by personal delivery,
upon receipt.
11.2 Successors and Assigns. PHC may assign its rights under this
----------------------
Agreement to any affiliated entity, but otherwise this Agreement shall not be
assignable, by operation of law or otherwise, without the prior written consent
of the other parties. Subject to the foregoing, this Agreement shall inure to
the benefit of, be enforceable by and be binding upon the parties, their
successors and assigns. The rights of SDC's shareholder under SDC's plan of
liquidation and its Articles of Dissolution shall not be altered by this SECTION
-------
11.2.
- -----
11.3 Entire Agreement. This Agreement and the Exhibits, Schedules,
----------------
certificates and other documents delivered pursuant hereto or incorporated
herein by reference, contain and constitute the entire agreement among the
parties and supersede and cancel any prior agreements, representations,
warranties, or communications, whether oral or written, among the parties
relating to the transactions contemplated by this Agreement. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by an agreement in writing signed by the party
against whom or which the enforcement of such change, waiver, discharge or
termination is sought.
11.4 Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of Georgia, but excluding the
conflicts laws of the State of Georgia. The parties consent to the jurisdiction
of such courts. The provisions of this Agreement are severable and the
invalidity of one or more of the provisions herein shall not have any effect
upon the validity or enforceability of any other provision.
11.5 No Brokers. Physician, Practice Group and PHC each represent to the
----------
others that no broker or finder has been employed in connection with the
transactions hereunder.
11.6 Schedules and Exhibits. All Schedules and Exhibits attached to this
----------------------
Agreement are by reference made a part hereof.
11.7 Waivers. No failure on the part of any party hereto to exercise, and
-------
no delay in exercising, any right, power or remedy created hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or remedy by any such party preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. No waiver by any
party hereto of any breach of or default in any term or condition of this
Agreement shall constitute a waiver of or assent to any succeeding breach of or
default in the same or any other term or condition hereof.
11.8 Headings. The headings contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
31
<PAGE>
11.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
11.10 Confidentiality. The parties agree that they will not make any
---------------
disclosure about the existence or contents of this Agreement or activities
relating to the consummation of the transactions contemplated herein without
prior approval of the other party except to the parties' regulatory advisors,
lawyers and financial advisors and as may be required by law, as may be
necessary to obtain the required consents, licenses, permits or approvals
pursuant to SECTION 8.1 herein, or as may be necessary in the ordinary course of
-----------
business of PHC.
11.11 Alternative Dispute Resolution.
------------------------------
The exclusive methods for resolution of disputes arising out of or
relating to this Agreement or its terms shall be (i) the negotiation of the
parties, (ii) mediation pursuant to the terms of SECTION 11.11(a); and/or (iii)
----------------
arbitration pursuant to the terms of SECTION 11.11(b).
----------------
(a) Mediation. If a dispute arises out of or relates to this
---------
Agreement or its terms, and the parties fail to settle the
dispute through negotiation, either party may elect to submit the
dispute to a sole mediator. The parties shall select the mediator
by mutual agreement or, if the parties fail to agree upon a
mediator within 30 days from the date of election to mediate, the
mediator shall be selected by the American Arbitration
Association. The Commercial Mediation Rules of the American
Arbitration Association shall govern the mediation, including
selection of the mediator if the parties cannot agree upon a
mediator. The parties shall bear their own costs associated with
the mediation and shall share equally the costs of the mediator.
If the parties do not resolve the dispute within 60 days from the
commencement of the mediation and do not mutually agree to extend
the 60 day period, either party may elect to submit the dispute
to binding arbitration. The parties, their representatives, other
participants and the mediator shall hold the existence, content
and result of the mediation in confidence. The mediation shall be
held in Atlanta, Georgia.
(b) Arbitration. Following mediation pursuant to the provisions of
-----------
the foregoing SECTION 11.11(a) and upon the election of either
----------------
party to submit the dispute to binding arbitration, the dispute
shall be submitted to a sole arbitrator, whose decision shall be
final and binding on the parties. The parties shall select the
arbitrator by mutual agreement or, if the parties fail to agree
upon an arbitrator within 30 days from the date of the election
to arbitrate, the arbitrator shall be selected by the American
Arbitration Association. The Commercial Arbitration Rules of the
American Arbitration Association shall govern the arbitration,
including the selection of the arbitrator if the parties cannot
agree upon the arbitrator. The parties shall bear their own costs
associated with the arbitration and shall share equally the costs
of the arbitrator. In the event that either party fails to comply
with the terms of the arbitrator's final decision within 12
months of said decision, either party may petition a court of
competent jurisdiction to enter a judgment based upon the
arbitrator's final decision. Other than petitioning a court to
enter a judgment based upon the arbitrator's final decision, the
parties, their representatives, other participants and the
arbitrator shall hold the existence, content and result of the
arbitration in confidence. The arbitration shall be held in
Atlanta, Georgia.
(c) Equitable Remedies Pending Mediation/Arbitration. Nothing in
------------------------------------------------
this SECTION 11.11 shall be construed to preclude any party
-------------
from seeking injunctive relief in order to protect its rights
pending mediation/arbitration.
32
<PAGE>
11.12 Expenses. Each party shall bear its own expenses incurred in the
--------
preparation, negotiation and performance of this Agreement; provided, however,
that the Physician shall bear all of the expenses of the Practice Group so
incurred.
11.13 No Third Party Beneficiaries. Nothing contained in this Agreement
----------------------------
(express or implied) is intended or shall be construed to confer upon or give to
any person, corporation or other entity, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
11.14 Survival. Except for the provisions of SECTION 4.9(b), SECTION 4.24,
-------- -------------- ------------
SECTION 5.3, SECTION 5.4, SECTION 5.8, SECTION 6.1, SECTION 6.4, SECTION 6.5,
- ----------- ----------- ----------- ----------- ----------- -----------
SECTION 11.10, SECTION 11.11, SECTION 11.12, SECTION 11.13, SECTION 11.15, and
- ------------- ------------- ------------- ------------- -------------
SECTION 11.16, which shall continue in full force and effect indefinitely, the
- -------------
provisions of ARTICLES IV, V , VI, VIII and XI of this Agreement shall survive
----------- -- -- -- --
the Closing and continue in full force and effect until eighteen (18) months
after the Closing Date.
11.15 Post Closing Covenants of Physician. The following documents shall be
-----------------------------------
delivered by Physician to PHC or PHC-SUB, as the case may be, at the noted and
appropriate time after the Closing:
(a) Within 90 days after Closing, an itemized statement from Sidley &
Austin detailing the legal fees incurred relating to the formation
of the Practices;
(b) The federal income tax liability payable by April 15, 1998, by
Physician with respect to the ordinary income recognition on the
accounts receivable of Practice Group and as determined under
Section 3.1(b) hereof.
--------------
(c) Copies of the United States Department of Justice Immigration and
Naturalization Services Form I-9 ("Form I-9") and copies of all
supporting documents thereto for each physician employed by the
Practices.
(d) Tail insurance policy as may be reasonably required by PHC or PHC-
SUB for Dr. Mahnaz Lary; and
(e) Within three weeks after Closing, Physician shall have caused the
medical records of Practice Group to be properly transcribed.
11.16 Post Closing Covenants of PHC and PHC-SUB. The following documents
-----------------------------------------
or payments shall be delivered by PHC or PHC-SUB to Physician or the
appropriate party, as the case may be, after the Closing:
(a) Within 60 days after receiving the Sidley & Austin invoice set
forth in SECTION 11.15 above, PHC or PHC-SUB, as the case may be,
-------------
shall pay Sidley & Austin one-half of the legal fees incurred in
the formation of the Practices ;
(b) Within a reasonable time after Closing, PHC-SUB shall provide
Physician with a Unanimous Consent of the Sole Shareholder
electing Physician to the board of directors of PHC-SUB and a
Unanimous Consent of the Sole Director of PHC-SUB electing
Physician to the position of President of PHC-SUB; and
(c) Payment of amount set forth in Section 3.1(b).
--------------
33
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
PHYSICIAN HEALTH CORPORATION
By: ____________________________________
Sarah C. Garvin, President
PHC REGIONAL ONCOLOGY CARE, INC.
By: ____________________________________
Sarah C. Garvin, President
SOUTHERN DEPENDACARE, INC.
By: ____________________________________
Jack G. Hilton, M.D., President
PHYSICIAN
__________________________________________
Jack G. Hilton, M.D.
34
<PAGE>
EXHIBIT 10.14
AGREEMENT AND PLAN OF MERGER
----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I
- ---------
DEFINITIONS........................................................... 1
ARTICLE II
- ----------
THE MERGER............................................................ 6
2.1 The Merger...................................................... 6
----------
2.2 The Closing..................................................... 6
-----------
2.3 Effective Time.................................................. 6
--------------
2.4 Tax-Free Reorganization......................................... 6
-----------------------
ARTICLE III
- -----------
CERTIFICATE OF INCORPORATION
AND BYLAWS OF THE SURVIVING CORPORATION............................... 7
3.1 Certificate of Incorporation.................................... 7
----------------------------
3.2. Bylaws.......................................................... 7
------
ARTICLE IV
- ----------
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION................... 7
4.1 Directors....................................................... 7
---------
4.2 Officers........................................................ 7
---------
ARTICLE V
- ---------
CONVERSION OF SHARES IN THE MERGER.................................... 7
5.1 Conversion of Shares............................................ 7
--------------------
5.2 Exchange of Certificates Representing Shares.................... 9
--------------------------------------------
5.3 Escrow of Acquiror Voting Common Stock.......................... 10
--------------------------------------
ARTICLE VI
- ----------
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION..................... 11
6.1 Existence; Good Standing; Corporate Authority;
---------------------------------------------
Compliance With Law............................................. 11
-------------------
6.2 Authorization, Validity and Effect of Agreements................ 11
------------------------------------------------
6.3 Capitalization.................................................. 11
--------------
6.4 Subsidiaries.................................................... 12
------------
6.5 Affiliated Practices............................................ 12
--------------------
6.6 Other Interests................................................. 12
---------------
6.7 Noncontravention................................................ 12
----------------
6.8 Litigation...................................................... 13
----------
6.9 Absence of Certain Changes...................................... 13
--------------------------
6.10 Taxes........................................................... 13
-----
6.11 Proprietary Rights.............................................. 15
------------------
6.12 Employee Benefit Plans.......................................... 15
----------------------
6.13 Labor Matters................................................... 17
-------------
6.14 Related Parties................................................. 17
---------------
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
6.15 No Brokers...................................................... 18
----------
6.16 Vote Required................................................... 18
-------------
6.17 Contracts, No Default........................................... 18
---------------------
6.18 Real Property................................................... 20
-------------
6.19 Information..................................................... 20
-----------
6.20 Compliance with Applicable Laws................................. 20
-------------------------------
6.21 Accounts Receivable............................................. 21
-------------------
6.22 Inventory....................................................... 21
---------
6.23 Product Liability............................................... 21
-----------------
6.24 Environment..................................................... 21
-----------
6.25 Recoupment Proceedings.......................................... 22
----------------------
6.26 Insurance....................................................... 22
---------
6.27 Title to Assets, Liens.......................................... 23
----------------------
6.28 No Material Adverse Effect...................................... 24
--------------------------
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB............. 24
7.1 Existence; Good Standing; Corporate
------------------------------------
Authority; Compliance With Law.................................. 24
------------------------------
7.2 Authorization, Validity and Effect of Agreements................ 24
------------------------------------------------
7.3 Capitalization.................................................. 25
--------------
7.4 Subsidiaries.................................................... 25
------------
7.5 Noncontravention................................................ 25
----------------
7.6 Financial Statements............................................ 26
--------------------
7.7 Litigation...................................................... 26
----------
7.8 Absence of Certain Changes...................................... 26
--------------------------
7.9 Taxes and Tax Returns........................................... 26
---------------------
7.10 No Brokers...................................................... 27
----------
7.11 Capital Stock................................................... 27
-------------
7.12 Compliance with Applicable Laws................................. 28
-------------------------------
7.13 Certain Agreements.............................................. 28
------------------
7.15 Title to Assets, Liens.......................................... 28
----------------------
7.16 POM............................................................. 29
---
ARTICLE VIII
COVENANTS............................................................. 29
8.1 Acquisition Proposals........................................... 29
---------------------
8.2 Interim Operations of the Corporation........................... 29
-------------------------------------
8.3 Interim Operations of Acquiror.................................. 31
------------------------------
8.4 Meetings of Stockholders........................................ 31
------------------------
8.5 Filings, Other Action........................................... 32
---------------------
8.6 Access.......................................................... 32
------
8.7 Merger Indemnification.......................................... 32
----------------------
8.8 Fees and Expenses............................................... 33
-----------------
8.9 Tax Representation Letters of the Corporation and Acquiror...... 33
----------------------------------------------------------
8.10 Further Action.................................................. 34
--------------
8.11 Notification of Certain Matters................................. 34
-------------------------------
8.12 Legal Conditions to Merger...................................... 34
--------------------------
8.13 Employment Agreements........................................... 34
---------------------
8.14 Service Agreements.............................................. 35
------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.15 Issuance of Promissory Notes and Security
-----------------------------------------
Agreements by Affiliated Practices.............................. 35
-----------------------------------
8.16 Employee Benefits............................................... 35
-----------------
ARTICLE IX
- ----------
CONDITIONS............................................................ 35
9.1 Conditions to Each Party's Obligation to Effect the Merger...... 35
----------------------------------------------------------
9.2 Conditions to Obligation of the Corporation to
----------------------------------------------
Effect the Merger............................................... 36
-----------------
9.3 Conditions to Obligation of Acquiror and
----------------------------------------
Merger Sub to Effect the Merger................................. 38
-------------------------------
9.4 Frustration of Closing Conditions............................... 41
---------------------------------
ARTICLE X
- ---------
TERMINATION........................................................... 41
10.1 Termination by Mutual Consent................................... 41
-----------------------------
10.2 Termination by Either Acquiror or the Corporation............... 41
-------------------------------------------------
10.3 Termination by the Corporation.................................. 41
------------------------------
10.4 Termination by Acquiror......................................... 41
-----------------------
10.5 Effect of Termination and Abandonment........................... 42
-------------------------------------
10.6 Extension, Waiver............................................... 43
-----------------
ARTICLE XI
- ----------
GENERAL PROVISIONS.................................................... 43
11.1 Survival of Representations, Warranties and Agreements.......... 43
------------------------------------------------------
11.2 Notices......................................................... 43
-------
11.3 Binding Effect, Benefit......................................... 45
-----------------------
11.4 Entire Agreement................................................ 45
----------------
11.5 Amendment....................................................... 45
---------
11.6 Alternative Dispute Resolution.................................. 45
------------------------------
11.7 Governing Law................................................... 46
-------------
11.8 Counterparts.................................................... 46
------------
11.9 Headings........................................................ 46
--------
11.10 Interpretation.................................................. 46
--------------
11.11 Waivers......................................................... 46
-------
11.12 Incorporation of Exhibits and Disclosure Letters................ 47
------------------------------------------------
11.13 Severability.................................................... 47
------------
11.14 Obligation of Acquiror.......................................... 47
----------------------
EXHIBIT...................................................................... 49
- -------
</TABLE>
EXHIBITS
- --------
Exhibit 5.3 - Escrow Agreement
Exhibit 8.9(a) - Tax Representation Letter of Corporation
Exhibit 8.9(b) - Tax Representation Letter of Acquiror
Exhibit 9.2(l)(i)- First Amendment to the Management Services Agreement
for Memphis Children's Clinic, PLLC
Exhibit 9.2(l)(ii) - First Amendment to the Management Services Agreement
for Foundation Medical Group, PLLC
iii
<PAGE>
Exhibit 9.2(l)(iii) - First Amendment to the Management Services Agreement
for Bryant Medical Services, P.C.
Exhibit 9.2(p) - Form of Preferred Shareholders' Warrant
Exhibit 9.3(i) - Investment Agreement
Exhibit 9.3(l)(i)- Amended Warrant Agreement - Petra Capital, LLC
Exhibit 9.3(l)(ii) - Amended Warrant Agreement - Delta Capital, L.L.C.
Exhibit 9.3(o)(i) - Stewart Employment Agreement
Exhibit 9.3(o)(ii)- Nichols Employment Agreement
Exhibit 9.3(o)(iii) - Caldwell Employment Agreement
Exhibit 9.3(p)(i)- Stewart Stock Option Agreement
Exhibit 9.3(p)(ii) - Nichols Stock Option Agreement
Exhibit 9.3(p)(i)- Caldwell Stock Option Agreement
Exhibit 9.3(s) - Investors Subject to the Corporation's Investor's
Rights Agreement
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November
10, 1997, is among PHYSICIAN HEALTH CORPORATION, a Delaware corporation (the
"Acquiror"), MIDSOUTH PRACTICE MANAGEMENT, INC., a Tennessee corporation (the
"Corporation"), and PHC TENNESSEE ACQUISITION SUBSIDIARY I, INC., a Tennessee
corporation and a wholly-owned subsidiary of Acquiror ("Merger Sub").
RECITALS
--------
A. The Boards of Directors of the Corporation and Acquiror each have
determined that a business combination between Acquiror and the Corporation is
in the best interests of their respective companies and stockholders, and
presents an opportunity for their respective companies to achieve long-term
strategic objectives, and accordingly have agreed to effect the merger provided
for herein upon the terms and subject to the conditions set forth herein.
B. The Corporation, Acquiror and Merger Sub desire to make certain
representations, warranties and agreements in connection with the Merger.
C. It is intended that for federal income tax purposes the merger
provided for herein shall qualify as a reorganization within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code, and the Treasury
Regulations promulgated thereunder.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
"Acquiring Party" shall have the meaning set forth in SECTION 10.5(b).
---------------
1
<PAGE>
"Acquiror" shall have the meaning set forth in the preamble of this
Agreement.
"Acquiror Adverse Effect" shall have the meaning set forth in SECTION 7.1.
-----------
"Acquiror Common Stock" shall have the meaning set forth in SECTION 7.3.
-----------
"Acquiror Disclosure Letter" shall have the meaning set forth in SECTION
-------
7.3.
- ---
"Acquiror Group" shall have the meaning set forth in SECTION 5.1(a).
--------------
"Acquiror Voting Common Stock" shall have the meaning set forth in SECTION
-------
5.1(a).
- ------
"Acquiror Warrant(s)" means warrants issued by the Acquiror under either an
Acquiror Warrant Agreement or an Amended Warrant Agreement.
"Acquiror Warrant Agreement(s)" means the agreements by and between the
Acquiror and MidSouth Health Plan, Inc. and holders of the Preferred Shares to
purchase Acquiror Voting Common Stock in consummation of this Agreement.
"Acquiror's Financial Statements" shall have the meaning set forth in
SECTION 7.6.
- -----------
"Acquiror's Permits" shall have the meaning set forth in SECTION 7.12.
------------
"Acquiror's Subsidiary(ies)" shall have the meaning set forth in SECTION
-------
7.4.
- ---
"Acquisition Proposal" shall have the meaning set forth in SECTION 8.1.
-----------
"Affiliated Practice(s)" shall have the meaning set forth in SECTION 6.5.
-----------
"Agreement" shall have the meaning set forth in the preamble.
"Amended Warrant Agreement(s)" means an amended warrant agreement by the
Acquiror, dated November 12, 1997, amending either the Petra Warrant Agreement
or the Delta Warrant Agreement in substantially the form as attached hereto as
EXHIBITS 9.2(l)(i) AND (ii), respectively.
- ---------------------------
"Anti-Dilution Event" shall have the meaning set forth in SECTION 5.1(k).
--------------
"Business Combination" shall have the meaning set forth in SECTION 10.5(b).
---------------
"Caldwell" shall mean Mr. Daniel J. Caldwell.
"CEO" shall have the meaning set forth in SECTION 4.2.
-----------
"CERCLA" shall mean the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended.
"Certificate" shall mean the stock certificate representing either Common
Shares or Preferred Shares, as applicable.
"CFO" shall have the meaning set forth in SECTION 4.2.
-----------
2
<PAGE>
"Closing" shall have the meaning set forth in SECTION 2.2.
-----------
"Closing Date" shall have the meaning set forth in SECTION 2.2.
-----------
"COBRA" shall have the meaning set forth in SECTION 6.12(f).
---------------
"Code" shall mean the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Common Shares" shall have the meaning set forth in SECTION 5.1(a).
--------------
"Compensation Plans" shall have the meaning set forth in SECTION 6.12(a).
---------------
"Contracts" shall have the meaning set forth in SECTION 6.7.
-----------
"COO" shall have the meaning set forth in SECTION 4.2.
-----------
"Corporation" shall have the meaning set forth in the preamble of this
Agreement.
"Corporation Adverse Effect" shall have the meaning set forth in SECTION
-------
6.1.
- ---
"Corporation Disclosure Letter" shall have the meaning set forth in SECTION
-------
6.3.
- ---
"Corporation Permits" shall have the meaning set forth in SECTION 6.20.
------------
"Corporation Warrant(s)" means any warrant issued by the Corporation prior
to the date of this Agreement.
"Corporation's Financial Statements" shall have the meaning set forth in
SECTION 6.21.
- ------------
"Damages" shall have the meaning set forth in SECTION 8.7(b).
--------------
"Delta Warrant Agreement" means, collectively, those certain warrant
agreements dated September 22, 1997, by and between the Corporation and Delta
Capital Partners, L.L.C., and other investors in the Corporation, granting
25,000 Corporation Warrants in the aggregate to Delta Capital Partners, L.L.C.
and such investors.
"DGCL" shall have the meaning set forth in SECTION 2.1.
-----------
"Dissenting Shares" shall have the meaning set forth in SECTION 5.1(h).
--------------
"Effective Time" shall have the meaning set forth in SECTION 2.3.
-----------
"Employee Benefit Plans" shall have the meaning set forth in SECTION
-------
6.12(c).
- -------
"Employment Agreements" shall have the meaning set forth in SECTION
-------
6.12(b).
- -------
"Environmental Laws" shall have the meaning set forth in SECTION 6.24.
------------
"ERISA" shall have the meaning set forth in SECTION 6.12(c).
---------------
"ERISA Affiliate" shall have the meaning set forth in SECTION 6.12(a).
---------------
"Escrow Agent"shall have the meaning set forth in SECTION 5.3.
-----------
3
<PAGE>
"Escrow Agreement"shall have the meaning set forth in SECTION 5.3.
-----------
"Escrowed Shares" shall have the meaning set forth in SECTION 5.3.
-----------
"Exchange Act" shall have the meaning set forth in SECTION 6.7.
-----------
"Exchange Agent" shall have the meaning set forth in SECTION 5.2(a).
--------------
"Exchange Fund" shall have the meaning set forth in SECTION 5.2(a).
--------------
"Governmental Entity" shall have the meaning set forth in SECTION 6.20.
------------
"Indebtedness" shall have the meaning set forth in SECTION 6.17(a)(vii)
---------------------
"Intellectual Property" shall have the meaning set forth in SECTION 6.11.
------------
"Investment Agreement" shall have the meaning set forth in SECTION 5.1(f).
--------------
"Lender(s)" means any third-party lender from which the Corporation or an
Affiliated Practice obtained financing for the operations of their respective
operations.
"Material Adverse Effect" shall mean, with respect to any entity, a
material adverse effect on the financial condition, properties, business, or
results of operations of such entity and its subsidiaries taken as a whole, and
on the ability of such entity to perform its obligations hereunder or to
consummate the transactions contemplated hereby.
"Medical Waste" shall have the meaning set forth in SECTION 6.24.
------------
"Medical Waste Laws" shall have the meaning set forth in SECTION 6.24.
------------
"Merger" shall have the meaning set forth in SECTION 2.1.
-----------
"Merger Sub" shall have the meaning set forth in the preamble of this
Agreement.
"Merger Sub Common Stock" shall have the meaning set forth in SECTION
-------
5.1(f).
- ------
"MWTA" shall mean the Medical Waste Tracking Act of 1988 (Pub. L. 100-582,
102 Stat. 2950), which amended the Resource Conservation and Recovery Act, 42
U.S.C. sections 6903, 6992, 6992a-6992k and 18 U.S.C. 3063.
"Nichols" shall mean Ms. Betty Nichols.
"PBGC" shall have the meaning set forth in SECTION 6.12(e).
---------------
"Petra Warrant Agreement" means that certain Stock Purchase Warrant
Agreement dated June 25, 1997, by and between the Corporation and Petra Capital,
LLC, a Georgia limited liability company, granting Petra Capital 170,000
Corporation Warrants.
"POM" shall mean that certain Private Offering Memorandum, and the
Supplement thereto, of Acquiror dated as of November 2, 1997.
"Preferred Shares" shall have the meaning set forth in SECTION 5.1(c).
--------------
4
<PAGE>
"Promissory Note(s)" shall have the meaning set forth in SECTION 8.15.
------------
"Regulatory Filings" shall have the meaning set forth in SECTION 6.7.
-----------
"Securities Act" shall have the meaning set forth in SECTION 6.7.
-----------
"Security Agreement(s)" shall have the meaning set forth in SECTION 6.7.
-----------
"Stewart" shall mean William C. Stewart, Jr., M.D.
"Surviving Corporation" shall have the meaning set forth in SECTION 2.1.
-----------
"Tax(es)" shall mean all taxes, fees, assessments, levies, duties and other
charges of any nature imposed by any federal, state, local or foreign taxing
authority, together with all interest, penalties, fines and other additions
imposed in respect thereof.
"Tax Returns" shall mean all original and amended returns, declarations,
certifications, statements, notices, elections, estimates, reports, claims for
refund and information returns relating to or required to be filed or maintained
in connection with any Tax, together with all schedules and attachments thereto.
"TBCA" shall have the meaning set forth in SECTION 2.1.
-----------
"Voting Debt" shall have the meaning set forth in SECTION 6.3.
-----------
ARTICLE II
----------
THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement, at
------------
the Effective Time (as defined in SECTION 2.3), the Corporation shall be merged
-----------
with and into Merger Sub in accordance with this Agreement and the separate
corporate existence of the Corporation shall thereupon cease (the "Merger").
The Merger Sub shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Tennessee, and the separate corporate
existence of the Merger Sub with all its rights, privileges, powers, immunities,
purposes and franchises shall continue unaffected by the Merger, except as set
forth in ARTICLES II and III. The Merger shall have the effects specified in
----------- ---
Section 259 of the Delaware General Corporation Law (the "DGCL") and Section 48-
21-101, et., seq., of the Tennessee Business Corporation Act (the "TBCA").
--- ----
2.2 The Closing. The closing of the Merger (the "Closing") shall take
------------
place (i) via facsimile and telephone on November 12, 1997, which is the first
business day immediately following the day on which the last to be fulfilled or
waived of the conditions set forth in ARTICLE IX shall be fulfilled or waived in
----------
accordance herewith or (ii) at such other time and place and/or on such other
date as the Corporation and Acquiror may agree. The date on which the Closing
occurs is hereafter referred to as the "Closing Date."
2.3 Effective Time. If all the conditions to the Merger set forth in
---------------
ARTICLE IX shall have been fulfilled or waived in accordance herewith and this
- ----------
Agreement shall not have been terminated in accordance with ARTICLE X, the
---------
parties hereto shall cause Articles of Merger meeting the requirements of
Section 48-21-107 of the TBCA to be properly executed and filed with the
Secretary of State of the State of Tennessee in accordance with such section of
the TBCA on the Closing Date. The Merger shall become effective at the time of
the later of (i) the filing of the Articles of Merger in accordance with the
TBCA, or (ii) at such time as the parties hereto have theretofore agreed upon
and designated in such filing as the effective time of the Merger (the
"Effective Time").
5
<PAGE>
2.4 Tax-Free Reorganization. The parties to this Agreement intend that
-----------------------
the transaction contemplated by this Agreement shall be treated as a tax-free
reorganization under Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code,
and the Treasury Regulations promulgated thereunder.
ARTICLE III
-----------
CERTIFICATE OF INCORPORATION
AND BYLAWS OF THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. Effective as of the Effective Time, the
-----------------------------
Charter of the Merger Sub shall become the Charter of the Surviving Corporation.
3.2. Bylaws. The Bylaws of Merger Sub in effect immediately prior to the
------
Effective Time shall become the Bylaws of the Surviving Corporation.
ARTICLE IV
----------
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
4.1 Directors. The following persons shall, from and after the Effective
---------
Time, be and become directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Charter and Bylaws: (i) Stewart as Chairman of the Board of
Directors as designated by the Surviving Corporation and (ii) Caldwell (as
elected by Acquiror). In addition to the election of Caldwell, the Acquiror
shall elect two (2) members of the Surviving Corporation's Board of Directors.
In addition to Stewart, the physicians participating in the practice management
functions of the Surviving Corporation shall have the right to designate three
(3) members of the Surviving Corporation's Board of Directors.
4.2 Officers. The following officers of the Corporation shall continue as
--------
officers of the Surviving Corporation from and after the Effective Time, until
their resignation or removal: Stewart as chief executive officer ("CEO"),
Caldwell as chief operating officer ("COO") and chief financial officer ("CFO")
and Nichols as Vice-President and Secretary.
ARTICLE V
---------
CONVERSION OF SHARES IN THE MERGER
5.1 Conversion of Shares. The manner of converting shares of the
--- ---------------------
Corporation and Merger Sub in the Merger shall be as follows:
(a) At the Effective Time, each share of the Common Stock, par value
$0.01 per share (the "Common Shares"), of the Corporation issued and outstanding
immediately prior to the Effective Time (other than Common Shares, if any, owned
by Acquiror, Merger Sub or any other subsidiary of Acquiror (the "Acquiror
Group")) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be exchanged for 66/100ths (.66) of one (1) share of the
Acquiror's Voting Common Stock, par value $0.0025 per share of Acquiror (the
"Acquiror Voting Common Stock").
(b) As a result of the Merger and without any action on the part of
the holder thereof, all Common Shares shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a Certificate
representing any Common Shares shall thereafter cease to have any rights with
respect to such Common Shares, except the right to receive, without interest,
the Acquiror Voting Common Stock and cash for
6
<PAGE>
fractional interests of the Acquiror Voting Common Stock in accordance with
SECTIONS 5.1(a) AND 5.2(d) upon the surrender of such Certificate.
- -------------------------
(c) At the Effective Time, each share of the Class A Convertible
Preferred Stock, par value $0.01 per share (the "Preferred Shares"), of the
Corporation issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted and exchanged for 66/100ths (.66) of one (1) share of the
Acquiror Voting Common Stock.
(d) As a result of the Merger and without any action on the part of
the holder thereof, all Preferred Shares shall cease to be outstanding and shall
be canceled and retired and shall cease to exist, and each holder of a
Certificate representing any Preferred Shares shall thereafter cease to have any
rights with respect to such Preferred Shares, except the right to receive,
without interest, Acquiror Voting Common Stock and cash for fractional interests
of Acquiror Voting Common Stock in accordance with SECTIONS 5.1(c) AND 5.2(d)
--------------------------
upon the surrender of such Certificate.
(e) Each Common Share and Preferred Share issued and outstanding at
the Effective Time and owned by any of the Acquiror Group, and each Common Share
and Preferred Share issued and held in the Corporation's treasury at the
Effective Time, by virtue of the Merger and without any action on the part of
the holder thereof, shall cease to be outstanding and shall be canceled and
retired without payment of any consideration therefor and shall cease to exist.
(f) There are substantial restrictions on the transferability of
Acquiror Voting Common Stock pursuant to that certain Investment Agreement by
and between the Acquiror and each of the holders of the Acquiror Voting Common
Stock (the "Investment Agreement"). The certificates representing Acquiror
Voting Common Stock when issued will bear the stock legend set forth in the
Investment Agreement. The Investment Agreement shall be delivered to each of the
Corporation's stockholders for execution.
(g) At the Effective Time, the shares of Merger Sub Common Stock, par
value $1.00 per share, issued and outstanding immediately prior to the Effective
Time shall be the issued and outstanding shares of Common Stock of the Surviving
Corporation as a result of the Merger (the "Merger Sub Common Stock").
(h) Notwithstanding anything in this Agreement to the contrary, Common
Shares and Preferred Shares outstanding immediately prior to the Effective Time
held by a holder (if any) who is entitled to demand, and who properly demands,
appraisal for such shares in accordance with Section 48-23-101, et. seq., of the
--- ---
TBCA ("Dissenting Shares") shall not be converted into a right to receive
Acquiror Voting Common Stock and cash in lieu of fractional shares in accordance
with SECTION 5.1(b), SECTION 5.1(d) and SECTION 5.2(d), unless such holder fails
------------- ------------- -------------
to perfect or otherwise loses such holder's right to appraisal, if any. If,
after the Effective Time, such holder fails to perfect or loses any such right
to appraisal, such shares shall be treated as if they had been converted as of
the Effective Time into the right to receive Acquiror Voting Common Stock and
cash in lieu of fractional shares in accordance with SECTION 5.1(b), SECTION
------------- -------
5.1(d) and SECTION 5.2(d) hereof. The Corporation shall give prompt notice to
- ----- -------------
Acquiror of any demands received by the Corporation for appraisal of either
Common Shares or Preferred Shares, and Acquiror shall have the right to
participate in and direct all negotiations and proceedings with respect to such
demands. The Corporation shall not, except with the prior written consent of
Acquiror, make any payment with respect to, or settle or offer to settle, any
such demands.
(i) In the event that either the Corporation changes the number of
shares of Common Shares or Preferred Shares or the Acquiror changes the number
of shares of Acquiror Voting Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, combination of
shares or similar recapitalization with respect to such stock (an "Anti-Dilution
Event") and the record date therefor (in the case of a stock dividend) or the
effective date thereof (in the case of a stock split, share exchange or similar
recapitalization for which a record date is not established) shall be prior to
the Effective Time, the conversion of shares set forth in this
7
<PAGE>
SECTION 5.1 shall be proportionately adjusted to insure that holders of either
- -----------
the Common Shares or the Preferred Shares shall receive Acquiror Voting Common
Stock having the same value as they would have received prior to the Anti-
Dilution Event.
5.2 Exchange of Certificates Representing Shares.
--------------------------------------------
(a) On the Closing Date, Acquiror shall make available certificates
representing a sufficient number of shares of Acquiror Voting Common Stock in
exchange for the outstanding Common Shares or Preferred Shares, less the number
of shares held pursuant to the Escrow Agreement.
(b) Notwithstanding any other provisions of this Agreement, no
dividends on Acquiror Voting Common Stock shall be paid with respect to any
Common Shares or Preferred Shares represented by a Certificate until such
Certificate is surrendered for exchange as provided herein. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of certificates representing shares of Acquiror
Voting Common Stock issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such
shares of Acquiror Voting Common Stock, and not paid, less the amount of any
withholding taxes that may be required thereon, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender thereof and a payment date
subsequent to surrender thereof payable with respect to such shares of Acquiror
Voting Common Stock, less the amount of any withholding taxes that may be
required thereon.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Corporation of Common or Preferred Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for certificates for shares of Acquiror Voting Common
Stock upon surrender of such Certificates to the Acquiror.
(d) Notwithstanding any other provision of this ARTICLE V, no
---------
fractional shares of Acquiror Voting Common Stock will be issued and any holder
of Common or Preferred Shares entitled hereunder to receive a fractional share
of Acquiror Voting Common Stock, but for this SECTION 5.2(d) will be entitled
-------------
hereunder to receive no such fractional share of Acquiror Voting Common Stock,
but a cash payment in lieu thereof; provided, that the cash payment shall not
exceed the product of (i) Five Dollars and no/100 ($5.00), multiplied by (ii)
such fractional share.
(e) None of the Acquiror, the Corporation, or the Surviving
Corporation or any other person shall be liable to any former holder of Common
or Preferred Shares for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Acquiror will
issue in exchange for such lost, stolen or destroyed Certificate shares of
Acquiror Voting Common Stock, and cash in lieu of fractional shares, and unpaid
dividends and distributions on shares of Acquiror Voting Common Stock as
provided in SECTION 5.2(b), deliverable in respect thereof pursuant to this
--------------
Agreement.
5.3 Escrow of Acquiror Voting Common Stock. Notwithstanding the
--------------------------------------
provisions of this ARTICLE V, Acquiror shall deposit in escrow ten percent (10%)
---------
of all shares of Acquiror Voting Common Stock issued in accordance with this
Agreement (the "Escrowed Shares") pursuant to the terms of an escrow agreement
in substantially the form as attached hereto as EXHIBIT 5.3 (the "Escrow
-----------
Agreement"), to be entered into by and among the Acquiror, each shareholder of
the Corporation that is to receive Acquiror Voting Common Stock and Jackson
Walker L.L.P., as escrow agent (the "Escrow Agent"). The purpose of the Escrow
Agreement is to provide certain assurances to the
8
<PAGE>
Acquiror that the representations and warranties of the Corporation set forth in
ARTICLE VI are not breached within the period specified in the Escrow Agreement
- ----------
and to provide indemnification to the Acquiror as to any undisclosed
liabilities. The Escrowed Shares shall be released from escrow in accordance
with the terms of the Escrow Agreement and after provision for any Damages for
which PHC or Merger Sub may be entitled to indemnification under SECTION 8.7
-----------
hereof.
ARTICLE VI
----------
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation represents and warrants to Acquiror as of the date of this
Agreement as follows:
6.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
-------------------------------------------------------------------
The Corporation is a corporation duly incorporated, validly existing and in good
standing under the laws of Tennessee. The Corporation is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on the business of the Corporation (a
"Corporation Adverse Effect"). The Corporation has all requisite corporate
power and authority to own, operate and lease its properties and carry on its
business as now conducted. The Corporation has delivered to Acquiror complete
and correct copies of the Charter and Bylaws of the Corporation, as amended to
the date hereof.
6.2 Authorization, Validity and Effect of Agreements. Subject only to the
-------------------------------------------------
approval of this Agreement by the holders of a majority of the outstanding
Common Shares and Preferred Shares, the Corporation has the requisite corporate
power and authority to execute and deliver this Agreement and all agreements and
documents contemplated hereby by Acquiror, and the consummation by the
Corporation of the transactions contemplated hereby, will have been duly
authorized by all requisite corporate action on or before the Closing Date. This
Agreement constitutes, and all agreements and documents contemplated hereby
(when executed and delivered pursuant hereto for value received) will
constitute, the valid and legally binding obligations of the Corporation
enforceable in accordance with their terms, except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting generally the enforcement of creditors' rights and by general
principles of equity.
6.3 Capitalization. The authorized capital stock of the Corporation
--------------
consists of 12,000,000 Common Shares and 2,000,000 Preferred Shares. As of
November 10, 1997, there were 815,005 Common Shares issued and outstanding and
500,000 Preferred Shares issued and outstanding. Since such date, no additional
shares of capital stock of the Corporation have been issued. The Corporation has
no Common or Preferred Shares reserved for issuance, except that, as of
September 30, 1997, 495,000 Common Shares were reserved for issuance pursuant to
warrants issued or issuable by the Corporation. Except as set forth in the
Corporation Disclosure Letter (as defined below), the Corporation has no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or, are convertible into or exercisable for securities
having the right to vote) with the stockholders of the Corporation on any matter
("Voting Debt"). All such issued and outstanding Common and Preferred Shares
are duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Other than as set forth above or in the disclosure letter
delivered by the Corporation to Acquiror at or prior to the execution hereof
(the "Corporation Disclosure Letter"), or as contemplated by this Agreement, on
the date of this Agreement, there are no existing options, warrants, calls,
subscriptions, convertible securities, or other rights or other agreements or
commitments which obligate the Corporation to issue, transfer or sell any shares
of capital stock of the Corporation. The Corporation Disclosure Letter includes
a true and complete list of all options and warrants currently outstanding,
including the names of the holders thereof and the number of shares subject to
each option or warrant. After the Effective Time, the Surviving Corporation
will have no obligation to issue, transfer or sell any Common Shares of the
Surviving Corporation pursuant to any Employee Benefit Plan (as defined in
SECTION 6.12).
- ------------
9
<PAGE>
6.4 Subsidiaries. The Corporation does not own directly or indirectly any
------------
outstanding shares of capital stock, partnership or membership interests in any
other entity.
6.5 Affiliated Practices. The Corporation Disclosure Letter lists:
--------------------
(a) Each entity with which the Corporation has entered into a
management services agreement or similar agreement requiring the Corporation to
provide medical practice management or similar services (each such entity is
referred to herein as an "Affiliated Practice" and collectively such entities
are referred to herein as the "Affiliated Practices"); and
(b) with respect to each Affiliated Practice, the type of entity that
comprises the Affiliated Practice, its jurisdiction of organization or formation
and all locations at which the Affiliated Practice conducts business.
6.6 Other Interests. Except as set forth in the Corporation Disclosure
---------------
Letter, neither the Corporation nor any Affiliated Practice owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity.
6.7 Noncontravention. Except as set forth in the Corporation Disclosure
----------------
Letter, neither the execution and delivery by the Corporation of this Agreement,
nor the consummation by the Corporation of the transactions contemplated hereby
and thereby in accordance with the terms hereof and thereof, will: (i) conflict
with or result in a breach of any provisions of the Charter or Bylaws of the
Corporation; (ii) result in a breach or violation of, a default under, or the
triggering of any payment or other material obligations pursuant to, or
accelerate vesting under the terms of the Corporation's outstanding warrants,
(iii) violate, or conflict with, or result in a material breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination or in a
right of termination or cancellation of, or accelerate the performance required
by, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the material properties of the Corporation under, or
result in being declared void, voidable, or without further binding effect, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust or any material license, franchise, permit, lease, contract,
agreement, management services agreement or other instrument or commitment or
obligation ("Contracts") to which the Corporation is a party other than
Contracts which require the consent of the other party or parties thereto to
assign or transfer to Merger Sub or Acquiror by reason of the execution of this
Agreement or the consummation of the transactions contemplated herein, which
required consents are set forth in the Corporation Disclosure Letter, or by
which the Corporation or any of its properties is bound or affected except with
respect to matters which are not material to the business of the Corporation; or
(vi) other than the filings provided for in ARTICLE II hereof, and as required
----------
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
securities laws and in connection with the maintenance of qualification to do
business in other jurisdictions (collectively, the "Regulatory Filings"),
require any material consent, approval or authorization of, or declaration,
filing or registration with, any domestic governmental or regulatory authority
of which the failure to obtain would have Corporation Adverse Effect.
6.8 Litigation. Except as disclosed in the Corporation Disclosure Letter,
----------
there are no actions, suits or proceedings pending against the Corporation or
the Affiliated Practices or, to the actual knowledge of the executive officers
of the Corporation, threatened against the Corporation or the Affiliated
Practices involving claims having an aggregate amount in excess of $100,000, at
law or in equity, or before or by any federal, state or local commission, board,
bureau, agency or instrumentality that are reasonably likely to have a
Corporation Adverse Effect.
6.9 Absence of Certain Changes. Except as set forth in the Corporation
--------------------------
Disclosure Letter, since April 7, 1997, the Corporation, and since September 22,
1997, the Affiliated Practices have conducted their respective businesses only
in the ordinary course and there has not been (i) any damage, destruction or
loss (not covered by insurance) with respect to any material assets of the
Corporation; (ii) any change in the Corporation or any
10
<PAGE>
development or combination of developments of which the executive officers of
the Corporation have actual knowledge that has resulted or is reasonably likely
to result in a Corporation Adverse Effect; (iii) any declaration, setting aside
or payment of any dividend or other distribution with respect to the Common or
Preferred Shares; (iv) any action or failure to take any action prior to the
Effective Date, which action or failure, if taken, after the Effective Date
would represent or result in a material breach or violation of the covenants and
agreements of the Corporation provided in ARTICLE VIII hereof; or (v) any
------------
material change in the Corporation's accounting principles, practices or
methods.
6.10 Taxes.
-----
(a) Filing of Tax Returns. The Corporation has duly and timely filed
----------------------
with the appropriate governmental agencies all Tax Returns. To the actual
knowledge of the executive officers of the Corporation, all such Tax Returns
are complete and accurate and properly reflect the Corporation's Taxes for the
periods covered thereby.
(b) Payment of Taxes. The Corporation has paid or accrued all Taxes
-----------------
which have become due with respect to any Tax Returns that it has filed and any
assessments of which it is aware. The Corporation is not delinquent in the
payment of any Taxes.
(c) No Pending Deficiencies, Delinquencies, Assessments or Audits. No
--------------------------------------------------------------
deficiency or delinquency has been asserted against the Corporation for any
Taxes. There is no unpaid assessment, proposal for additional Taxes, deficiency
or delinquency in the payment of any of the taxes of the Corporation that could
be asserted by any taxing authority. There is no taxing authority audit of the
Corporation pending or, to the actual knowledge of the Corporation's executive
officers, threatened. The Corporation has not violated any federal state, local
or foreign tax law, except as would not have a Corporation Adverse Effect.
(d) No Extension of Limitation Period. The Corporation has not been
----------------------------------
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
(e) All Withholding Requirements Satisfied. All monies required to be
---------------------------------------
withheld by the Corporation and paid to governmental agencies for all Taxes or
have been collected or withheld and either paid to the respective governmental
agencies or set aside in accounts for such purpose.
(f) State Unemployment Taxes. In respect of its most recently
-------------------------
completed reporting period, the Corporation has paid state unemployment taxes to
the states listed on the Corporation Disclosure Letter. The Corporation does
not know or have reason to know of any increase or proposed increase, or facts
that would lead to an increase, in the Corporation's rate of such state
unemployment tax for any period in the future.
(g) Reasonable Expenditures. All amounts paid by the Corporation (i)
------------------------
to officers, employees, consultants and agents as salaries, compensation, and
expenses reimbursed by the Corporation and (ii) as rental payments, have been in
amounts which are reasonable and deductible for federal income tax purposes.
(h) Affiliated Group. Except as set forth in the Corporation
-----------------
Disclosure Letter, the Corporation is not currently, and in prior years has not
been, a member of an affiliated group, as such term is defined in Section 1504
of the Code, filing a consolidated return.
(i) Tax Exempt Entity. None of the assets of the Corporation is or
------------------
will be subject to a lease to a "tax exempt entity" as such term is defined in
Section 168(h)(2) of the Code.
(j) Collapsible Corporation. The Corporation has not at any time
------------------------
consented to have the provisions of Section 341(f)(2) of the Code apply to it.
11
<PAGE>
(k) Change in Accounting Method. The Corporation has not voluntarily
----------------------------
or involuntarily changed a method of accounting resulting in the Corporation's
inclusion of amounts in income pursuant to adjustments under Section 481 of the
Code.
(l) S Corporation. The Corporation is not currently, and has never
--------------
been, an S corporation as such term is defined in Section 1361(a) of the Code.
(m) Golden Parachute. The Corporation is not a party to any
-----------------
employment agreement, or any incentive compensation, deferred compensation,
profit sharing, stock option, stock bonus, stock purchase, savings, retirement,
pension or other similar plan or arrangement which would require a payment to be
made that would not be deductible by Acquiror or the Corporation because such
payment or other compensation would constitute an excess parachute payment
within the meaning of Section 28OG of the Code.
6.11 Proprietary Rights. The Corporation owns or has valid, binding,
-------------------
enforceable and adequate rights to use all material patents, trademarks, trade
names, service marks, service names, copyrights, know how, other proprietary
intellectual property rights, applications therefor and licenses or other rights
in respect thereof ("Intellectual Property") used or held for use in connection
with the business of the Corporation, without any conflict with the rights of
others. The Corporation has not received any notice from any other person
pertaining to or challenging its right to use any Intellectual Property or any
trade secrets, proprietary information, inventions, processes and procedures
owned or used by or licensed to it, except with respect to rights the loss of
which, individually have not had and are not reasonably likely to result in a
Corporation Adverse Effect. To the actual knowledge of the executive officers
of the Corporation, none of the key employees of the Corporation is in violation
of any term of any employment contract, or any other contract or agreement
relating to the relationship of any such employee with the Corporation or any
other party the result of which has had or is reasonably likely to result in a
cost, loss or damage to the Corporation in excess of $100,000.
6.12 Employee Benefit Plans.
-----------------------
(a) The Corporation Disclosure Letter sets forth that the Corporation
does not maintain any compensation plans, funds, arrangements and practices (the
"Compensation Plans") sponsored by the Corporation, or any person, entity or
arrangement which is considered one employer with the Corporation within the
meaning of Section 414 of the Code or Section 4001 of ERISA (an "ERISA
Affiliate") to which the Corporation or any ERISA Affiliate contributes, is
required to contribute, or has at any time since the Corporation's inception
been maintained for the employees of the Corporation or any ERISA Affiliate.
The Corporation Disclosure Letter sets forth the Compensation Plans of the
Affiliated Practices, which may be deemed an ERISA Affiliate.
(b) The Corporation Disclosure Letter contains a complete and accurate
list of all employment agreements (the "Employment Agreements") to which the
Corporation is a party with respect to the Corporation's employees. The
Employment Agreements consist of employee leasing agreements, employee services
agreements, noncompetition agreements and any other agreement, between the
Corporation and any past or present employee as of the date hereof.
(c) The Corporation Disclosure Letter sets forth that the Corporation
does not maintain any employee benefit plans or any other plans for the
provision of benefits to employees (the "Employee Benefit Plans") (within the
meaning of Section (3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) sponsored or administered by the Corporation or any ERISA
Affiliate to which the Corporation or any ERISA Affiliate contributes or is
required to contribute on behalf of the Corporation's employees, and that no
Employee Benefit Plans have been previously sponsored, administered or
contributed to since the inception of the Corporation through the date hereof,
including any multi-employer plans (within the meaning of Section 3(37) of
ERISA) and any executive compensation plans whether funded or unfunded;
provided, that the Corporation Disclosure Letter sets forth the Employee Benefit
Plans of the Affiliated Practices.
12
<PAGE>
(d) Neither the Corporation nor any ERISA Affiliate is or ever has
been obligated to contribute to a multi-employer plan within the meaning of
Sections 3(37) and 4001(a)(3) of ERISA and neither the Corporation nor any ERISA
Affiliate has incurred any "withdrawal liability" (as defined in Section 4201 et
seq. of ERISA) which has not been satisfied as of the Closing.
(e) No facts or circumstances exist that would result in the
imposition of liability against the Corporation or any ERISA Affiliate by the
Pension Benefit Guaranty Corporation ("PBGC") as a result of any act or omission
by the Corporation or any ERISA Affiliate. No reportable event (within the
meaning of Section 4043 of ERISA) for which the notice requirement has not been
waived has occurred with respect to any Employee Benefit Plan subject to the
requirements of Title IV of ERISA. No liability to the PBGC has been incurred
by the Corporation or any ERISA Affiliate on account of any termination of any
employee pension benefit plan subject to Title IV of ERISA. Neither the
Corporation nor any ERISA Affiliate has (i) ceased operations at a facility so
as to become subject to Section 4203 of ERISA; (ii) withdrawn as a substantial
employer so as to become subject to the provisions of Section 4063 of ERISA;
(iii) ceased making contributions on or before the Closing Date, to any employee
pension benefit plan subject to Section 4064 of ERISA and to which the
Corporation or any ERISA Affiliate made contributions since the inception of the
Corporation through the Closing Date; (iv) any liability under Section 4062 of
ERISA; or (v) any liability or lien under Section 4068 of ERISA.
(f) The Corporation and all ERISA Affiliates have complied with all
applicable notices and provided coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") (i.e., the continuation
coverage requirement of group health plans), and have no liability for any
violations under COBRA prior to and as of the Closing Date for which the
Corporation or any ERISA Affiliate might incur liability.
(g) Neither the Corporation nor any ERISA Affiliate has any obligation
or commitment to provide medical, dental or life insurance benefits to or on
behalf of any of the Corporation's employees who may retire or any of the
Corporation's former employees who have retired from employment with the
Corporation.
6.13 Labor Matters.
-------------
(a) Neither the Corporation nor any of the Affiliated Practices have
ever been a party to any agreement with any union, labor organization or
collective bargaining unit. No employees of the Corporation are represented by
any union, labor organization or collective bargaining unit. To the knowledge
of the executive officers of the Corporation, the Corporation's employees have
no intention to and have not threatened to organize or join a union, labor
organization or collective bargaining unit, and there are no existing or
threatened labor strikes, disputes, grievances, controversies or other labor
troubles affecting the Corporation nor does any basis therefor exist.
(b) The Corporation has been and is in compliance with all applicable
laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
liable for any arrears of wages or penalties for failure to comply with any of
the foregoing. The Corporation has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices. There are no unfair
labor practice charges or complaints or racial, color, religious, sex, national
origin, age or handicap discrimination charges or complaints pending or, to the
knowledge of the executive officers of the Corporation, threatened against the
Corporation or any of the Affiliated Practices before any federal, state or
local court, board, department, commission or agency nor to their knowledge,
does any basis therefor exist.
6.14 Related Parties. Except as set forth in the Corporation Disclosure
----------------
Letter, to the knowledge of the executive officers of the Corporation, none of
the executive officers or directors of the Corporation or any entity controlled
by any of the foregoing or any member of the immediate family of any of the
foregoing:
(a) owns, directly or indirectly, any interest in (except for stock
holdings not in excess of two percent (2%) held solely for investment purposes
in securities which are listed on a national securities exchange or
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which are regularly traded in the over-the-counter market), or is an owner, sole
proprietor, stockholder, partner, director, officer, employee, provider,
consultant or agent of any person which is a competitor, lessor, lessee or
customer of or a party to a management services or similar agreement with, or
supplier of goods or services to, the Corporation, except where the value to
such individual of any such arrangement with the Corporation has been less than
$25,000 in the last twelve (12) months;
(b) owns, directly or indirectly, in whole or in part, any real
property, leasehold interests, tangible property or intangible property with a
fair market value of $25,000 or more which the Corporation currently uses in
its business;
(c) has any cause of action or other suit, action or claim whatsoever
against, or owes any amount to the Corporation, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued benefits
under Compensation Plans and similar matters;
(d) has sold to, or purchased from, the Corporation any assets or
property for consideration in excess of $25,000 in the aggregate since April 7,
1997;
(e) is competing or at any time since April 7, 1997 has competed,
directly or indirectly with the Corporation; or
(f) is indebted to the Corporation or any Affiliated Practice.
As used in this SECTION 6.14, a person's immediate family shall mean such
------------
person's spouse, parents, children, siblings, mothers and fathers-in-law, sons
and daughters-in-law, and brothers and sisters-in-law.
6.15 No Brokers. The Corporation has not entered into any contract,
----------
arrangement or understanding with any person or firm which may result in the
obligation of Acquiror to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
6.16 Vote Required. The affirmative vote of the holders of a majority of
-------------
the outstanding Common Shares and Preferred Shares is the only vote of the
holders of any class or series of capital stock of the Corporation necessary to
approve the Merger.
6.17 Contracts, No Default.
---------------------
(a) The Corporation Disclosure Letter sets forth as of the date of
this Agreement a list of each Contract of the Corporation:
(i) involving an aggregate payment or commitment per Contract on
the part of any party of more than $50,000 during the six (6) month period
ending September 30, 1997;
(ii) with an individual or entity rendering services as an
employee of or contractor to the Corporation under which, during the last six
(6) months, the Corporation was obligated or became committed to pay in excess
of $100,000 or under which, during the next twelve (12) months, the Corporation
is reasonably expected to pay or to become obligated to pay in excess of
$100,000;
(iii) concerning a partnership or joint venture with another
person;
(iv) concerning employment arrangements with their respective
directors, officers or employees (which arrangements, in the case of employees
other than the officers or directors of the Corporation,
14
<PAGE>
provide for annual compensation in excess of $50,000 to such persons), or
providing for severance payments to any such directors, officers or employees;
(v) involving the provision by the Corporation of medical
practice management or similar services;
(vi) involving an acquisition of assets or securities, which
acquisition has not yet been consummated or has been consummated during the six
(6) months immediately preceding the date of this Agreement; or
(vii) evidencing Indebtedness of the Corporation in an amount
greater than $25,000. "Indebtedness" means any liability in respect of (a)
borrowed money, (b) capitalized lease obligations, (c) the deferred purchase
price of property or services (other than trade payables in the ordinary course
of business), (d) debt assumed by the Corporation in its acquisition of the
Affiliated Practices and (e) guarantees of any of the foregoing incurred by any
other person other than the Acquiror or the Corporation, as appropriate, or any
of their respective subsidiaries, except that Indebtedness shall not include
short term credit facilities entered into in the ordinary course of business.
(b) The Corporation Disclosure Letter lists each Contract to which the
Corporation or affiliates (other than individuals) is a party limiting the right
of the Corporation or affiliates (other than individuals) prior to the Effective
Time, or the Surviving Corporation any of its affiliates (other than
individuals) at or after the Effective Time, to engage in, or to compete with
any person in, any business, including each contract or agreement containing
exclusivity provisions restricting the geographical area in which, or the method
by which, any business may be conducted by the Corporation or affiliates (other
than individuals) prior to the Effective Time, or Surviving Corporation or any
of its affiliates (other than individuals) after the Effective Time.
(c) Each Contract, and each other contract or agreement of the
Corporation which would have been required to be disclosed in the Corporation
Disclosure Letter had such contract or agreement been entered into prior to the
date of this Agreement is, or will be, as the case may be, in full force and
effect and is, or will be, as the case may be, a legal, valid and binding
Contract and there is no material default (or any event which, with the giving
of notice or lapse of time or both, would be a material default) by the
Corporation or, to the knowledge of the executive officers of the Corporation,
any other party, in the timely performance of any obligation to be performed or
paid under any of Contracts or any such other contract or agreement, except
where the failure to be in full force and effect or to be valid and binding, or
where such default, individually or in the aggregate could not reasonably be
expected to result in a cost to the Corporation in excess of $100,000.
6.18 Real Property.
-------------
(a) Except as set forth in the Corporation Disclosure Letter, the
Corporation does not own or have the option or right to acquire any real
property.
(b) With respect to the lease dated June 29, 1995, relating to the
Corporation's principal executive offices in Memphis, Tennessee and all other
leases with the Corporation as set forth in the Corporation Disclosure Letter:
(i) each such lease is in full force and effect and is a legal,
valid and binding obligation of the Corporation, enforceable by the Corporation
in accordance with its terms, except as set forth in the Corporation Disclosure
Letter;
(ii) no notices of default under such leases have been received
by the Corporation which are still in effect, the Corporation is not in breach
or default of such leases, and no event has occurred which, with notice or lapse
of time, would constitute such a breach or default or permit termination,
modification or acceleration under such leases;
15
<PAGE>
(ii) as of the date of this Agreement, to the knowledge of the
executive officers of the Corporation, there are no pending or threatened
condemnation or eminent domain proceedings with respect to the real property
subject to such leases; and
(iv) as of the date of this Agreement, the Corporation has not
received notice of any special assessments relating to the real property subject
to such leases.
6.19 Information. No representation or warranty made by the Corporation
-----------
contained in this Agreement and no statement contained in any certificate, list,
exhibit or other instrument specified in this Agreement, including without
limitation the Corporation Disclosure Letter, contains any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
6.20 Compliance with Applicable Laws. Except as disclosed in the
-------------------------------
Corporation Disclosure Letter, the Corporation and the Affiliated Practices hold
all permits, licenses, variances, exemptions, orders and approvals of all
courts, administrative agencies or commissions or other governmental authorities
or instrumentalities, domestic or foreign (each, a "Governmental Entity"),
except for such permits, licenses, variances, exemptions, orders and approvals
the failure to hold which would not have a Corporation Adverse Effect (the
"Corporation Permits"). To the actual knowledge of the Corporation's executive
officers, the Corporation and the Affiliated Practices are in compliance with
the terms of the Corporation Permits, except for such failures to comply, which,
singly or in the aggregate, would not have a Corporation Adverse Effect. To the
actual knowledge of the Corporation's executive officers, the businesses of the
respective Corporation and the Affiliated Practices are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity,
including, but not limited to laws, rules and regulations relating to
professional and specialty licensing, the corporate practice of medicine,
prohibitions on kickbacks and referrals under Medicare and Medicaid programs,
health care, drug enforcement, zoning ordinances, building codes, occupational
health and safety, employee benefits, immigration, wages, workplace safety,
equal employment opportunity and race, religious, sex and age discrimination,
except for possible violations which individually or in the aggregate do not and
could not have a Corporation Adverse Effect. No investigation or review by any
Governmental Entity with respect to the Corporation or the Affiliated Practices
is pending, or, to the actual knowledge of the executive officers of the
Corporation, threatened, nor has any Governmental Entity indicated an intention
to conduct the same.
6.21 Accounts Receivable. Except as set forth in the Corporation
-------------------
Disclosure Letter, the accounts receivable of the Corporation as reflected in
the Corporation's unaudited financial statements for the period ending September
30, 1997 (the "Corporation's Financial Statements"), to the extent uncollected
on the date hereof, and the accounts receivable reflected on the books of the
Corporation are valid and existing and represent monies due, and the Corporation
has made reserves reasonably considered adequate for receivables not collectible
in the ordinary course of business, and (subject to the aforesaid reserves) are
subject to no refunds or other adjustments and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties on or affecting any thereof, except for such refunds, adjustments,
defenses, rights of setoff, assignments, restrictions, encumbrances or
conditions as would not have a material adverse effect on the Corporation.
6.22 Inventory. The inventories of the Corporation as reflected in the
---------
Corporation's Financial Statements or acquired by the Corporation after the date
thereof, (i) are carried as provided in the Corporation's Financial Statements
not in excess of the lower of cost or net realizable value and (ii) do not
include any inventory which is obsolete, surplus or not usable or saleable in
the lawful and ordinary course of business of the Corporation as heretofore
conducted, in each case net of reserves provided therefor.
6.23 Product Liability. Except as disclosed in the Corporation Disclosure
-----------------
Letter, the Corporation is not aware of any claim, or the basis of any claim,
against the Corporation for injury to person or property of employees or any
third parties suffered as a result of the sale of any product or performance of
any service by the Corporation, including claims arising out of the defective or
unsafe nature of its products or services, which could have a material
16
<PAGE>
adverse effect on the Corporation. The Corporation has, and on the Effective
Date will have, full and adequate insurance coverage for potential product
liability claims against it.
6.24 Environment. As used herein, the term "Environmental Laws" means all
-----------
federal, state, local or foreign laws relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including
without limitation laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, or industrial, toxic
or hazardous substances or wastes into the environment, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of chemicals, pollutants, contaminants, or industrial,
toxic or hazardous substances or wastes, as well as all authorizations, codes,
decrees, demands or demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder. Except as disclosed in the Corporation
Disclosure Letter, there are, with respect to the Corporation or any Affiliated
Practice, no past or present violations of Environmental Laws, releases of any
material into the environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to any common
law liability or any liability under CERCLA or similar state or local laws,
which liabilities, either individually or in the aggregate, would have a
Corporation Adverse Effect. With respect to the generation, transportation,
treatment, storage and disposal, or other handling of Medical Waste, the
Corporation and each Affiliated Practice has complied with all Medical Waste
Laws.
As used herein, "Medical Waste" includes, but is not limited to, (i)
pathological waste, (ii) blood, (iii) sharps, (iv) wastes from surgery or
autopsy, (v) dialysis waste, including contaminated disposable equipment and
supplies, (vi) cultures and stocks of infectious agents and associated
biological agents, (vii) contaminated animals, (viii) isolation wastes, (ix)
contaminated equipment, (x) laboratory waste, (xi) any substance, pollutant,
material, or contaminant listed or regulated under the MWTA, and (xii) various
other biological waste and discarded materials contaminated with or exposed to
blood, excretion, or secretions from human beings or animals. As used herein,
"Medical Waste Laws" shall mean the following, including regulations promulgated
and orders issued thereunder, all as may be amended from time to time: (i) the
MWTA, (ii) the U.S. Public Vessel Medical Waste Anti-Dumping Act of 1988, 33
USCA (S)(S)2501 et seq., (iii) the Marine Protection, Research, and Sanctuaries
-- ---
Act of 1972, 33 USCA (S)(S)1401 et seq., (iv) The Occupational Safety and Health
-- ---
Act, 29 USCA (S)(S)651 et seq., (v) the Unites States Department of Health and
-- ---
Human Services, National Institute for Occupational Safety and Health,
Infectious Waste Disposal Guidelines, Publication No. 88-119, and (vi) and any
other federal, state, regional, county, municipal, or other local laws,
regulations, and ordinances insofar as they purport to regulate Medical Waste,
or impose requirements relating to Medical Waste.
6.25 Recoupment Proceedings. There are no material Medicare or Medicaid
----------------------
recoupment or recoupments of any third-party payor being sought, requested or
claimed, or to the Corporations knowledge, threatened against the Corporation or
any of the Affiliated Practices.
6.26 Insurance.
---------
(a) The Corporation has (i) property, fire and casualty insurance
policies, with extended coverage (subject to reasonable deductibles), sufficient
to allow it to replace any of its properties that might be damaged or destroyed,
and (ii) except for professional liability insurance which is specifically
covered in Section 6.26(b) below, have liability, workers compensation insurance
--------------
and bond and surety arrangements reasonably adequate, in light of the business
in which it is engaged, to protect it and its financial condition against the
risks involved in the business conducted by it. The Corporation Disclosure
Letter sets forth a list of all such policies.
(b) The Corporation Disclosure Letter contains a list of each policy
of professional liability insurance and errors and omissions insurance, and all
amendments and endorsements thereto currently in effect, which provide insurance
for the Corporation and the Affiliated Practices, including the name of each
insurer, the amount of coverage provided under the policy, all persons, groups
and entities that are afforded coverage under the policies, the term of the
policy and type of coverage (whether "claims made" or otherwise and whether such
policies include "tail"
17
<PAGE>
coverage) and whether the policy is in effect as of the date hereof. The
Corporation and the Affiliated Practices have been covered by one or more
policies of professional liability insurance continuously since January 1, 1991,
or the date of formation of the Corporation or the Affiliated Practices, as the
case may be, for all services provided pursuant to all management services or
other professional activities of the Corporation and the Affiliated Practices,
and any of their predecessors or affiliates, whether currently in effect or
previously in effect, with limits at least as great as those set forth in the
Corporation Disclosure Letter.
(c) The Corporation Disclosure Letter sets forth any pending claims in
excess of $20,000 under each of the policies listed therein, and there are no
other pending claims under any of such policies, and to the actual knowledge of
the Corporation's executive officers no event has occurred and no condition
exists that could reasonably be expected to give rise to or serve as a basis for
any such claim.
(d) Neither the Corporation nor any Affiliated Practice is in default
under any insurance policy or bond described in Section 6.26(a), and no event
----------------
which would (with the passage of time, notice or both) constitute a breach or
default thereunder by the Corporation or any Affiliated Practice or, to the
Corporation's knowledge, the insurer thereunder, has occurred, or, to the
Corporation's knowledge, will occur as a result of the transactions contemplated
herein. Consummation of the transactions contemplated herein will not (and will
not give any person or entity a right to) terminate or modify any material
rights of, or accelerate or augment any material obligation of the Corporation
or any Affiliated Practice under any insurance policy or bond insofar as such
policy or bond relates to or covers incidents that give rise to claims for
incidents taking place prior to the Closing Date. Neither the Corporation nor
any Affiliated Practice have done anything by way of action or inaction which
might invalidate or diminish coverage under any of such policies in whole or in
part. There are no outstanding requirements or recommendations of any insurance
company that has issued a policy to the Corporation or any Affiliated Practice
which require or recommend any changes to the conduct of the business of the
Corporation or any Affiliated Practice, or any repair or other work with respect
to any of its or their respective properties.
6.27 Title to Assets, Liens. Except as disclosed in the Corporation
----------------------
Disclosure Letter, to the extent material to the business or operations of the
Corporation, the Corporation has good and marketable title to all of its
inventory, accounts receivable, property, equipment and other assets, and such
assets are free and clear of any material mortgages, liens, charges,
encumbrances, or title defects of any nature whatsoever, except for such
mortgages, liens, charges, encumbrances or title defects which would not
materially and adversely affect the value of such property as carried on the
Corporation's Financial Statements or would not have a material adverse effect
on the Corporation. The Corporation has valid and enforceable leases for the
premises and the equipment, furniture and fixtures purported to be leased by it,
except for leases, the failure of which to have or be enforceable, would not
have Corporation Adverse Effect.
6.28 No Material Adverse Effect. Except as disclosed in the Corporation's
--------------------------
Financial Statements or in the Corporation Disclosure Letter, the Corporation is
not aware of any fact which, alone or together with another fact, is likely to
result in a Corporation Adverse Effect.
ARTICLE VII
-----------
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub represent and warrant to the Corporation as of the
date of this Agreement as follows:
7.1 Existence; Good Standing; Corporate Authority; Compliance With Law.
-------------------------------------------------------------------
Acquiror is a corporation duly incorporated, validly existing in good standing
under the laws of Delaware. Acquiror is duly licensed or qualified to do
business as a foreign corporation and in good standing under the laws of each
jurisdiction in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
18
<PAGE>
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect on the business of Acquiror taken as a whole, which for purposes
of this Agreement shall mean the business of Acquiror and the Acquiror
Subsidiaries (hereinafter defined) taken as a whole (an "Acquiror Adverse
Effect"). Acquiror has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted.
The copies of Acquiror's Third Amended and Restated Certificate of Incorporation
and Bylaws previously delivered to the Corporation are true and correct. Merger
Sub is a corporation duly incorporated, validly existing and in good standing
under the laws of Tennessee. Merger Sub has not conducted any business or
incurred any liabilities other than in connection with the negotiation and
execution of this Agreement. Merger Sub is duly licensed or qualified to do
business as a foreign corporation and is in good standing under the laws of each
jurisdiction in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such qualification
necessary. Merger Sub has the corporate power and authority to execute and
deliver this Agreement and consummate the transactions contemplated hereby. The
copies of Merger Sub's Charter and Bylaws previously delivered are true and
correct.
7.2 Authorization, Validity and Effect of Agreements. The Acquiror, as
------------------------------------------------
the sole stockholder of Merger Sub, has approved this Agreement. Subject only
to the approval of this Agreement by the holders of a majority of the
outstanding shares of Acquiror Common Stock, Acquiror's Class A Common Stock,
and all of Acquiror's Series B Preferred Stock, the execution and delivery of
this Agreement and all agreements and documents contemplated hereby by Acquiror
and Merger Sub, and the consummation by them of the transactions contemplated
hereby and thereby, have been duly authorized by all requisite corporate action;
provided, however, that Closing is subject to approval by the Acquiror's Board
of Directors. This Agreement constitutes, and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of Acquiror
and Merger Sub, enforceable in accordance with their terms, except as the same
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting generally the enforcement of creditors' rights and by general
principles of equity.
7.3 Capitalization. The authorized capital stock of Acquiror consists of
--------------
(i) 20,000,000 shares of Acquiror Voting Common Stock, 20,000,000 shares of Non-
Voting Common Stock, and 20,000,000 shares of Acquiror Prime Common Stock, all
with a par value of $0.0025 per share (collectively, the "Acquiror Common
Stock"), and (ii) 15,000,000 shares of Preferred Stock and 500,000 shares of
Class A Stock, all with a par value of $0.01 per share. As of October 8, 1997,
approximately (a) 9,400,000 shares of Acquiror Common Stock, (b) 3,825,000
shares of Preferred Stock and (c) 200,000 shares of Class A Stock were issued
and outstanding. All such shares are duly authorized, validly issued, fully
paid and nonassessable. As of the same date, (i) approximately 1,850,000
warrants to purchase shares of Acquiror Common Stock were held by venture
capital and other investors and (ii) no more than a total of 3,500,000 options
to purchase Acquiror Common Stock had been granted as fully vested or time
vested options, or had been earned by consultants and employees based on
performance criteria (although agreements with certain consultants and employees
provide that additional performance options may be earned). As of the date of
this Agreement, additional options, warrants and shares will have been issued,
and commitments to issue such securities will have been entered into, in
connection with arms-length transactions, including, without limitation,
practice acquisitions and debt financing. Other than as set forth above or in
the disclosure letter delivered by the Acquiror to the Corporation at or prior
to Closing (the "Acquiror Disclosure Letter"), or as contemplated by this
Agreement, as of the date of this Agreement, there are no options, warrants,
calls, subscriptions, convertible securities, or other rights or other
agreements or commitments which obligate Acquiror or any of the Acquiror
Subsidiaries (hereinafter defined) to issue, transfer or sell any shares of
capital stock of Acquiror or any of the Acquiror Subsidiaries (hereinafter
defined).
7.4 Subsidiaries. Acquiror owns directly or indirectly each of the
------------
outstanding shares of capital stock of each of Acquiror's subsidiaries as
disclosed in the Acquiror Disclosure Letter (individually, a "Acquiror
Subsidiary" and collectively, the "Acquiror Subsidiaries"). Each Acquiror
Subsidiary is duly licensed or qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so qualified would not have a Acquiror Adverse Effect.
19
<PAGE>
7.5 Noncontravention. Except as set forth in the Acquiror Disclosure
----------------
Letter, neither the execution and delivery by Acquiror or Merger Sub of this
Agreement, nor the consummation by Acquiror or Merger Sub of the transactions
contemplated hereby in accordance with the terms hereof, will: (i) conflict with
or result in a breach of any provisions of the Third Amended and Restated
Certificate of Incorporation or Bylaws of Acquiror or the Charter or Bylaws of
Merger Sub; (ii) violate, or conflict with, or result in a material breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any material lien,
security interest, charge or encumbrance upon any of the material properties of
Acquiror or Merger Sub under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions or provisions of
any Contract to which Acquiror or Merger Sub are a party, or by which Acquiror
or Merger Sub or any of their properties are bound or affected except with
respect to matters which are not material to the business of Acquiror taken as a
whole; or (iii) other than Regulatory Filings, require any material consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority, of which the failure to obtain would have
a Acquiror Adverse Effect.
7.6 Financial Statements. Acquiror has delivered to the Corporation
--------------------
Acquiror's audited financial statements for the year ending December 31,1996 and
the six (6) months ending June 30, 1997, and the unaudited financial statements
for the period ending August 31, 1997 (the "Acquiror's Financial Statements").
As of their respective dates, the Acquiror's Financial Statements were prepared
in accordance with generally accepted accounting principles ("GAAP"),
consistently applied.
7.7 Litigation. Except as disclosed in the Acquiror Disclosure Letter,
----------
there are no actions, suits or proceedings pending in excess of the aggregate
amount of $100,000 against Acquiror or Acquiror's Subsidiaries or, to the actual
knowledge of the executive officers of Acquiror, threatened against Acquiror or
Acquiror's Subsidiaries, at law or in equity, or before or by any federal, state
or local commission, board, bureau, agency or instrumentality that are
reasonably likely to have a Acquiror Adverse Effect.
7.8 Absence of Certain Changes. Except as disclosed in the Acquiror's
--------------------------
Financial Statements and as set forth in the Acquiror Disclosure Letter, since
June 30, 1997, the Acquiror and the Acquiror's Subsidiaries have conducted their
respective businesses only in the ordinary course and there have not been (i)
any damage, destruction or loss (not covered by insurance) with respect to any
material assets of the Acquiror or Acquiror Subsidiaries; (ii) any change in the
Acquiror or any Acquiror Subsidiaries or any development or combination of
developments of which their respective executive officers have knowledge that
has resulted or is reasonably likely to result in an Acquiror Adverse Effect;
(iii) any declaration, setting aside or payment of any dividend or distribution
with respect to the Acquiror Voting Common Stock; or (iv) any material change in
the Acquiror accounting principles, practices or methods.
7.9 Taxes and Tax Returns.
---------------------
(a) All Tax Returns required to have been filed by Acquiror have been
timely filed (taking into account duly granted extensions) and are true, correct
and complete in all respects. Except as set forth in the Acquiror Disclosure
Letter, (i) Acquiror is not currently the beneficiary of any extension of time
within which to file any Tax Return, and (ii) no claim has ever been made by any
governmental authority in a jurisdiction where Acquiror does not file Tax
Returns that Acquiror is or may be subject to taxation by that jurisdiction.
(b) All Taxes of Acquiror which have become due (without regard to any
extension of the time for payment and whether or not shown on any Tax Return)
have been paid. Acquiror has withheld and paid over to the applicable taxing
authority all Taxes required to have been withheld and paid over and has
complied with all information reporting and back-up withholding requirements
relating to Taxes. There are no liens with respect to Taxes on any of the
assets of Acquiror, other than liens for Taxes not yet due and payable or for
Taxes disclosed in the Acquiror Disclosure Letter that are being contested in
good faith through appropriate proceedings and for which adequate reserves have
been established in the Acquiror's Financial Statements.
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<PAGE>
(c) No deficiencies exist or have been asserted or are expected to be
asserted (verbally or in writing) with respect to Taxes of Acquiror and Acquiror
has not received notice nor does it expect to receive notice (verbally or in
writing) that it has not filed a Tax Return or paid any Taxes required to be
filed or paid by it. No audit, examination, investigation, action, suit, claim
or proceeding relating to the determination, assessment or collection of any Tax
of Acquiror is currently in process, pending or threatened (verbally or in
writing). No waiver or extension of any statute of limitations relating to the
assessment or collection of any Tax of Acquiror is in effect. There are no
outstanding requests for rulings with any taxing authority relating to Taxes of
Acquiror.
(d) Acquiror has delivered to the Corporation true and complete copies
of all federal, state, local and foreign income Tax Returns filed by Acquiror
for the period from November 3, 1995 through December 31, 1995 and for the year
ended December 31, 1996, together with all related examination reports,
statements of deficiencies and closing and other agreements. The Acquiror
Disclosure Letter indicates which, if any, of such returns have been, or
currently are, the subject of any audit, examination or other Tax proceeding.
7.10 No Brokers. Acquiror has not entered into any contract, arrangement
----------
or understanding with any person or firm which may result in the obligation of
Acquiror to pay any finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby, except the
arrangements with which have been set forth in the Acquiror Disclosure Letter.
Other than the foregoing arrangements, Acquiror is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
7.11 Capital Stock. The Acquiror Voting Common Stock that will be
-------------
delivered in connection with the Merger will be when delivered validly issued,
fully paid and nonassessable. The issuance and delivery by Acquiror of shares
of Acquiror Voting Common Stock in connection with the Merger will have been
duly and validly authorized by all necessary corporate action on the part of
Acquiror except for the approval of its stockholders contemplated by this
Agreement.
7.12 Compliance with Applicable Laws. Acquiror and the Acquiror
-------------------------------
Subsidiaries hold all necessary permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities, except for such permits, licenses,
variances, exemptions, orders and approvals the failure of which to hold would
not have a Acquiror Adverse Effect (the "Acquiror Permits"). Acquiror and the
Acquiror Subsidiaries are in compliance with the terms of the Acquiror Permits,
except for such failures to comply, which singly or in the aggregate, would not
have a Acquiror Adverse Effect. Except as set forth in the Acquiror Disclosure
Letter, the businesses of Acquiror and the Acquiror Subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for possible violations which individually or in the aggregate do
not and would not have a Acquiror Adverse Effect. No investigation or review by
any Governmental Entity with respect to Acquiror or any of the Acquiror
Subsidiaries is pending, or, to the knowledge of Acquiror, threatened, nor has
any Governmental Entity indicated an intention to conduct the same, other than
those the outcome of which would not have a Acquiror Adverse Effect.
7.13 Certain Agreements. Except as set forth in the Acquiror Disclosure
------------------
Letter, neither Acquiror nor any of the Acquiror Subsidiaries is a party to any
oral or written (i) agreement, contract, indenture or other instrument relating
to Indebtedness in an amount exceeding $1,000,000 or (ii) other contract,
agreement or commitment (except those entered into in the ordinary course of
business) having a Acquiror Adverse Effect. Neither Acquiror nor any of the
Acquiror Subsidiaries is in default (with or without notice or lapse of time, or
both) under any indenture, note, credit agreement, loan document, lease, license
or other agreement including, but not limited to, any benefit plan, whether or
not such default has been waived, which default, alone or in the aggregate with
other such defaults, would have a Acquiror Adverse Effect.
7.14 Information. No representation or warranty made by Acquiror contained
-----------
in this Agreement and no statement contained in any certificate, list, schedule,
exhibit or other instrument specified in this Agreement, including without
limitation the Acquiror Disclosure Letter, contains any untrue statement of a
material fact or omits or will omit
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to state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
7.15 Title to Assets, Liens. Except as disclosed in the Acquiror
----------------------
Disclosure Letter, to the extent material to the business or operations of
Acquiror and the Acquiror Subsidiaries, Acquiror has good and marketable title
to all of its inventory, accounts receivable, property, equipment and other
assets, and such assets are free and clear of any material mortgages, liens,
charges, encumbrances, or title defects of any nature whatsoever, except for
such mortgages, liens, charges, encumbrances or title defects which would not
materially and adversely affect the value of such property as carried on
Acquiror's Financial Statements or would not have a Acquiror Adverse Effect.
Acquiror and the Acquiror Subsidiaries have valid and enforceable leases for the
premises and the equipment, furniture and fixtures purported to be leased by
them, except for leases, the failure of which to have or be enforceable, would
not have a Acquiror Adverse Effect.
7.16 POM. Not withstanding anything to the contrary contained in this
----
Article VII, all representations and warranties of Acquiror and Merger Sub are
- -----------
further qualified by such information contained in the POM to be delivered by
Acquiror to the Corporation, Corporation's counsel and Corporation's
shareholders prior to Closing.
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<PAGE>
ARTICLE VII
-----------
COVENANTS
8.1 Acquisition Proposals. Subject to the fiduciary duties of the Board
---------------------
of Directors of the Corporation, as advised by outside counsel, and as set forth
in the Corporation's Disclosure Letter regarding the pending or proposed
Affiliated Practice acquisition of Bryant Family Practice, P.A., a Tennessee
professional association, and Bryant Leasing Company, Inc., a Tennessee
corporation, the Corporation shall not, directly or indirectly, take (nor shall
the Corporation authorize or permit the Acquiror Subsidiaries, its officers,
directors, employees, representatives, investment bankers, attorneys,
accountants or other agents or affiliates, to take) any action to (i) encourage,
solicit or initiate the submission of any Acquisition Proposal (defined below),
(ii) enter into any agreement with respect to any Acquisition Proposal or (iii)
participate in any way in discussions or negotiations with, or furnish any
information to, any person in connection with, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal. The Corporation
will promptly communicate to Acquiror any solicitation by the Corporation and
the terms of any proposal or inquiry, including the identity of the person and
its affiliates making the same, that it may receive in respect of any such
transaction, or of any such information requested from it or of any such
negotiations or discussions being sought to be initiated with it. "Acquisition
Proposal" shall mean any proposed (i) merger, consolidation or similar
transaction involving the Corporation, (ii) sale, lease or other disposition
directly or indirectly by merger, consolidation, share exchange or otherwise of
assets of the Corporation representing thirty percent (30%) or more of the
consolidated assets of the Corporation, or (iii) issue, sale, or other
disposition of (including by way of merger, consolidation, share exchange or any
similar transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 10% or more of the
voting power of the Corporation.
8.2 Interim Operations of the Corporation. The Corporation covenants and
-------------------------------------
agrees that, from and after the date hereof until the Effective Time (except as
Acquiror shall otherwise agree or except as otherwise contemplated by this
Agreement):
(a) To the extent reasonably practicable taking into account any
operational matters that may arise that are attributable to the pendency of the
Merger, the business of the Corporation shall be conducted only in the ordinary
course and, to the extent consistent therewith, the Corporation shall use
commercially reasonable efforts to preserve its business organization intact.
(b) The Corporation shall not (i) sell or pledge or agree to sell or
pledge any stock of the Corporation, except in connection with the pending
Affiliate Practice acquisition of Bryant Family Practice Clinic, P.A., a
Tennessee professional association, and Bryant Leasing Company, Inc., a
Tennessee corporation, and as disclosed in the Corporation's Disclosure Letter;
(ii) amend its Charter or Bylaws (except with the unanimous written consent of
the Acquiror's board of directors); (iii) split, combine or reclassify any
outstanding capital stock; (iv) declare, set aside or pay any dividend payable
in cash, stock or property with respect to any of its capital stock; or (v)
repurchase, redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock.
(c) The Corporation shall not (i) issue, sell, pledge, dispose of or
encumber, or authorize or propose the issuance, sale, pledge, disposition or
encumbrance of, any shares of, or securities convertible or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of its capital stock of any class or Voting Debt, other than Common
Shares issuable pursuant to warrants outstanding on the date of this Agreement;
(ii) except as previously disclosed regarding Corporation's use of Union
Planter's National Bank, NA., as a credit facility, transfer, lease, license,
guarantee, sell, mortgage, pledge, dispose of any other property or assets or
encumber any property or assets or incur or modify any indebtedness or other
liability other than in the ordinary course of business; (iii) authorize capital
expenditures other than in the ordinary course of business; (iv) make any
acquisitions of, or investment in, substantially all the assets of or stock of
any other person or entity; or (v) make any payment to third parties for goods
or services which are not commercially reasonable or on an arm's length basis.
23
<PAGE>
(d) The Corporation shall not grant any bonus or pay increase or any
severance or termination pay to, or enter into any Employment Agreement with,
any director, officers or other employee of the Corporation, except as (i) may
be required to satisfy existing contractual obligations of the Corporation as of
the date hereof, (ii) set forth in the Corporation Disclosure Letter, or (iii)
required by applicable law.
(e) Except as set forth in the Corporation Disclosure Letter or as may
be required to satisfy existing contractual obligations of the Corporation
existing as of the Effective Date and the requirements of applicable law, the
Corporation shall not establish, adopt, enter into, make or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, employee stock ownership, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any class of directors, officers or
employees or make, or accelerate the vesting of, any grants, awards, benefits or
options under any such plans.
(f) The Corporation shall not, except in the ordinary and usual course
of business and on commercially reasonable terms, modify, amend or terminate any
of its Contracts or waive, release or assign any rights or claims.
(g) The Corporation shall not change its method of accounting as in
effect at April 7, 1997, except as required by changes in generally accepted
accounting principles as concurred in by the Corporation's independent auditors.
The Corporation will not change its fiscal year.
(h) The Corporation shall not take or cause to be taken any action
which would disqualify the Merger as a "reorganization" within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code.
(i) The Corporation will not authorize or enter into an agreement to
do any of the actions referred to in paragraphs (a) through (h) above unless
such agreement is conditioned upon the consent of Acquiror.
8.3 Interim Operations of Acquiror.
------------------------------
(a) Acquiror covenants and agrees as to itself and the Acquiror
Subsidiaries that, from and after the date hereof and until the Effective Time
(except as the Corporation shall otherwise agree or except as otherwise
contemplated by this Agreement), neither Acquiror nor Merger Sub shall take or
cause to be taken any action which would disqualify the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code; provided that
nothing hereunder shall limit the ability of Acquiror to exercise any of its
rights or perform any of its obligations under Section 10.5(b) of this
---------------
Agreement.
(b) Neither Acquiror nor any of the Acquiror Subsidiaries will
authorize or enter into an agreement to do any of the actions referred to in
this Section 8.3. Subject to the foregoing, as of the date hereof, Acquiror
-----------
agrees that the business of Acquiror and the Acquiror Subsidiaries will not be
conducted in any manner materially inconsistent with its business in the
ordinary and usual course, including the acquisition from time to time of the
assets or stock of other businesses.
8.4 Meetings of Stockholders. Each of Acquiror and the Corporation will
------------------------
take all action necessary in accordance with applicable law and its Charter or
its certificate of incorporation, as the case may be, and Bylaws to convene a
meeting of its stockholders as promptly as practicable to consider and vote upon
the approval of this Agreement. The Board of Directors of each of Acquiror and
the Corporation shall, except to the extent the Board of Directors of the
Corporation reasonably believes is required by fiduciary obligations under
applicable law, recommend such approval and Acquiror and the Corporation shall
each take all lawful action to solicit such approval. The Corporation and
Acquiror shall coordinate and cooperate with respect to the timing of such
meetings and shall use their reasonable efforts to hold such meeting on the same
day.
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<PAGE>
8.5 Filings, Other Action. Subject to the terms and conditions herein
---------------------
provided, the Corporation and Acquiror shall: (i) use all reasonable efforts to
cooperate with one another in (a) determining which filings are required to be
made prior to the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several States
and foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby and (b) timely making all such filings and timely seeking all such
consents, approvals, permits or authorizations; and (ii) use all reasonable
efforts to take, or cause to be taken, all other action and do, or cause to be
done, all other things, necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purpose of this Agreement, the proper officers and/or directors of
Acquiror, Merger Sub and the Corporation shall take all such necessary action.
8.6 Access. Each of the Acquiror and Corporation shall, and shall cause
------
each of its respective subsidiaries to, afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours during the period prior to the Effective Time to all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, each of the Acquiror, Acquiror Subsidiaries and Corporation shall,
and shall cause each of its respective subsidiaries to, furnish promptly to the
other party (i) a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
federal or state securities laws and (ii) all other information concerning its
business, properties and personnel as such other party may reasonably request.
8.7 Merger Indemnification.
----------------------
(a) Acquiror and Merger Sub agree that all rights to indemnification
for acts or omissions occurring at or prior to the Effective Time now existing
in favor of the current or former directors or officers of the Corporation as
provided in its Charter or Bylaws shall survive the Merger and shall continue in
full force and effect in accordance with their terms in favor of Acquiror or
Merger Sub, as the case may be.
(b) Subject to the limitations set forth in Section 8.7(f) herein, the
-------------
Corporation shall indemnify and hold Acquiror, and its officers, directors,
shareholders, agents and employees, and Merger Sub harmless from and against any
and all liabilities, losses, claims, damages, actions, suits, costs,
deficiencies and expenses, including reasonable attorneys' fees ("Damages")
arising from or by any reason of or resulting from any breach by the Corporation
of any representation, warranty or covenant contained in this Agreement.
(c) Acquiror and Merger Sub jointly and severally shall indemnify and
hold Corporation, and its officers, directors, shareholders, agents and
employees, harmless from and against any and all Damages arising from or by
any reason of or resulting from any breach by the Acquiror or Merger Sub,
as the case may be, of any representation, warranty or covenant contained
in this Agreement.
(d) In the event the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in each such case, proper provisions shall be made so
that the successors and assigns of the Acquiror or the Surviving Corporation, as
the case may be, shall assume the obligations set forth in this Section 8.7.
-----------
(e) This Section 8.7 shall survive the consummation of the Merger at
-----------
the Effective Time, is intended to benefit the Corporation, Acquiror, the
Surviving Corporation and the persons indemnified pursuant to Sections 8.7(b)
--------------
and (c), and shall be binding on all successors and assigns of Acquiror and the
- -------
Surviving Corporation.
(f) Notwithstanding anything contained herein to the contrary, any
indemnification by the Corporation in favor of Acquiror or Merger Sub shall not
exceed in all cases the value of the Escrowed Shares at the
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<PAGE>
time a claim for Damages is made or the dispute is resolved; provided, however,
that if the value of the Escrowed Shares is less at the time the dispute is
resolved than the value of the Escrowed Shares was at the time the claim for
Damages was made, the lesser value of the Escrowed Shares shall in all cases
control. No claim for Damages shall be made by any party more than one (1) year
after the Closing; provided, however, that if a claim is brought during such one
(1) year period and is still in dispute one (1) year after the Closing, the
Escrowed Shares shall not be released until such dispute is resolved pursuant to
Section 11.6 of this Agreement.
- ------------
8.8 Fees and Expenses. All fees and expenses incurred in connection with
-----------------
the Merger, this Agreement and the transactions contemplated by this Agreement
shall be paid by the party incurring such fees or expenses, whether or not the
Merger is consummated.
8.9 Tax Representation Letters of the Corporation and Acquiror.
----------------------------------------------------------
(a) The Corporation will sign and deliver to Black, Bobango & Morgan,
counsel to the Corporation, and to Jackson Walker L.L.P., counsel to Acquiror,
on the Closing Date, representation letters, dated and delivered substantially
in the form of Exhibit 8.9(a) hereto as of such date, for the purpose of the
-------------
reliance of such counsel in delivering the covenant described in Section 8.2(h).
--------------
(b) Acquiror will sign and deliver to Black, Bobango & Morgan, counsel
to the Corporation, and to Jackson Walker L.L.P., counsel to Acquiror, on the
Closing Date representation letters, dated, and substantially in the form of
Exhibit 8.9(b) hereto as of such date, for the purpose of the reliance of such
- --------------
counsel delivering the covenant described in Section 8.3(a).
--------------
8.10 Further Action. Each party hereto shall, subject to the fulfillment
--------------
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effectuate the Merger.
8.11 Notification of Certain Matters.
-------------------------------
(a) The Corporation shall give prompt notice to Acquiror of: (i) any
notice of, or other communication which becomes known to an executive officer of
the Corporation relating to, a default or event that, with notice or lapse of
time or both, would become a default, received by the Corporation, subsequent to
the date of this Agreement and prior to the Effective Time, under any Contract
material to the businesses of the Corporation taken as a whole and to which the
Corporation is a party or is subject; and (ii) any change that results in a
Corporation Adverse Effect. The Corporation shall give prompt notice to
Acquiror when any notice or other communication from any third party becomes
known to an executive officer of the Corporation alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement.
(b) The Corporation shall give prompt notice to Acquiror, and Acquiror
or Merger Sub shall give prompt notice to the Corporation, of (i) any
representation or warranty made by it contained in this Agreement that is
qualified as to materiality becoming untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided however, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
8.12 Legal Conditions to Merger. Each party shall use its best efforts to
--------------------------
take, or cause to be taken, all actions necessary to comply promptly with all
legal requirements which may be imposed on such party or its subsidiaries with
respect to the Merger and, subject to the terms and conditions set forth in this
Agreement, to consummate the transactions contemplated by this Agreement. Each
party will promptly cooperate with and furnish
26
<PAGE>
information to each other party in connection with any such restriction suffered
by, or requirement imposed upon, it or any of its subsidiaries in connection
with the foregoing.
8.13 Employment Agreements. Acquiror hereby agrees to pay, in accordance
---------------------
with their terms as in effect on the date hereof, all amounts due and payable
under the terms of all written Employment Agreements, severance and termination
contracts, plans, policies and commitments of the Corporation and the Affiliated
Practices with or with respect to its current or former employees, officers and
directors as disclosed in writing to Acquiror and Merger Sub prior to the date
of this Agreement, which amounts are vested on or prior to the date of this
Agreement or which become vested as a result of the transactions contemplated
hereby and will cause the Surviving Corporation to assume and continue to honor
the terms of such Employment Agreements.
8.14 Service Agreements. Following the review of the management services
------------------
agreements to which Corporation is a party, Acquiror may require certain
modifications to conform those management services agreements and other
agreements with the Affiliated Practices to similar agreements to which Acquiror
or the Acquiror Subsidiaries are parties. The Corporation shall use its best
efforts to effect such modifications.
8.15 Issuance of Promissory Notes and Security Agreements by Affiliated
------------------------------------------------------------------
Practices. In consideration for the retirement of the Indebtedness of the
- ---------
Affiliated Practices, as defined herein, each of the Affiliated Practices, with
the exception of Memphis Children's Clinic, PLLC, shall issue a note payable to
Merger Sub (singularly, the "Promissory Note" and collectively, the "Promissory
Notes") and execute a Security Agreement in favor of Merger Sub (singularly, the
"Security Agreement" and collectively, the "Security Agreements"), on such terms
and conditions that are comparable to the existing outstanding Indebtedness, and
the Security Agreements executed in connection therewith, of the Affiliated
Practices.
8.16 Employee Benefits. Acquiror or Surviving Corporation hereby agrees to
-----------------
pay, in accordance with their terms as in effect on the date hereof, all amounts
due and payable under the terms of all unwritten and written Employee Benefit
Plans and any other plans, policies, and commitments of the Corporation and the
Affiliated Practices with or with respect to its current or former employees,
officers and directors as disclosed in writing to Acquiror and Merger Sub prior
to the date of this Agreement, which are vested on or prior to the date of this
Agreement or which become vested as a result of the transactions contemplated
hereby and will cause the Surviving Corporation to assume and continue to honor
the terms of such Employee Benefit Plans and any other plans, policies and
commitments of the Corporation.
ARTICLE IX
----------
CONDITIONS
9.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligations of each party to effect the Merger shall be subject to
the fulfillment in all material respects at or prior to the Effective Time of
the following conditions:
(a) The Merger and this Agreement shall have been approved in the
manner required by law by the holders of the issued and outstanding shares of
the Corporation's and Acquiror's capital stock entitled to vote thereon.
(b) None of the parties hereto shall be subject to any order or
injunction against the consummation of the transaction contemplated by this
Agreement. In the event any such order or injunction shall have been issued,
each party agrees to use its reasonable efforts to have any such injunction
lifted.
(c) No more than five percent (5%) of the outstanding Shares
immediately prior to the Merger shall constitute Dissenting Shares in accordance
with Section 5.1(h).
-------------
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9.2 Conditions to Obligation of the Corporation to Effect the Merger. The
----------------------------------------------------------------
obligation of the Corporation to effect the Merger shall be subject to the
fulfillment in all material respects at or prior to the Effective Time of the
following conditions:
(a) Acquiror and Merger Sub shall have performed each agreement
contained in this Agreement required to be performed on or prior to the
Effective Time and the representations and warranties of Acquiror contained in
this Agreement shall be true in all material respects on and as of the Effective
Time (other than any failure to so perform or any misrepresentation or omission
which would not materially influence the investment decision of a reasonable
purchaser of securities); and the Corporation shall have received a certificate
of the President of Acquiror certifying to such effect.
(b) Stewart shall have been elected to the Board of Directors of
Acquiror, at the earlier of (i) the next annual shareholders meeting of
Acquiror's shareholders or (ii) six months from the Effective Date of this
Agreement; provided, however, that Stewart may attend meetings of the Board of
Directors of Acquiror after the Closing Date.
(c) At the Effective Time, Acquiror shall retire (i) the outstanding
Indebtedness of the Corporation to Petra Capital, LLC, in the amount of
$2,000,000 plus accrued interest through the payoff date, (ii) the outstanding
Indebtedness to Union Planters National Bank in an amount not to exceed $500,000
and (iii) the outstanding Indebtedness of the Affiliated Practices in an amount
not to exceed $525,000.
(d) The representations and warranties of Acquiror set forth in this
Agreement, or any document or instrument delivered to Acquiror hereunder, that
are qualified as to materiality shall have been true and correct in all respects
when initially made and shall be true and correct in all respects as of the
Closing Date and all other representations and warranties of Acquiror set forth
in this Agreement, or any document or instrument delivered to Acquiror
hereunder, shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects at the
Closing Date.
(e) All of the terms, covenants and conditions of this Agreement to be
complied with or performed by Acquiror at or prior to Closing shall have been
complied with and performed in all material respects.
(f) Jackson Walker L.L.P., counsel for the Acquiror, shall have
furnished to the Corporation, its written opinion dated the Closing Date, in
form and substance reasonably satisfactory to the Corporation and its counsel.
(g) The Acquiror Disclosure Letter shall have been furnished to the
Corporation in form and substance reasonably satisfactory to the Corporation and
its counsel, which shall be delivered in final form on the Closing Date.
(h) Consent Resolutions of the Board of Directors of Acquiror and
Merger Sub approving the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, certified by a
duly authorized representative of Acquiror and Merger Sub.
(i) Delivery of 781,113 shares of Acquiror Voting Common Stock to the
Corporation and delivery of 86,790 shares of Acquiror Common Stock to the Escrow
Agreement, with 112,200 shares being held by the Acquiror to satisfy the Petra
Warrants.
(j) Delivery by the Acquiror of the Acquiror Warrant Agreements.
(k) Delivery of the POM to the Corporation and the Corporation's
shareholders.
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(l) Delivery, in form and substance satisfactory to the Corporation
and the Corporation's counsel, of the amendments to the Management Services
Agreements by and between MidSouth and Memphis Children's Clinic, PLLC,
Foundation Medical Group, PLLC, and Bryant Medical Services, P.C., substantially
in the form attached hereto as EXHIBIT 9.2(l)(i), (ii) AND (iii), respectively.
--------------------------------
(m) At the Effective Time, the Surviving Corporation's Charter shall
be amended to provide that the name of the Merger Sub shall be changed to
"Physician Health Corporation of MidSouth".
(n) The Petra Warrant Agreement shall be amended through the execution
and delivery of an Amended Warrant Agreement, which provides that the Acquiror
Warrants shall be exercisable upon the same terms and conditions as under the
Petra Warrant Agreement, except that each such Acquiror Warrant shall be
exercisable for 66/100ths (.66) of that whole number of shares of Acquiror
Common Stock into which the number of Common Shares subject to such Corporation
Warrant immediately prior to the Effective Time would have been converted.
(o) The Delta Warrant Agreements shall be amended through the
execution and delivery of an Amended Warrant Agreement, which provides that the
Acquiror Warrants shall be exercisable upon the same terms and conditions as
under the Delta Warrant Agreements, except that each such Acquiror Warrant shall
be exercisable for 66/100ths (.66) of that whole number of shares of Acquiror
Common Stock into which the number of Common Shares subject to such Corporation
Warrant immediately prior to the Effective Time would have been converted.
(p) To take into account the exchange of Acquiror Voting Common Stock
for Preferred Shares and the exchange ratio of one (1) share of the Preferred
Shares to 66/100ths (.66) of one (1) share of the Acquiror Voting Common Stock,
the holders of the Preferred Shares shall be granted 66,000 Acquiror Warrants in
the aggregate and each such holder shall receive and execute an Acquiror Warrant
Agreement, substantially in the form of EXHIBIT 9.2(P) hereto, that entitles
--------------
each holder to its, his or her pro rata share of such Acquiror Warrants.
(q) The Corporation's obligation to issue 150,000 Corporation Warrants
to MidSouth Health Plan, Inc. shall be assumed by the Acquiror and each such
shareholder shall be issued and shall execute an Acquiror Warrant Agreement that
entitles to each holder to its, his or her pro rata share of such Acquiror
Warrants, except that each such Acquiror Warrant shall be exercisable for
66/100ths (.66) of that whole number of shares of Acquiror Common Stock into
which the number of Common Shares subject to such Corporation Warrant
immediately prior to the Effective Time would have been converted.
(r) The Corporation's obligation to issue 150,000 Corporation Warrants
to certain members of the Corporation's management shall be assumed by the
Acquiror, except that each such person shall be issued and shall execute
incentive stock options of the Acquiror in connection with their respective
Employment Agreements and each such incentive stock option shall be exercisable
for 66/100ths (.66) of that whole number of shares of Acquiror Common Stock into
which the number of Common Shares subject to such Corporation Warrant
immediately prior to the Effective Time would have been converted.
9.3 Conditions to Obligation of Acquiror and Merger Sub to Effect the
-----------------------------------------------------------------
Merger. The obligation of Acquiror and Merger Sub to effect the Merger shall be
- ------
subject to the fulfillment in all material respects at or prior to the Effective
Time of the following conditions:
(a) The Corporation shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Effective Time and
the representations and warranties of the Corporation contained in this
Agreement shall be true in all material respects on and as of the Effective Time
(other than any failure to so perform or any misrepresentation or commission
which would not materially influence the investment decision of a reasonable
purchaser of securities); and Acquiror shall have received a certificate of the
President or CEO of the Corporation certifying to such effect.
29
<PAGE>
(b) At the Effective Time, the aggregate Indebtedness of the
Corporation to (i) Petra Capital, LLC, in an amount not to exceed $2,000,000
plus interest accrued through the payoff date, (ii) Union Planters National
Bank, N.A., in an amount not to exceed $500,000 and (iii) and other Indebtedness
(consisting substantially of indebtedness to physicians associated with
Affiliated Practices) in an amount not to exceed $525,000 shall have been
satisfied and evidence of releases of the foregoing liens shall be delivered to
the Acquiror by either the Corporation or the foregoing Lenders.
(c) The Corporation shall have obtained (i) such modifications to the
management services agreements and related agreements that the Acquiror has
identified to the Corporation in writing on or before November 11, 1997 as
necessary or advisable to rectify a material regulatory problem or (ii) the
Corporation shall have obtained the written opinions of counsel with healthcare
law expertise who are reasonably acceptable to Acquiror that the management
services agreement and related agreements in question comply in all material
respects with applicable healthcare laws.
(d) Acquiror and Merger Sub shall have received all (i) licenses,
consents, permits and approvals, if any, necessary in order for Acquiror to own
the Common Shares and Preferred Shares; (ii) consents necessary to consummate
the transactions contemplated by this Agreement, including the consents of (x)
Weston Presidio Capital II, L.P. and certain other investors under the
Securities Purchase Agreement dated as of June 16, 1997 and (y) EGL Holdings,
Inc., an investor in Acquiror; (iii) the approval of the Board of Directors of
Acquiror; and (iv) waivers from the Acquiror's venture capital investors with
respect to the issuance of the Petra Warrant Agreement.
(e) The representations and warranties of Corporation set forth in
this Agreement, or any document or instrument delivered to Acquiror hereunder,
that are qualified as to materiality shall have been true and correct in all
respects when initially made and shall be true and correct in all respects as of
the Closing Date and all other representations and warranties of Corporation set
forth in this Agreement, or any document or instrument delivered to Acquiror
hereunder, shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects at the
Closing Date.
(f) All of the terms, covenants and conditions of this Agreement to be
complied with or performed by Corporation at or prior to Closing shall have been
complied with and performed in all material respects.
(g) Black, Bobango & Morgan, counsel to the Corporation, shall have
furnished to the Acquiror, its written opinion dated the Closing Date, in form
and substance reasonably satisfactory to the Acquiror and its counsel.
(h) The Corporation's Disclosure Letter shall have been furnished to
Acquiror in form and substance reasonably satisfactory to the Acquiror and its
counsel, which shall be delivered in form and substance satisfactory to Acquiror
and its counsel on the Closing Date.
(i) An Investment Agreement shall have been furnished to Acquiror in
form and substance reasonably satisfactory to the Acquiror and its counsel, a
copy of which shall be executed by each of the Corporation's shareholders and
delivered on the Closing Date, substantially in the form attached hereto as
EXHIBIT 9.3(i).
- -------------
(j) An Escrow Agreement shall have been furnished to Acquiror in form
and substance reasonably satisfactory to the Acquiror and its counsel, a copy of
which shall be executed by each of the Corporation's shareholders and delivered
on the Closing Date.
(k) A written consent to the amendment of the Corporation Warrants
shall have been approved and executed by each of the holders of the Corporation
Warrants and delivered to the Acquiror.
30
<PAGE>
(l) An Amended Warrant Agreement executed by Petra Capital, LLC, and
Delta Capital, L.L.C., shall be delivered to the Acquiror, substantially in the
forms as attached hereto as EXHIBITS 9.3(l)(i) AND (ii), respectively.
---------------------------
(m) A Unanimous Written Consent of the Corporation's shareholders
approving the POM, and the Supplement thereto, shall have been delivered to the
Acquiror by the Closing Date.
(n) An acknowledgment executed by each of the Corporation's
shareholders that each such shareholder intends to proceed with the transaction
contemplated by this Agreement, with respect to which the POM and the Supplement
thereto, were delivered to each such shareholder.
(o) An employment agreement executed by Stewart, Nichols and
Caldwell, shall be delivered to the Acquiror, substantially in the forms
attached hereto as EXHIBITS 9.3(o)(i), (ii) AND (iii), respectively.
----------------------------------
(p) An incentive stock option agreement executed by Stewart, Nichols
and Caldwell, shall be delivered to the Acquiror, substantially in the forms
attached hereto as EXHIBITS 9.3(p)(i), (ii) AND (iii), respectively.
----------------------------------
(q) Promissory Notes and Security Agreements in form and substance
satisfactory to the Acquiror and its counsel, to be executed by the Affiliated
Practices and delivered to the Acquiror on the Closing Date.
(r) Written consents of all third parties necessary for the
consummation of the transactions contemplated by this Agreement and the
ownership of the Corporation by the Acquiror; provided, that the parties to this
Agreement will use their best efforts to obtain the consents required to obtain
assignment of all leases set forth in the Corporation Disclosure Letter and
failure to obtain all of such consents by the Closing Date shall not constitute
a breach of this Agreement.
(s) The Investors' Rights Agreements by and among the Corporation and
the investors listed on EXHIBIT 9.3(s) attached hereto shall be canceled.
--------------
(t) [Intentionally omitted].
(u) The shareholders of the Corporation, or the Corporation prior to
the Closing Date, shall have paid in full (or made provision for full payment in
such a manner that is satisfactory to Acquiror and Acquiror's counsel) the fees
and expenses due or expected to be due to Black, Bobango & Morgan for legal
services rendered in connection with the transaction contemplated by this
Agreement and all other transactions that the Corporation has pending. The
Acquiror shall not be liable for any legal fees due to Black, Bobango and Morgan
by the Corporation incurred before or after the Closing Date and if such fees
and expenses are outstanding after the Closing Date, the shareholders of the
Corporation shall become personally liable, jointly and severally, for the
payment of all such legal fees and expenses.
9.4 Frustration of Closing Conditions. None of the Corporation,
---------------------------------
Acquiror and Merger Sub may rely on the failure of any condition set forth in
SECTIONS 9.1, 9.2 OR 9.3, as the case may be, to be satisfied if such failure
- ------------------------
was caused by such party's failure to act in good faith or to use its best
efforts to consummate the Merger and the other transactions contemplated by this
Agreement, as required by SECTION 8.12.
------------
31
<PAGE>
ARTICLE X
---------
TERMINATION
10.1 Termination by Mutual Consent. This Agreement may be terminated and
-----------------------------
may be abandoned at any time prior to the Effective Time, before or after the
approval of this Agreement by the stockholders of the Corporation or Acquiror,
by the mutual consent of Acquiror, Merger Sub and the Corporation.
10.2 Termination by Either Acquiror or the Corporation. This Agreement may
-------------------------------------------------
be terminated and the Merger may be abandoned by action of the Board of
Directors of either Acquiror or the Corporation if (i) the Merger shall not have
been consummated by November 15, 1997, (ii) the approval of the Corporation's
stockholders required by SECTION 9.1(a) shall not have been obtained at a
-------------
meeting duly convened therefor or at any adjournment thereof by November 6,
1997, or a Unanimous Written Consent of the Shareholders accepting the POM, the
Merger Agreement and all of the transaction documents contemplated thereby,
dated as of November 6, 1997, (iii) written acknowledgment from each holder of
any Acquiror Warrants granted under the terms of this Agreement dated as of
November 6, 1997, agreeing to accepting the Acquiror Warrant Agreement and the
Amended Warrant Agreements on the Closing Date, or (iv) written acknowledgment
from Stewart, Nichols and Caldwell agreeing to accept the incentive stock option
agreements and their respective employment agreements on the Closing Date.
10.3 Termination by the Corporation. This Agreement may be terminated and
------------------------------
the Merger may be abandoned at any time prior to the Effective Time, before or
after the adoption and approval by stockholders of the Corporation referred to
in SECTION 9.1(a), by action of the Board of Directors of the Corporation, if
-------------
(i) the Board of Directors of Acquiror shall have withdrawn or modified in a
manner adverse to the Corporation its approval or recommendation of this
Agreement or the Merger, or (ii) there has been a breach by Acquiror or Merger
Sub of any representation, warranty, covenant or agreement contained in this
Agreement which would have a Acquiror Adverse Effect which is not curable or, if
curable, is not cured within thirty (30) days after written notice of such
breach is given by the Corporation to the party committing such breach.
10.4 Termination by Acquiror.
-----------------------
(a) This Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time, before or after the approval by the
stockholders of Acquiror referred to in SECTION 9.1(a), by action of the Board
---------------
of Directors of Acquiror, if (i) the Board of Directors of the Corporation shall
have withdrawn or modified in a manner adverse to Acquiror its approval or
recommendation of this Agreement, or the Merger, or shall have recommended to
stockholders of the Corporation an Acquisition Proposal, or (ii) there has been
a breach by the Corporation of any representation, warranty, covenant or
agreement contained in this Agreement which would have a Corporation Adverse
Effect which is not curable or, if curable, is not cured within thirty (30) days
after written notice of such breach is given by Acquiror to the party committing
such breach.
(b) This Agreement may be terminated and the Merger may be abandoned
at any time on or prior to the close of business on November 15, 1997 by the CEO
of Acquiror if such person determines, in her sole discretion, as the result of
the Acquiror's legal and financial due diligence with respect to the
Corporation, that such termination is desirable and in the best interests of
Acquiror.
10.5 Effect of Termination and Abandonment.
-------------------------------------
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this ARTICLE X, no party hereto (or any of its
---------
directors or officers) shall have any liability or further obligation to any
other party to this Agreement except as provided in SECTION 10.5(b), SECTION
-------------- -------
8.10, SECTION 11.6 and SECTION 11.7 below, and except that nothing herein will
- ---- ------------ ------------
relieve any party from liability for any breach of this Agreement.
32
<PAGE>
(b) In the event that any person shall have made an Acquisition
Proposal for the Corporation and thereafter the Agreement is terminated by
either party (other than pursuant to the breach of this Agreement by Acquiror)
then the Corporation, if requested by Acquiror, shall, subject to the provisions
set forth below, promptly, but in no event later than five (5) business days
after the date of such request, pay Acquiror a fee equal to all reasonable fees
and expenses incurred by Acquiror in connection with the transaction
contemplated by this transaction as reflected upon an invoice prepared by
Acquiror and delivered to the Corporation, but in no event shall exceed
$250,000; provided, that no fee shall be payable to Acquiror pursuant to this
SECTION 10.5(b) unless and until (i) any person (other than Acquiror) (an
- ---------------
"Acquiring Party") has entered into a definitive agreement to acquire, by
purchase, merger, consolidation, sale, assignment, lease, transfer or otherwise,
in a transaction or a series of transactions, a majority of the voting power of
the outstanding securities of the Corporation or fifty percent (50%) or more of
the assets of the Corporation, (ii) there has been executed a definitive
agreement with respect to a consolidation, merger or similar transaction between
the Corporation and an Acquiring Party in which the stockholders of the
Corporation immediately prior to such proposed consolidation, merger or similar
transaction do not own securities representing at least fifty percent (50%) of
the outstanding voting power of the surviving entity (or, if applicable, any
entity in control of such Acquiring Party) of such proposed consolidation,
merger or similar transaction immediately following the consummation thereof, or
(iii) an Acquiring Party, or any "group" (as such term is defined under Section
13(d) of the Exchange Act) acquires beneficial ownership or the right to acquire
beneficial ownership of fifty percent (50%) of the common stock of the
Corporation, whether by tender offer, exchange offer or otherwise (any such
transaction described in clauses (i) through (iii) being a "Business
Combination"). The Corporation acknowledges that the agreements contained in
this SECTION 10.5(b) are an integral part of the transactions contemplated in
--------------
this Agreement, and that, without these agreements, Acquiror and Merger Sub
would not enter into this Agreement; accordingly, if the Corporation fails to
promptly pay the amount due pursuant to this SECTION 10.5(b), and, in order to
--------------
obtain such payment, Acquiror or Merger Sub commences a suit which results in a
judgment against the Corporation for the fee set forth in this paragraph (b),
the non-prevailing party shall pay to the prevailing party its costs and
expenses (including reasonable attorneys' fees) in connection with such suit,
together with interest on the amount of the fee at the prime rate of Banque
Paribas in effect on the date such payment was required to be made.
10.6 Extension, Waiver. At any time prior to the Effective Time of the
-----------------
Merger, any party hereto, by action taken by its Board of Directors or a
committee thereof, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(ii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE XI
----------
GENERAL PROVISIONS
11.1 Survival of Representations, Warranties and Agreements. All
------------------------------------------------------
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall survive the
Merger for a period of one (1) year following the Closing; provided, however,
that the agreements contained in ARTICLE V and in SECTIONS 8.7 (a) - (e), 8.9,
--------- --------------------- ---
11.6 and 11.7 shall continue in full force and effect indefinitely.
- ---- ----
11.2 Notices. Any notice required to be given hereunder shall be
-------
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to the Corporation: MidSouth Practice Management, Inc.
889 Ridge Lake Boulevard, Suite 111
33
<PAGE>
Memphis, Tennessee 38120
Attention: Dan Caldwell
FAX: (901) 766-2019
With a copy to: Black, Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: John A. Bobango, Esq.
FAX: (901) 683-2553
If to the Surviving
Corporation: Physician Health Corporation of MidSouth
889 Ridge Lake Boulevard, Suite 111
Memphis, Tennessee 38120
Attention: Dan Caldwell
FAX: (901) 766-2019
With a copy to: Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah C. Garvin, Chief Executive Officer
FAX: (770) 673-1970
With a copy to: Black, Bobango & Morgan
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: John A. Bobango, Esq.
FAX: (901) 683-2553
With a copy to: Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: James S. Ryan, III
FAX: (214) 953-5822
If to Acquiror: Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah C. Garvin, Chief Executive Officer
FAX: (770) 673-1970
With a copy to: Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: James S. Ryan, III
FAX: (214) 953-5822
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
34
<PAGE>
11.3 Binding Effect, Benefit. This Agreement shall be binding upon and
-----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding anything contained in this Agreement to the
contrary, except for the provisions of ARTICLE V and SECTIONS 8.7, 8.9, 11.6 and
--------- ------------ --- ----
11.7 nothing in this Agreement, expressed or implied, is intended to confer on
- ----
any person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
11.4 Entire Agreement. This Agreement, the Exhibits, Corporation and
----------------
Acquiror Disclosure Letters and other documents and agreements among the parties
hereto, constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
11.5 Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken by their respective Board of Directors or a committee thereof, at
any time before or after approval of matters presented in connection with the
Merger by the stockholders of the Corporation, but after any such stockholder
approval no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
11.6 Alternative Dispute Resolution.
------------------------------
The exclusive methods for resolution of disputes arising out of or
relating to this Agreement or its terms shall be (i) the negotiation of the
parties, (ii) mediation pursuant to the terms of SECTION 11.6(a); and/or (iii)
--------------
arbitration pursuant to the terms of SECTION 11.6(b).
--------------
(a) Mediation. If a dispute arises out of or relates to this
---------
Agreement or its terms, and the parties fail to settle the dispute through
negotiation, either party may elect to submit the dispute to a sole mediator.
The parties shall select the mediator by mutual agreement or, if the parties
fail to agree upon a mediator within thirty (30) days from the date of election
to mediate, the mediator shall be selected by the American Arbitration
Association. The Commercial Mediation Rules of the American Arbitration
Association shall govern the mediation, including selection of the mediator if
the parties cannot agree upon a mediator. The parties shall bear their own
costs associated with the mediation and shall share equally the costs of the
mediator. If the parties do not resolve the dispute within sixty (60) days from
the commencement of the mediation and do not mutually agree to extend the sixty
(60) day period, either party may elect to submit the dispute to binding
arbitration. The parties, their representatives, other participants and the
mediator shall hold the existence, content and result of the mediation in
confidence. The mediation shall be held in Atlanta, Georgia.
(b) Arbitration. Following mediation pursuant to the provisions of
-----------
the foregoing SECTION 11.6(a) and upon the election of either party to submit
---------------
the dispute to binding arbitration, the dispute shall be submitted to a sole
arbitrator, whose decision shall be final and binding on the parties. The
parties shall select the arbitrator by mutual agreement or, if the parties fail
to agree upon an arbitrator within thirty (30) days from the date of the
election to arbitrate, the arbitrator shall be selected by the American
Arbitration Association. The Commercial Arbitration Rules of the American
Arbitration Association shall govern the arbitration, including the selection of
the arbitrator if the parties cannot agree upon the arbitrator. The parties
shall bear their own costs associated with the arbitration and shall share
equally the costs of the arbitrator. In the event that either party fails to
comply with the terms of the arbitrator's final decision within twelve (12)
months of said decision, either party may petition a court of competent
jurisdiction to enter a judgment based upon the arbitrator's final decision.
Other than petitioning a court to enter a judgment based upon the arbitrator's
final decision, the parties, their representatives, other participants and the
arbitrator shall hold the existence, content and result of the arbitration in
confidence. The arbitration shall be held in Atlanta, Georgia.
35
<PAGE>
(c) Equitable Remedies Pending Mediation/Arbitration. Nothing in this
------------------------------------------------
SECTION 11.6 shall be construed to preclude any party from seeking injunctive
- ------------
relief in order to protect its rights pending mediation/arbitration.
11.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia without regard to its rules of
conflict of laws.
11.8 Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
11.9 Headings. Headings of the Articles and Sections of this Agreement are
--------
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
11.10 Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
11.11 Waivers. Except as provided in this Agreement, no action taken
-------
pursuant to this Agreement, including without limitation any investigation by or
on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
11.12 Incorporation of Exhibits and Disclosure Letters. All Exhibits
------------------------------------------------
attached hereto and referred to herein and the Corporation Disclosure Letter and
Acquiror Disclosure Letter referred to herein are hereby incorporated herein and
made a part hereof for all purposes as if fully set forth herein.
11.13 Severability. If for any reason whatsoever, any one or more of the
------------
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
11.14 Obligation of Acquiror. Acquiror shall cause Merger Sub to perform
----------------------
each of its duties and obligations under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
36
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first herein above
written.
THE CORPORATION:
---------------
MIDSOUTH PRACTICE MANAGEMENT, INC.
By:
-----------------------------------
Title:
--------------------------------
ACQUIROR:
--------
PHYSICIAN HEALTH CORPORATION
By:
-----------------------------------
Sarah C. Garvin, CEO
MERGER SUB:
----------
PHC TENNESSEE ACQUISITION SUBSIDIARY
I, INC.
By:
-----------------------------------
Sarah C. Garvin, President
37
<PAGE>
EXHIBIT 10.15
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
MIDSOUTH PRACTICE MANAGEMENT, INC.,
AND
FOUNDATION MEDICAL GROUP, PLLC
Dated as of September 22, 1997
<PAGE>
TABLE OF CONTENTS
PRELIMINARY STATEMENTS ..........................................6
ARTICLE 1. INTERPRETATION ..................................6
Section 1.1. Definitions .............................6
Section 1.2. Effect of Definitions ..................12
Section 1.3. This Agreement .........................12
Section 1.4. Case and Gender ........................13
ARTICLE 2. RELATIONSHIP OF THE PARTIES ....................13
Section 2.1. Independent Relationship ...............13
Section 2.2. Responsibilities of the Parties ........13
Section 2.3. Practice Matters .......................13
Section 2.4. Patient Referrals ......................13
Section 2.5. Professional Judgment...................14
ARTICLE 3. ADMINISTRATIVE AND MANAGEMENT SERVICES
OF MIDSOUTH.....................................14
Section 3.1. Management Services and Administration..14
Section 3.2. Budgets and Finances....................17
Section 3.3. Financial Statements and Audits ........17
Section 3.4. Inventory and Supplies..................17
Section 3.5. Management Team Chief Executive.........18
Section 3.6. Personnel...............................18
Section 3.7. Capital Expenditures and Loans..........18
Section 3.8. Compliance with Applicable Law..........19
Section 3.9. Quality Assurance.......................19
Section 3.10. Ancillary Services......................19
Section 3.11. New Medical Services and Additional
Practice Offices........................19
Section 3.12. Manner of Performance...................20
ARTICLE 4. OBLIGATIONS OF THE PRACTICE.....................20
Section 4.1. Physicians..............................20
Section 4.2. Provision of Medical Services...........20
Section 4.3. Professional Standards..................20
Section 4.4. Billing Information.....................21
Section 4.5. Medical Practice........................21
Section 4.6. Additional Physicians...................21
Section 4.7. Utilization Review: Quality Assurance ..21
Section 4.8. Non-discrimination: Compliance with
Applicable Law .........................21
Section 4.9. Standards, Accreditation, Surveys and
Inspections ............................21
Section 4.10. Contracts ..............................21
Section 4.11. Organization and Area of Care ..........22
Section 4.12. Records and Reports ....................22
Section 4.13. The Practice to Provide Necessary
Billing Information ....................22
Section 4.14. Continuing Education ...................22
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Section 4.15. Referrals ..............................22
Section 4.16. Provider Numbers .......................22
ARTICLE 5. FACILITIES OF THE PRACTICE .....................22
Section 5.1. The Practice Facilities ................22
Section 5.2. Right to Use Property ..................23
ARTICLE 6. COMPENSATION ...................................23
Section 6.1. Fees ...................................23
Section 6.2. Purchase of Accounts Receivable ........24
Section 6.3. Early Termination of Physician Members..28
ARTICLE 7. RESTRICTIVE COVENANTS AND ENFORCEMENT ..........29
Section 7.1. Exclusive Arrangement ..................29
Section 7.2. Restrictive Covenants by the Practice...29
Section 7.3. Restrictive Covenants By Current
Physician Employees ....................30
Section 7.4. Restrictive Covenants By Future
Physician Employees ....................30
Section 7.5. Physician Employee Liquidated Damages ..31
Section 7.6. Rights of MidSouth .....................31
Section 7.7. Excluded Activities . ..................31
Section 7.8. Enforcement ............................31
ARTICLE 8. DUTIES OF THE MANAGEMENT TEAM ......... ........32
Section 8.1. Formation and Operation of the
Management Team .......................32
Section 8.2. Duties and Responsibilities of the
Management Team ........................32
ARTICLE 9. INSURANCE AND INDEMNITY ........................33
Section 9.1. Insurance to be Maintained by the
Practice ..............................33
Section 9.2. Insurance to be Maintained by MidSouth..34
Section 9.3. Tail Insurance Coverage ................34
Section 9.4. Additional Insured .....................34
Section 9.5. Indemnification ........................34
ARTICLE 10. TERM AND TERMINATION ..........................35
Section 10.1. Term of Agreement ......................35
Section 10.2. Extended Term ..........................36
Section 10.3. Termination by the Practice ............36
Section 10.4. Termination by MidSouth ................36
Section 10.5. Actions after Termination ..............37
Section 10.6. Closing of Repurchase by the Practice
and Effective Date of Termination ......38
ARTICLE 11. INTELLECTUAL PROPERTY AND RECORDS .............38
Section 11.1. Proprietary Information ................38
Section 11.2. Ownership of MidSouth's Business Records
and Systems ............................39
Section 11.3. Maintenance and Access of Records.......39
Section 11.4. Patient Records ........................39
Section 11.5. Access to Records ......................40
ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF THE
PRACTICE AND PHYSICIAN Members ................40
<PAGE>
Section 12.1. Validity ..............................40
Section 12.2. Litigation ............................40
Section 12.3. Permits ...............................40
Section 12.4. Power and Authority....................40
Section 12.5. Compliance with Applicable Law ........41
Section 12.6. Health Care Compliance ................41
Section 12.7. Fraud and Abuse .......................41
Section 12.8. Practice Compliance ...................42
Section 12.9. Rates and Reimbursement Policies ......42
Section 12.10. Accounts Receivable ...................42
Section 12.11. Full Disclosure .......................44
Section 12.12. Exhibits ..............................45
ARTICLE 13. REPRESENTATIONS AND WARRANTS OF MIDSOUTH.......45
Section 13.1. Organization...........................45
Section 13.2. Authority .............................45
Section 13.3. Absence of Litigation .................45
Section 13.4. Transactions with Affiliates ..........45
Section 13.5. Full Disclosure........................45
Section 13.6 Exhibits and Schedules ................45
ARTICLE 14. COVENANTS OF THE PRACTICE AND
PHYSICIAN Members .............................45
Section 14.1. Merger, Consolidation and Other
Arrangements ..........................45
Section 14.2. Necessary Authorizations/Assignment of
Licenses and Permits...................46
Section 14.3. Transaction with Affiliates ...........46
Section 14.4. Compliance with All Applicable Law ....46
Section 14.5. Third Party Payor Programs ............46
Section 14.6. Change in Business or Credit and
Collection Policy......................46
Section 14.7. Treatment of Accounts Receivable ......46
Section 14.8. Security Interest .....................47
ARTICLE 15. MISCELLANEOUS .................................47
Section 15.1. Assignment ............................47
Section 15.2. This Agreement ........................48
Section 15.3. No Practice of Medicine................48
Section 15.4. Non-Waiver ............................48
Section 15.5. Waivers ...............................49
Section 15.6. Amendments ............................49
Section 15.7. Severability ..........................49
Section 15.8. Successors.............................49
Section 15.9. Third Parties..........................49
Section 15.10. Saturdays, Sundays and Holidays........49
Section 15.11. Joint Preparation......................49
Section 15.12. Captions ..............................49
Section 15.13. Notices ...............................49
Section 15.14. Counterparts ..........................50
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Section 15.15. Further Assurances ....................50
Section 15.16. Attorneys' Fee ........................50
Section 15.17. Time is of the Essence ................50
Section 15.18. Confidentiality .......................50
Section 15.19. Contract Modifications for Prospective
Legal Events and Cost Reductions ......51
Section 15.20. Remedies Cumulative....................51
Section 15.21. No Obligation to Third Parties ........51
Section 15.22. Compliance with Federal Applicable Law.51
Section 15.23. Force Majeure .........................51
Section 15.24. Communications ........................51
Section 15.25. Governing Applicable Law...............51
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") dated as of September
22, 1997, by and between MIDSOUTH PRACTICE MANAGEMENT, INC., a Tennessee
corporation ("MidSouth"), Foundation Medical Group, PLLC, a Tennessee
professional limited liability company (the "Practice") and the Physician
Members set forth on Schedule 1 for the Limited purposes as set forth herein.
PRELIMINARY STATEMENTS
1. The Practice is a newly formed professional limited liability company
for the practice of medicine in the Memphis, Tennessee area which provides
professional medical care to the general public through the operation of a
several clinics.
2. MidSouth is in the business of owning certain assets of and managing
and administering the businesses of medical practices.
3. The Practice desires for MidSouth to provide management and
administrative services for the Practice.
NOW, THEREFORE, in consideration of the foregoing and the promises
contained herein, and ten dollars (S10.00) and other good and valuable
consideration, the receipt and sufficiency of all of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE 1. INTERPRETATION.
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SECTION 1.1. DEFINITIONS. For the purposes of this Agreement, the following
-----------
definitions shall apply:
1.1.1. "Account Debtor" shall mean an account debtor or any other person
obligated in respect of an Account Receivable.
1.1.2. "Accounts" shall mean, with respect to the Practice, all Accounts
Receivable including any and all rights to payment of money or other forms of
consideration of any kind (whether classified under the Uniform Commercial Code
as accounts, chattel paper, general intangibles, or otherwise) for goods sold or
leased or for services rendered by the Practice, including, but not limited to,
accounts receivable, proceeds of any letters of credit naming the Practice as
beneficiary, chattel paper, insurance proceeds, contract rights, notes, drafts,
instruments, documents, acceptances, and all other debts, obligations and
liabilities in whatever form from any other person.
1.1.3. "Accounts Receivable" shall mean, with respect to the Practice, all
Accounts and any and all rights to payment of money or other forms of
consideration of any kind now owned or hereafter acquired (whether classified
under the Uniform Commercial Code as accounts, chattel
<PAGE>
paper, general intangibles or otherwise) for goods sold or leased or arising out
of the delivery of medical, surgical, diagnostic or other professional medical
services rendered by the Practice, including, but not limited to, accounts
receivable, proceeds of any letters of credit naming the Practice as
beneficiary, chattel paper, insurance proceeds, contract rights, notes, drafts,
instruments, documents, acceptances and all other debts, obligations and
liabilities in whatever form from any other Person; provided that, cash, checks
and credit card purchases are not included in the definition of Accounts
Receivable.
1.1.4. "Applicable Law" shall mean all provisions of constitutions, laws,
statutes, codes, rules, regulations, ordinances and orders of all Governmental
Authorities and all orders and decrees of all courts, tribunals and arbitrators,
and shall include, without limitation, any Health Care Law applicable to a
person or an entity or its assets, liabilities or business.
1.1.5. "CHAMPUS" shall mean the Civilian Health and Medical Program of the
Uniformed Services.
1.1.6. "Collecting Bank" shall mean the main office of Union Planters
National Bank, 6200 Poplar Avenue, Memphis, Tennessee 38119, or any other
financial institution agreed to by MidSouth for the collection of Purchased
Accounts Receivable.
1.1.7. "Contract" shall mean any material written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or undertaking of any
kind or character, or other document to which any person is a party or by which
any person is bound.
1.1.8. "Corporation" shall collectively mean Internal Medicine Associates
of Cordova, P.C., and Walnut Grove Medical Group, P.C., a Tennessee
professionals corporations, which formerly owned the assets of and conducted the
medical practice now conducted by the Practice.
1.1.9. "Default" shall mean (i) any breach or violation of or default under
this Agreement or any Contract, order, or permit, (ii) any occurrence of any
event that with the passage of time or the giving of notice or both would
constitute a breach or violation of or default under any Contract, order or
permit, or (iii) any occurrence of any event that with or without the passage of
time or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate, increase, or
impose any liability under, any Contract, order or permit.
1.1.10. "Disbursement Account" shall mean the bank account maintained by
MidSouth for payment of the Practice Expenses and the Service Fees.
1.1.11. "Effective Time" shall mean that date, as defined in the Merger
Agreement, when the Merger becomes effective with the Secretary of State of the
State of Tennessee.
1.1.12. "Excluded Activities" shall mean: (i) teaching at any educational
institution and attending patients as a part of the Physician Employee's duties
as are normal and customary for such
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<PAGE>
faculty position; provided, however, such services must be incident to the
academic/teaching aspects of the institution and not incident to the regular
examination of patients for a fee, whether billed in the name of the institution
or the name of the Physician Employee; (ii) authoring text books, research
papers, or newspaper articles, or appearing on radio or television shows or any
other provision of medical advice via broad mediums; (iii) engaging in research
and development the material components of which do not constitute medical
practice management; (iv) serving as medical director or administrative employee
of any organization offering medical care, but not providing clinical services
or which is not in competition with the Practice; (v) serving as an expert
witness; and (vi) working in a urgent care center as defined in Section 7.3.
1.1.13. "Excluded Expenses" shall be defined pursuant to Schedule 1.1.13.
1.1.14. "Excluded Revenue" shall mean revenue earned by the Physician
Employees or the Practice from Excluded Activities.
1.1.15. "Finance Charge Rate" means a rate of interest equal to the lesser
of (i) eighteen percent (18%) per annum or (ii) the maximum rate of interest
allowed by Applicable Law in effect at the usage.
1.1.16. "GAAP" shall mean generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in any other
statements by any other entity or other practices and procedures as may be
approved by a significant segment of the accounting profession. For purposes of
this Agreement, GAAP shall be applied in a manner consistent with the historical
practices used by MidSouth or the Practice, as applicable.
1.1.17. "Governmental Authority" shall mean any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, board, body, agency, bureau or entity or any
arbitrator with authority to bind a party.
1.1.18. "Governmental Lockbox Account" shall mean the account established
at the Collecting Bank by the Practice into which all proceeds of the Practice's
Governmental Receivables are remitted.
1.1.19. "Governmental Receivables" shall mean the Accounts Receivable of
the Practice which (i) arise in the ordinary course of business of the Practice,
(ii) have as their third party payor the United States of America or any state
or any agency or instrumentality of the United States of America or any state
which makes any payment with respect to Medicare or Medicaid or with respect to
any other program (including CHAMPUS) established by Applicable Law, and (iii)
are required by federal or state law to be paid to the Practice as a healthcare
provider. Governmental Receivables
3
<PAGE>
shall not, however, refer to amounts payable by private insurers under contract
to provide benefits under the Federal Employee Health Benefit Program.
1.1.20. "Health Care Law" shall mean any Applicable Law regulating the
acquisition, construction, operation, maintenance or management of a health care
practice, facility, provider or payor, including without limitation, 42 U.S.C.
(S)1395nn and 42 U.S.C. (S)1320a-7b.
1.1.21. "HMO" shall mean health maintenance organization; an entity that
combines health care services delivery and financing in one prepaid capitated
benefit plan.
1.1.22. "Lender" shall mean any lender of MidSouth that has a security
interest in the Purchased Accounts Receivable from time to time.
1.1.23. "Lockbox Agreements" shall mean that certain lockbox operating
procedural agreement for Governmental Receivables to be entered into between the
Collecting Bank, Lender and Practice, in a form acceptable to counsel for
MidSouth as to Governmental Receivables and that certain lockbox operating
procedural agreement for Non-Governmental Receivables to be entered between the
Collecting Bank, Lender and Practice, in a form acceptable to counsel for
MidSouth as to Non-Governmental Receivables.
1.1.24. "Managed Care Payments" shall mean all payments actually recorded
whether on a prepayment or accrual basis for (i) capitation payments to the
Practice from managed care organizations where payment is made periodically on a
per member basis for the partial or total medical care needs of a patient, co-
payments and all HMO incentive bonuses, including hospital incentive bonuses,
and (ii) fees and revenue recorded by or on behalf of the Practice, whether from
the assumption of institutional or professional risk in managed care risk
assumption arrangements or otherwise, including bonus, incentive and surplus
payments from capitated services.
1.1.25. "Management Team" shall mean a committee consisting of four (4)
members established pursuant to and functioning in accordance with the
guidelines set forth in Article 8.
1.1.26. "Management Team Chief Executive" shall mean the MidSouth employee
who shall manage and administer all of the day-to-day business functions of the
Practice subject to the terms of this Agreement.
1.1.27. "Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the financial position, business or results of
operations of any party and its subsidiaries, taken as a whole, or (ii) the
ability of such party to perform its obligations under this Agreement or the
transactions contemplated by this Agreement, provided that Material Adverse
Effect shall not be deemed to include the impact of (x) changes in Applicable
Law or interpretations thereof by courts or Governmental Authorities, (y)
changes in GAAP, and (z) the Merger and compliance with the provisions of this
Agreement on the operating performance of the parties or actions taken pursuant
to or required by this Agreement.
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<PAGE>
1.1.28. "Medicaid" shall mean any state program pursuant to which health
care providers are paid or reimbursed for care given or goods afforded to
indigent persons and administered pursuant to a plan approved by the Health Care
Financing Administration under Title XIX of the Social Security Act.
1.1.29. "Medicare" shall mean any medical program established under Title
XVIII of the Social Security Act and administered by the Health Care Financing
Administration.
1.1.30. "Merger" shall mean the merger of the Corporation with and into
MidSouth pursuant to the Merger Agreement.
1.1.31. "Merger Agreement" means that certain Merger Agreement document
dated as of September 17, 1997, by and among MidSouth, the Corporation and
Physician Members.
1.1.32. "MidSouth" shall mean MidSouth Practice Management, Inc., a
Tennessee corporation.
1.1.33. "MidSouth Expenses" shall be as set forth on Schedule 1.1.33.
1.1.34. "Misdirected Payments" means payments made by an Account Debtor to
a location other than as provided in the Notification Letter or that the
Practice otherwise receives on Purchased Accounts Receivable under the terms of
this Agreement.
1.1.35. "Monthly Adjustments" shall mean adjustments to the estimated
payments that are made pursuant to Section 6.1 or Section 6.2 to reconcile the
estimated payments made pursuant to Section 6.1 or Section 6.2 with the actual
amounts due under Section 6.1 or 6.2. The Monthly Adjustments shall be made on a
monthly basis beginning on the last day of the month immediately following the
month for which the initial calculation is made.
1.1.36. "Necessary Authorizations" shall mean with respect to the Practice,
all certificates of need, authorizations, certificates, consents, approvals,
permits, licenses, notices, accreditations and exemptions, filings and
registrations, and reports required by Applicable Law, which are necessary or
reasonably useful to the lawful ownership and operation of the Practice's
business.
1.1.37. "Non-Governmental Lockbox Account" shall mean the account
established by MidSouth with the Collecting Bank into which all proceeds from
the Purchased Accounts Receivable, under which a third party is the Account
Debtor (other than Governmental Receivables), are remitted.
1.1.38. "Non-Governmental Receivables" shall mean Accounts Receivable which
are not Governmental Receivables.
5
<PAGE>
1.1.39. "Notification Letter" shall mean a written notification, in a
form acceptable to counsel for MidSouth, from the Practice to third party payors
informing such third party payors that all proceeds due under the Practice's
Accounts are to be remitted to the Non-Governmental Lockbox Account or the
Governmental Lockbox Account, as the case may be.
1.1.40. "Physician Employees" shall mean those individuals (A) who are
employees or members of the Practice, on a full-time or part-time basis or are
otherwise under contract with the Practice to provide professional services to
patients of the Practice, (B) whose services are billed or billable by and in
the name of the Practice and (C) who are duly licensed as physicians to provide
professional medical services in the State.
1.1.41. "Physician Extender Employees" shall mean (i) nurse anesthetists,
physician assistants, nurse practitioners, podiatrists, psychologists and (ii)
any other service provider that generates a professional charge and whose
services are billed or billable by and in the name of the Practice and who is
duly licensed to provide professional medical services in the State.
1.1.42. "Physician Members" shall mean those physicians who are members
of the Practice.
1.1.43. "PPO" shall mean preferred provider organization; a joint venture
by providers to obtain contracts with payors by agreeing to give the payor a
discount in order to participate in the payor's plan.
1.1.44. "Practice" shall mean Foundation Medical Group, PLLC, a Tennessee
professional limited liability company.
1.1.45. "Practice Account" shall mean that bank account maintained by the
Practice for payment of Excluded Expenses; receipt and disbursal of the Purchase
Price; and any other receipts or disbursements deemed appropriate by the
Practice which do not violate the terms of this Agreement.
1.1.46. "Practice Expenses" shall be as set forth in Schedule 1.1.46.
1.1.47. "Practice Facilities" shall mean the properties and facilities
owned by the Practice as described in Schedule 1.1.47 and properties and
facilities subsequently acquired by the Practice and managed by MidSouth.
1.1.48. "Practice Net Revenue" shall mean Practice Revenue less Practice
Expenses.
1.1.49. "Practice Revenue" shall mean all fees or Managed Care Payments
actually recorded each month by or on behalf of the Practice as a result of
professional medical services personally furnished or to be furnished to
patients by Physician Employees or other professionals under control of the
Practice and other fees or income generated in their capacity as professionals,
whether rendered in an inpatient or outpatient setting, and any revenue
generated from the sale of goods. Practice Revenue shall not include Excluded
Revenue. It is the intent of the parties that Practice
6
<PAGE>
Revenue shall reflect the net realizable value of fees recorded each month.
1.1.50. "Purchase Price" shall mean the face amount of the Accounts
Receivable recorded each month, less any non-allowed contractual adjustments and
net of any reserve for uncollectible Accounts Receivable based on the most
recently completed six (6) month historical experience of the Practice or the
predecessor of the Practice, calculated on a rolling basis as the case may be,
as determined by MidSouth. It is the intent of the parties that the Purchase
Price reflect the actual net reliable value of the Purchase Accounts Receivable.
1.1.51. "Purchased Accounts Receivable" shall mean all Accounts Receivable
of the Practice purchased by MidSouth pursuant to this Agreement.
1.1.52. "Restricted Area" shall mean a thirty (30) mile radius from any
Practice Facility.
1.1.53. "Service Fee" shall mean the monthly fee equal to ten percent
(10%) of Practice Net Revenue plus the amount of the Practice Expenses paid by
MidSouth; the calculation of the Service Fees shall not include Excluded
Revenue, Excluded Expenses, or MidSouth Expenses.
1.1.54. "Settlement Date" shall mean the day MidSouth pays for the
Purchased Accounts Receivable which shall not be later than the fifteenth (15th)
day of each month following the month in which the Account Receivable is
created.
1.1.55. "State" shall mean the State of Tennessee.
1.1.56. "Technical Employees" shall mean individuals who provide billable
services on behalf of the Practice and are employees of the Practice.
1.1.57. "Term" shall mean the period from which this Agreement is commenced
until August 31, 2022, unless terminated earlier pursuant to the terms of this
Agreement.
1.1.58. "Third Party Payor Programs" shall mean Medicare, Medicaid,
CHAMPUS, insurance provided by BlueCross and/or Blue Shield, managed care plans,
and any other private health care insurance programs and employee assistance
programs as well as any future similar programs.
1.1.59. "Yearly Adjustments" shall mean final adjustments based on audited
year-end financial statements for the Practice which reconcile the estimated
payments made pursuant to Section 6.1 and Section 6.2 with the actual amounts
due under Section 6.1 and Section 6.2.
SECTION 1.2. EFFECT OF DEFINITIONS. The definitions set forth in Section
---------------------
1.1 above or referenced herein shall apply equally to the singular, plural,
adjectival, adverbial, and other forms of any of the words and phrases defined
regardless of whether they are capitalized.
SECTION 1.3. THIS AGREEMENT. This Agreement consists of the information set
--------------
7
<PAGE>
forth herein, the schedules attached hereto and the certificates, documents and
other instruments required to be delivered hereunder and any reference to this
Agreement shall refer to all of the constituents. The date first set forth above
shall be deemed to be the date hereof for all purposes.
SECTION 1.4. CASE AND GENDER. In this Agreement words in the singular
---------------
number include the plural, and words in the plural number include the singular;
and words of the masculine gender include the feminine and the neuter, and when
the sense so indicates words of the neuter gender may refer to any gender.
ARTICLE 2. RELATIONSHIP OF THE PARTIES.
----------------------------
SECTION 2.1. INDEPENDENT RELATIONSHIP. The Practice, the Physician Members
------------------------
and MidSouth intend to act and perform as independent contractors, and the
provisions hereof are not intended to create any partnership, joint venture,
agency or employment relationship between the parties. Notwithstanding the
authority granted to MidSouth herein, MidSouth, the Practice, and the Physician
Members agree that the Practice and the Physician Employees shall retain all
authority to direct the medical, professional, and ethical aspects of the
Practice and the Physician Employees' medical practices. Each party shall be
solely responsible and shall comply with all Applicable Law pertaining to
employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes applicable to that party, including the
payment of any applicable payment for employees; it being understood that
MidSouth shall provide services to the Practice to assist the Practice in
satisfying its obligations described above.
SECTION 2.2. RESPONSIBILITIES OF THE PARTIES. As more specifically set
-------------------------------
forth herein, MidSouth shall manage Practice's offices and facilities and
provide the Practice with offices and facilities, equipment, supplies, certain
support personnel, management, financial and advisory services. As more
specifically set forth herein, the Practice shall be responsible for the
recruitment and hiring of physicians and all issues related to the professional
practice of medicine, medical practice patterns and documentation thereof.
Notwithstanding anything herein to the contrary, no "designated health service,"
as defined in 42 U.S.C. (S) 1395nn, including any amendment or successor
thereto, shall be provided by MidSouth under this Agreement. MidSouth shall
neither exercise control over nor interfere with any physician-patient
relationship, which shall be maintained strictly between the physicians of the
Practice and their patients.
SECTION 23. PRACTICE MATTERS. Matters involving the internal agreements and
----------------
finances of the Practice, including the disposition of professional fee income,
tax planning, and investment planning (and expenses relating solely to these
internal business matters) shall remain the sole responsibility of the Practice.
SECTION 2.4. PATIENT REFERRALS. The parties agree that the benefits to the
-----------------
Practice and Physician Members hereunder do not require, are not payment for,
and are not in any way contingent upon the admission, referral or any other
arrangement for the provision of any item or service offered by MidSouth to any
of the Practice's patients.
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SECTION 2.5. PROFESSIONAL JUDGMENT. Each of the parties acknowledges and
---------------------
agrees that the terms and conditions of this Agreement pertain to and control
solely the business and financial relationship between and among the parties and
do not pertain to and do not control the professional and clinical relationship
between and among the Practice, the Physician Employees, the Practice's
employees and the Practice's patients. Nothing in this Agreement shall be
construed to alter or in any way affect the legal, ethical, and professional
relationship between and among the Practice, Physician Employees and the
Practice's patients, nor shall anything contained in this Agreement abrogate any
right, privilege, or obligation arising out of or applicable to the physician-
patient relationship.
ARTICLE 3. ADMINISTRATIVE AND MANAGEMENT SERVICES OF MIDSOUTH.
--------------------------------------------------
SECTION 3.1. MANAGEMENT SERVICES AND ADMINISTRATION.
--------------------------------------
(a) General Authority. The Practice hereby appoints MidSouth and MidSouth
-----------------
shall serve as the exclusive manager and administrator of all daily business
functions of the Practice. The Practice agrees that the purpose and intent of
this Agreement is to relieve the Practice and Physician Employees to the maximum
extent possible of the administrative, accounting, and other business aspects of
their practice, with MidSouth assuming responsibility and being given all
necessary authority to perform these functions including, without limitation,
the authority to incur obligations in the name of the Practice to be paid by
Practice as Practice Expenses in accordance with the policies and procedures
adopted by the Management Team. MidSouth shall have the sole authority to
perform the administrative, accounting and business aspects of the Practice as
set forth herein and pursuant to the policies and procedures adopted by the
Management Team. The Practice hereby appoints MidSouth to be its true and
lawful attorney-in-fact to incur all expenses and to perform all functions in
the name and on behalf of the Practice. MidSouth will have no authority,
directly or indirectly, to perform, and will not perform, any medical function.
MidSouth may, however, advise the Practice to the relationship between the
Practice's performance of medical functions and the overall administrative and
business functioning of the Practice. To the extent that a MidSouth employee
assists Physician Employees in performing medical functions, such employees
shall be subject to the professional direction and supervision of Physician
Employees and in the performance of such medical functions shall not be subject
to any direction or control by, or liability to, MidSouth, except as may be
specifically authorized in writing by MidSouth.
(b)(l) Billing and Collecting. MidSouth shall, on behalf of the Practice,
----------------------
bill patients and Third Party Payor Programs and collect the fees for medical
services rendered by the Practice regardless of when or where such services are
rendered. All billings for Technical Employees' and Physician Employees'
services shall be made in the name of and under the provider number of the
Practice. The Practice hereby appoints MidSouth for the term hereof to be its
true and lawful attorney-in-fact, for the following purposes: (i) to bill
patients in the Practice's name and on its behalf; (ii) to collect Accounts
Receivable resulting from billing in the Practice's name and on its behalf;
(iii) to receive payments and prepayments from Third Party Payor Programs; (iv)
to take possession of and endorse in the name of the Practice (and/or in the
name of an individual physician, the payment intended for purpose of payment of
a bill) any notes, checks, money orders, insurance
9
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payments and other instruments received in payment of Accounts Receivable; and
(v) at the direction of the Management Team to initiate the institution of legal
proceedings in the name of the Practice to collect any Accounts Receivable and
monies owed to the Practice, to enforce the rights of the Practice as creditors
under any Contract or in connection with the rendering of any service, and to
contest adjustments and denials by governmental agencies (or its fiscal
intermediaries) as third party payors. All adjustments made for uncollectible
accounts, professional courtesies and other activities that do not generate a
collectible fee shall be performed in a reasonable and consistent manner
approved by the Management Team.
(b)(2) Bank Accounts. All cash, checks and credit card purchases paid at
-------------
the time of the delivery of medical services by the Practice and all Managed
Care Payments which do not represent payment on a Purchased Accounts Receivable
shall be remitted to the Practice Account. All payments received by the Practice
with respect to the Purchased Accounts Receivable shall be deposited into the
respective Governmental Lockbox Account or Non-Governmental Lockbox Account.
MidSouth will transfer monies from the Disbursement Account to the Practice
Account for the payment of the Purchase Price. The Practice shall establish and
maintain a separate account for the Practice, which is the Practice Account. The
Practice Account shall be controlled solely by the Practice. The Practice shall
use the monies in the Practice Account to pay all the Excluded Expenses.
MidSouth will remit, on a monthly basis, the Purchase Price for the Purchased
Accounts Receivables into the Practice Account. MidSouth will provide to the
Practice a full accounting and reconciliation of the Governmental Lockbox
Account and the Non-Governmental Lockbox Account on a monthly basis, and, upon
the reasonable request of the Practice, MidSouth shall supply to the Practice at
all other times, as the Practice shall deem necessary, an accounting and
reconciliation of the Governmental Lockbox Account and the Non-Governmental
Lockbox Account.
(c) Files and Records. MidSouth shall design, supervise and maintain, at
-----------------
the premises of the Practice, all files and records relating to the operation of
the Practice, including, but not limited to, accounting, billing, patient
medical records, and collection records. Patient medical records shall remain
the property of the Practice and shall be located at the premises of the
Practice so the medical records are readily accessible for patient care. The
management of all files and records shall comply with the Applicable Law. The
Physician Employees shall have the obligation to oversee the preparation and
maintenance of patient medical records, and to provide any medical information
as shall be necessary and appropriate to the records' clinical function and to
sustain and ensure the availability of Third Party Payor Program reimbursement
for services rendered. MidSouth shall use its reasonable efforts to preserve the
confidentiality of patient medical records and use information contained in the
records only for the limited purpose necessary to perform the services set forth
herein.
(d) Miscellaneous Services. MidSouth shall arrange for necessary clerical,
----------------------
accounting, bookkeeping and computer services, printing, postage and copier
services, medical transcribing services and any other ordinary, necessary or
appropriate service for the operation of the Practice, all of which shall be
Practice Expenses.
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(e) Marketing. Subject to approval by the Management Team, MidSouth shall
---------
supervise the design and implementation of an appropriate marketing program on
behalf of the Practice, with appropriate emphasis on public awareness of the
availability of the services of the Practice. The costs of any marketing
services shall be a Practice Expense. The marketing program shall be conducted
in compliance with Applicable Law, regulations and applicable canons or
principles of professional ethics governing the Physician Employees or Physician
Extender Employees.
(f) Tax Returns. MidSouth shall provide the data necessary for the Practice
-----------
to prepare its annual federal and state income and general excise tax returns
and upon the request of the Practice shall arrange for the preparation of all
returns. The cost of preparing the data and tax returns shall be a Practice
Expense. MidSouth shall have no responsibility for the payment of the income
taxes and the Practice's income taxes shall not be a Practice Expense.
(g) Recruitment of Physicians. Subject to the provisions of Section 4.6,
-------------------------
MidSouth shall assist the Practice in recruiting additional physicians, carrying
out all administrative functions as may be appropriate, including, but not
limited to, advertising for and identifying potential candidates, checking
credentials, and arranging interviews; provided, however, the Practice shall
interview and make the ultimate decision as to the suitability of any physician
to become associated with the Practice. All physicians recruited by MidSouth and
accepted by the Practice shall be the sole employees of the Practice, to the
extent the physicians are hired as employees. Any expenses incurred in the
recruitment of physicians, including, but not limited to, employment agency
fees, relocation and interviewing expenses shall be budgeted as a Practice
Expense and shall be payable by the Practice.
(h) Managed Care Contracts. MidSouth shall negotiate and administer all
----------------------
managed care Contracts on behalf of the Practice and shall consult with the
Practice on all professional or clinical matters relating thereto. The Practice,
at its discretion, shall have the right to enter into or reject such contracts
negotiated by MidSouth. Such contracts shall be and will remain the property of
the Practice.
(i) Legal and Accounting Services. Subject to the provisions of Sections
-----------------------------
3.3 and 3.1(f), MidSouth shall arrange for legal and accounting services
related to operations of the Practice, as approved by the Management Team,
incurred in the ordinary course of business, including the attorneys' fees and
other costs of enforcing any physician employment agreement containing
restrictive covenants and attorneys' fees and other costs and expenses of
litigation, arbitration or other proceedings for malpractice suits against the
Practice and its personnel to the extent the fees, costs and expenses by not
covered by insurance, provided the services shall be approved in advance are the
Management Team Chief Executive. The legal and accounting services expenses
shall be Practice Expenses.
(j) Maintenance. MidSouth shall supervise the proper cleanliness of the
-----------
premises of the Practice Facilities, and maintenance and cleanliness of the
equipment, furniture and furnishings located upon the premises of the Practice,
which shall be a Practice Expense.
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(k) Licensing. MidSouth shall pay all professional licensure fees and board
---------
certification fees of Physician Employees and Physician Extender Employees
associated with the Practice, and governmental filings for any and all licenses
and certifications for the Practice, all of which shall be a Practice Expense.
(1) Reports. MidSouth shall supervise the preparation and filing of all
-------
Medicare cost reports and other governmental reports, which shall be a Practice
Expense.
(m) Insurance. MidSouth shall negotiate for the insurance provided for in
---------
Section 9.1. Premiums and deductibles with respect to the insurance policies
shall be a Practice Expense.
SECTION 3.2. BUDGETS AND FINANCES. MidSouth shall prepare annual capital
--------------------
and operating budgets (the "Budgets") reflecting in reasonable detail the
anticipated revenue and expenses, and sources and uses of capital for growth in
the Practice and medical services rendered at the Practice. Said budgets shall
reflect amounts, if any, allocated for capital purchases, improvements,
expansion and any new leasing arrangements. Within sixty (60) days of the date
of this Agreement, MidSouth shall submit a proposed budget to the Management
Team for its approval. In subsequent years, not later than thirty (30) days
prior to the end of the fiscal year, MidSouth shall submit a budget for the
upcoming fiscal year to the Management Team. In the event that the Management
Team does not approve the budget submitted by MidSouth, then the budget for the
"unapproved" year shall be the budget for the most recent agreed year adjusted
on an item-by-item basis by the all cities consumer price index with the items
of the most recent agreed budget as the base year. The budget shall be binding
upon MidSouth and the Practice. MidSouth shall consult with the Practice and the
Management Team in the preparation of all budgets. MidSouth and the Practice
acknowledge and agree that once a budget has been approved, neither MidSouth nor
the Practice shall make capital expenditures or incur capital expenses in excess
of budgeted amounts without the prior approval of the Management Team. In
addition, neither party shall pay operating expenses in excess of the budgeted
amounts without the approval of the Management Team.
SECTION 33. FINANCIAL STATEMENTS AND AUDITS. MidSouth shall prepare annual
-------------------------------
financial statements for the operations of the Practice and, in its sole
discretion, may cause the financial statements to be audited by a certified
public accountant selected by MidSouth. The Practice shall cooperate fully in
such audit. The cost of such audit shall be a Practice Expense. If MidSouth
elects to have the financial statements audited by a certified public accountant
with a big six accounting firm, the resulting audited financial statements shall
be binding on the Practice and MidSouth. If MidSouth elects not to have the
Practice's financial statements audited by a big six accounting firm, the
Practice shall have the option to obtain such an audit, by a certified public
accountant with a mutually acceptable big six accounting firm. MidSouth shall
fully cooperate in such audit. The cost of such audit shall be a Practice
Expense. In such event, MidSouth and the Practice shall be bound by the
resulting audited financial statements. All parties shall be entitled to copies
of any information provided to or by the auditors by or to any party.
Additionally, MidSouth shall prepare monthly unaudited financial statements
containing a balance sheet and statements of income from the Practice
operations, which shall be delivered to the Practice within thirty (30) business
days after the close of each calendar month.
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SECTION 3.4. INVENTORY AND SUPPLIES. MidSouth shall order and purchase all
----------------------
inventory, supplies, and other ordinary, necessary or appropriate materials
reasonably necessary for the operation of the Practice which are requested by
the Practice and are within the Budget for the applicable fiscal year. Items
ordered hereunder shall be purchased by the Practice, which shall be a Practice
Expense. MidSouth shall not purchase inventory, goods or supplies from any
affiliate of MidSouth without approval of the Management Team after full
disclosure of all terms to the Management Team.
SECTION 3.5. MANAGEMENT TEAM CHIEF EXECUTIVE. Subject to the provisions of
-------------------------------
Section 8.2.10, MidSouth shall hire and appoint the Management Team Chief
Executive who shall serve as an employee of MidSouth and who shall manage and
administer all of the day-to-day business functions of the Practice. MidSouth
shall determine the salary and fringe benefits of the Management Team Chief
Executive. At the direction, supervision and control of MidSouth, the Management
Team Chief Executive, subject to the terms of this Agreement, shall implement
the policies established by the Management Team and shall generally perform the
duties and have the responsibilities of a chief executive officer.
SECTION 3.6. PERSONNEL.
---------
3.6.1. Physician Employees and Physician Extender Employees shall be
employees of the Practice, and any and all salaries, benefits, (including
contributions under any employee benefits plan), severance benefits and other
direct or indirect costs of all employees shall be payable by the Practice,
which shall be an Excluded Expense. If requested to do so in writing by the
Practice, MidSouth shall advance to the Practice the amount necessary to
compensate the Physician Extender Employees and the Physician Employees, who are
not Physician Members, for the first month of the term of this Agreement in an
amount equal to the regular payroll payments made to such Physician Extender
Employees and Physician Employees, who are not Physician Members. The sum
advanced shall be divided into twelve (12) equal parts and deducted from
Purchase Price paid to Practice each month until the advance is repaid. The
advance shall not be a Practice Expense.
3.6.2. Subject to the provisions of Article 2, all other personnel
necessary to carry out the duties of MidSouth hereunder or reasonably necessary
for the conduct of the Practice shall be employees of MidSouth and shall be
under the supervision of the Management Team Chief Executive or his designee.
MidSouth shall determine the salaries and fringe benefits of all personnel,
within the budget policies and procedures adopted by the Management Team, the
cost of which will be payable by the Practice as a Practice Expense. Personnel
performing patient care services shall be subject to the professional
supervision of the Physician Employees. If the Practice is dissatisfied with the
services of any person, the Practice shall consult with MidSouth. MidSouth shall
in good faith determines whether the performance of that employee could be
brought to acceptable levels through counsel and assistance, or whether the
employee should be terminated.
SECTION 3.7. CAPITAL EXPENDITURES AND LOANS. All capital expenditures shall
------------------------------
be approved by the Management Team. MidSouth shall determine whether approved
capital expenditures shall be funded by MidSouth through borrowings, leases,
loans, or other financing methods through
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independent third-party financial institutions, or investments by MidSouth for
reinvestment.
SECTION 3.8. COMPLIANCE WITH APPLICABLE LAW. MidSouth shall comply with all
------------------------------
Applicable Law, including, but not limited to, federal, state and local laws,
regulations and restrictions in the conduct of its obligations under this
Agreement affecting billing and reimbursement, referrals, patient privacy and
confidentiality, management of hazardous materials and infectious waste.
MidSouth shall implement procedures designed to detect and deter potential
violations of Applicable Law including (i) distributing annually a set of
guidelines for Physician Employees and Physician Extender Employees regarding
proper compliance with all Applicable Law; (ii) establishing a Compliance
Committee" with representatives from the Management Team and MidSouth; and (iii)
engaging qualified professional advisors to review operations and acquisitions
by MidSouth or its subsidiaries. MidSouth shall comply with Applicable Law
including, without limitation, Health Care Law including, without limitation,
federal, state and local laws and regulations affecting billing and
reimbursement, referrals, patient privacy and confidentiality, and management of
hazardous materials and infections waste. In the event that changes in such laws
occur, resulting in a need for modification of the manner in which MidSouth
operates, MidSouth shall make such appropriate modifications to maintain
compliance with such laws. MidSouth shall discharge its obligations under this
Agreement consistent with reasonable industry standards and practices.
SECTION 3.9. QUALITY ASSURANCE. MidSouth shall assist the Practice in
-----------------
fulfilling its obligations to its patients to maintain a professionally
recognized quality of medical and professional services.
SECTION 3.10. ANCILLARY SERVICES. MidSouth shall operate ancillary services
------------------
as approved by the Management Team upon the receipt of an opinion from counsel
that the proposed ancillary service does not violate any Applicable Law,
including, but not limited to, 42 U.S.C. (S)1395nn ("Stark I and Stark 1I").
SECTION 3.11. NEW MEDICAL SERVICES AND ADDITIONAL PRACTICE OFFICES. If the
---------------------------------------------------
Practice desires to have a new ancillary service provided at any of the
Practice's offices or desires to establish a new Practice office, a proposal of
such ancillary service or the establishment of such new office shall be
submitted to the Management Team. Should the Management Team approve the
provision of such new ancillary service or the establishment of such new
Practice office, MidSouth at its option, shall have the exclusive right to: (i)
provide services necessary to support the Practice in the Practice's delivery of
such new ancillary services at the Practice office or new Practice office, as
applicable, and (ii) invest and have ownership in any new ancillary services for
which facility fees may be generated; provided, however, if the type of service
is an ancillary service that would be improper under any Applicable Law for
MidSouth to offer to the Practice's patients, then MidSouth shall not have the
option to provide such service. Should MidSouth decline to provide the necessary
support service or ownership for the new ancillary service or new Practice
office, the Practice shall be entitled to perform such service at the Practice's
own expense and the revenue therefrom shall not be Practice Revenue under this
Agreement.
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SECTION 3.12. MANNER OF PERFORMANCE. MidSouth shall provide (or cause to be
---------------------
provided) to the Practice the services set forth above. MidSouth shall
efficiently manage the Practice and perform its duties hereunder in the manner
as it deems appropriate, exercising reasonable judgment, to meet the daily
requirements of the operations of the Practice in accordance with the provisions
of this Agreement and the general standards approved by the Management Team. The
Practice shall not act in a manner which would prevent MidSouth from efficiently
managing the Practice.
ARTICLE 4. OBLIGATIONS OF THE PRACTICE.
---------------------------
In providing its professional services to patients, the Practice shall have the
following obligations:
SECTION 4.1. PHYSICIANS. The Practice shall notify MidSouth, upon execution
----------
of this Agreement, of the identities of the Physician Employees and their
respective areas of practice. A list of the Physician Employees and the practice
are shall be attached hereto as Schedule 4.1. The Practice shall enter into
physician employment agreements with all Physician Employees. Any new employment
agreements shall be reviewed prior to execution, and MidSouth shall promptly be
provided with copies of the executed employment agreements and any revisions or
amendments thereto. All Physician Employees shall be licensed in all states in
which the Physician Employee practices.
SECTION 4.2. PROVISION OF MEDICAL SERVICES. The Practice shall perform, or
-----------------------------
subcontract to perform as necessary, all medically necessary services for
patients, including managed care patients, in accordance with the terms of
managed care agreements and subject to the utilization review protocols. All
subcontracts shall be reviewed by MidSouth prior to their execution.
SECTION 4.3. PROFESSIONAL STANDARDS. The Practice and its Physician
----------------------
Employees shall provide the professional services to patients described in
Section 4.2. above in compliance at all times with ethical standards, Applicable
Law and regulations relating to the Practice's professional practice. The
Practice shall also make all reports and inquiries to any national practitioners
data bank and/or any state data bank required by Applicable Law. The Practice
shall use its best efforts to determine that each Physician Employee and
Technical Employee associated with the Practice, who provides medical care to
patients of the Practice, is licensed by the state or states in which he or she
renders professional services. If any disciplinary or medical malpractice action
is initiated against any such individual, the Practice shall immediately provide
MidSouth with copies of any third-party documents served on the Practice or
letters delivered to the Practice (not otherwise privileged). The information
shall be deemed confidential information and shall, notwithstanding disclosed,
remain subject to all privileges and immunities provided by Applicable Law.
MidSouth shall take all steps reasonably necessary to assure that their
privileges and immunities remain intact. Pursuant to Section 4.9, the Practice
shall carry out a program to monitor the quality of medical care provided by the
Practice.
SECTION 4.4. BILLING INFORMATION. The Practice shall promptly provide
-------------------
MidSouth with all
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billing information reasonably requested by MidSouth to enable MidSouth to bill
and collect the Practice's charges, and the Practice shall procure consents to
assignments and other approvals and documents necessary to enable MidSouth to
obtain payment or reimbursement from third party payors and/or patients.
SECTION 4.5. MEDICAL PRACTICE. The Practice shall use and occupy the
----------------
Practice Facilities exclusively for the practice of medicine and shall comply
with all Applicable Law and standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Practice Facilities shall be conducted solely by physicians or medical
practitioners associated with the Practice, and no other physician or medical
practitioner shall be permitted to use or occupy the Practice Facilities without
the prior written consent of MidSouth.
SECTION 4.6. ADDITIONAL PHYSICIANS. The Practice shall use its best efforts
---------------------
to provide any additional physicians required by the level of patient activity
anticipated by the MidSouth and communicated to the Practice.
SECTION 4.7. UTILIZATION REVIEW; QUALITY ASSURANCE. The Practice shall
-------------------------------------
contractually bind each Physician Employee and Physician Extender Employee to
cooperate with and participate in applicable programs and systems of quality of
care assessment, grievance procedures, peer review and utilization review.
Information developed in the course of physician quality assurance and peer
review activities shall be maintained by the Practice as privileged and
confidential, except where its disclosure is consented to by the Practice or is
required by Applicable Law.
SECTION 4.8. NON-DISCRIMINATION; COMPLIANCE WITH APPLICABLE LAW. All
--------------------------------------------------
employment policies, standards and procedures of the Practice shall be in
accordance with non-discrimination provisions of the Applicable Law. In the
event that any government Contract or regulation requires reports or disclosures
of MidSouth and its contractors, the Practice, upon MidSouth's request, shall
make, execute and deliver all reports, disclosures or other written information,
guarantees or assurances as may be reasonably requested by MidSouth to assure
timely compliance.
SECTION 4.9. STANDARDS, ACCREDITATION, SURVEYS AND INSPECTIONS. The
-------------------------------------------------
Practice shall meet all medical practice, licensure and ethical standards, which
are pertinent to its activities or which by Contract it has agreed to abide. The
Practice shall in good faith cooperate with inspections and on-site surveys of
the Practice as may be conducted by governmental agencies, accrediting
organizations or payors. MidSouth shall, to the extent possible, give the
Practice advance notice of the inspections and surveys and schedule the
inspections during reasonable business hours.
SECTION 4.10. CONTRACTS. The Practice, the Physician Employees and the
---------
Physician Extender Employees shall abide by the terms of any Managed Care
Agreements entered into by on behalf of and with the consent of the Practice,
including, without limitation, self-insured, PPO, HMO and similar agreements.
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SECTION 4.11. ORGANIZATION AND AREA OF CARE. The Practice shall comply with
-----------------------------
policies end procedures pertinent to scheduling, billing, reconciliation of
capitation, and other administrative matters relating to the organization of the
non-professional aspects of the delivery of care as may be established, from
time to time, by MidSouth after consultation with the Practice.
SECTION 4.12. RECORDS AND REPORTS. The Practice shall assist MidSouth in
-------------------
maintaining and, where required by Applicable Law or legal process, in divulging
records and information concerning its health care services. The Practice shall
give MidSouth full access to all of its medical and financial records for the
Practice Account.
SECTION 4.13. THE PRACTICE TO PROVIDE NECESSARY BILLING INFORMATION. The
-------------------------------------------------------
Practice agrees to provide MidSouth with all billing information for fee-for-
service and managed care patients, including, but not limited to, the name of
the patient, the date of service, the nature and extent of services provided and
any supporting medical information necessary to obtain payment or reimbursement
for services.
SECTION 4.14. CONTINUING EDUCATION. The Practice shall ensure that all
--------------------
Physician Employees and Physician Extender Employees maintain competence in, and
remain currently well-informed as to recent developments about, their particular
areas of medical practice, interest and specialization. Accordingly, subject to
the Practice at all times providing sufficient physicians to care for the needs
of patients, the Physician Employees and Physician Extender Employees shall
attend seminars, keep current with journals and take other reasonable steps to
remain proficient in their particular specialties. All seminars necessary to
maintain licensure or competence shall be the responsibility of the Practice and
the individual Physician Employees and Physician Extender Employees. At a
minimum, the Practice shall ensure that each Physician Employee and each
Physician Extender Employee participates in such continuing medical education as
is necessary for the Physician Employee and each Physician Extender Employee to
remain licensed.
SECTION 4.15. REFERRALS. The Practice and the Physician Employees shall
---------
make referrals to specialists in a manner consistent with (a) the terms and
conditions of government programs or managed care agreements applicable to the
care of the patient, and (b) any Applicable Law, including, but not limited to,
Stark I and Stark II, as amended.
SECTION 4.16. PROVIDER NUMBERS. The Practice shall procure and maintain
----------------
medical group provider numbers, including without limitation, Medicare and
Medicaid provider numbers, necessary or appropriate to obtain payment or
reimbursement on the Practice's behalf.
ARTICLE 5. FACILITIES OF THE PRACTICE.
--------------------------
SECTION 5.1. THE PRACTICE FACILITIES. MidSouth agrees to maintain in good
-----------------------
order the properties and facilities owned by the Practice on the date of this
Agreement and/or more fully described in Schedule 1.1.47 attached hereto (the
"Practice Facilities"), and shall pay for lease payments, costs of repairs,
maintenance and improvements, utility (telephone, electric, gas, water)
17
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expenses, normal janitorial services, refuse disposal and all other costs and
expenses reasonably incurred in conducting operations of the Practice during the
term of this Agreement. All of these costs shall be Practice Expenses; however,
the costs of debt service on any real property owned by the Practice shall not
be a Practice Expense. Nothing contained herein is intended to require MidSouth
to provide the foregoing services if the services are required to be provided by
the landlord (without cost) under a lease for a specific property. The
Management Team shall make all determinations regarding the condition, use and
needs for the offices, facilities and improvements. The Management Team shall
determine any changes to the office and facility locations of the Practice.
MidSouth shall use its best efforts to create comparable properties and
facilities if the Practice Facilities are damaged by fire or other casualty or
taken through eminent domain.
SECTION 5.2. RIGHT TO USE PROPERTY. MidSouth shall have access to the
----------------------
Practice Facilities during the term of this Agreement, or, with respect to
property leased by the Practice, during the term of any lease or sublease of the
premises and any additional premises leased, subleased or acquired by the
Practice during the term of this Agreement. The Practice shall not enter into
any new leases or subleases or agree to amend any currently existing lease or
sublease without the express written consent of the Management Team. The right
to have access to the premises shall not constitute a lease or sublease of the
premises, shall not constitute an assignment of any of the Practice's rights
under existing leases, and shall not be construed as an assignment or other
transfer of any rights of the Practice to its owned property or any rights under
any existing leases.
ARTICLE 6. COMPENSATION.
------------
SECTION 6.1. FEES. MidSouth shall be paid as follows:
----
(a) The Practice shall pay to MidSouth a Service Fee equal to ten percent
(10%) of Practice Net Revenue plus the amount of Practice Expenses incurred by
MidSouth.
(b) The amounts to be paid to MidSouth under this Section 6.1 shall be
payable monthly, at the time that MidSouth pays the Practice for the Purchased
Accounts Receivable as described in Section 6.2 below. The amount of the Service
Fee payable shall be estimated based upon the previous month's operating results
of the Practice. Any amounts due to MidSouth as a result of a Monthly Adjustment
to the Service Fee shall be paid by the Practice on the next succeeding date on
which MidSouth purchases Accounts Receivable from the Practice. The Yearly
Adjustments to the Service Fee and any amount owed shall be paid within ninety
(90) days following date upon which the Practice receives notice of the amount
of the Yearly Adjustment. The Physician Members acknowledge and agree that they
are parties, individually, to this Agreement and that if the Practice fails to
pay the Service Fees herein described, MidSouth shall have the right, subject to
the following sentence, to collect the Service Fees from the Physician Members
severally and not jointly. The Management Team shall establish the relative
amount of the Service Fees applicable to each Physician Shareholder and no
Physician Member shall be required to pay to MidSouth any amount in excess of
such applicable Service Fee.
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SECTION 6.2. PURCHASE OF ACCOUNTS RECEIVABLE AND OTHER PAYMENT
-------------------------------------------------
Section 6.2.1 During the Term of this Agreement, the Practice hereby agrees
to sell and assign to MidSouth and MidSouth agrees to purchase, all of the
Practice's Accounts Receivable each month ("Purchased Accounts Receivable").
Purchased Accounts Receivable shall not include, and MidSouth shall not
purchase, any cash, checks or credit card receivables (not related to previous
Purchased Accounts Receivable) received by the Practice, all of which shall be
deposited into the Practice Account.
Section 6.2.2. The purchase price for the Purchased Accounts Receivable
(the "Purchase Price") will be equal to the face amount of the Accounts
Receivable recorded each month in a final billable form, less (i) any non-
allowed contractual adjustments imposed by Third Party Payor Programs, and (ii)
any reserve for uncollectible Accounts Receivable. The Purchase Price will be
estimated each month to take into account contractual adjustments and
uncollectible Accounts Receivable based on the most recently completed six (6)
month historical experience of the Practice or the predecessor of the Practice,
calculated on a rolling basis, as reasonably determined by MidSouth. It is the
intent of the parties that the Purchase Price reflect the actual net realizable
value of the Accounts Receivable.
Section 6.2.3. The Practice will sell all Accounts Receivable to MidSouth
and each purchase will be deemed to be made on the day after which the Accounts
Receivable are created. MidSouth shall pay the estimated Purchase Price for the
Purchased Accounts Receivable no later than the 15th day of each month following
the month in which the Purchased Accounts Receivable are created (the
"Settlement Date"). In the event the Yearly Adjustments to the Purchase Price
indicate that MidSouth has underpaid the Practice for the Purchased Accounts
Receivable, MidSouth shall remit the amount of the underpayment to the Practice
on the next date on which MidSouth purchases Accounts Receivable from the
Practice. In the event the Yearly Adjustments to the Purchase Price indicate
that MidSouth has overpaid for Purchased Accounts Receivable, the Practice shall
remit to MidSouth the amount of such overage on the next date on which MidSouth
purchases Accounts Receivable from the Practice. MidSouth shall pay the Practice
for all Purchased Accounts Receivable by check, wire transfer or intrabank
transfer to the Practice Account. The purchase of Accounts Receivable shall be
evidenced by the Practice sending MidSouth (i) a copy of each invoice with
respect to each third-party payor on the Purchased Accounts Receivable; and (ii)
any other information or documentation (including all required Uniform
Commercial Code ("UCC") releases or financing statements) MidSouth may
reasonably need to identify the Purchased Accounts Receivable and obtain payment
from the Account Debtors; provided that the failure to send any documentation
shall not affect the obligation of the Practice to sell the Purchased Accounts
Receivable or MidSouth to purchase the Purchased Accounts Receivable. As
consideration for the acquisition of the Purchased Accounts Receivable by
MidSouth pursuant to this Section 6.2, MidSouth promises to pay and shall be
obligated to pay the Purchase Price for the Purchased Accounts Receivable at the
time and in the manner provided above. To the extent permissible by Applicable
Law, the Practice will be deemed to have sold to MidSouth all of the Practice's
right, title and interest in the Purchased Accounts Receivable and in any
proceeds thereof, and MidSouth will be the sole and absolute owner thereof and
will own all of the Practice's rights and remedies
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represented by the Purchased Accounts Receivable (including, without limitation,
rights to payment from the respective Account Debtors on the Purchased Accounts
Receivable), and MidSouth will have obtained all of the Practice's rights under
all guarantees, assignments and securities with respect to all of the Purchased
Accounts Receivable.
Section 6.2.4. Upon expiration or termination of this Agreement for any
reason; (i) all Accounts Receivable purchased by MidSouth shall remain the
property of MidSouth; and (ii) all Accounts Receivable purchased and not paid
for at the termination or expiration of this Agreement shall be paid for by the
15th day of the following month for all Purchased Accounts Receivable as of the
date of the expiration or termination date, less the amount of any Service Fees
earned by MidSouth at the termination or expiration pursuant to Section 6.1 of
this Agreement.
Section 6.2.5. In connection with the initial purchase of Accounts
Receivable by MidSouth and pursuant to this Agreement, the Practice will execute
all financing statements or amendments under the UCC (naming MidSouth as secured
party and Lender as assignee) as MidSouth may reasonably request with respect to
any Purchased Accounts Receivable.
Section 6.2.6. The Practice agrees to cooperate with MidSouth in the
collection of the Purchased Accounts Receivable transferred pursuant to Section
6.2. At the option of and upon the request of MidSouth, the Practice shall
execute any and all documentation necessary for the transfer of amounts
constituting Purchased Accounts Receivables and/or the establishment of the
Lockbox Agreement as follows:
(A) COLLECTION OF GOVERNMENTAL RECEIVABLES. With respect to payments on
--------------------------------------
Governmental Receivables, at the request and option of MidSouth, the Practice
agrees that the following procedures shall apply:
(i) The Practice shall enter into a Lockbox Agreement applicable to
Governmental Receivables in a form acceptable to counsel for MidSouth and in a
form reasonably acceptable to the Practice which shall establish a Governmental
Lockbox Account. The Governmental Lockbox Account shall be an account in the
name of the Practice. All payments with respect to the Practice's Governmental
Receivables are to be made directly to the Governmental Lockbox Account. In the
event MidSouth exercises this option, the Practice shall instruct each Account
Debtor with respect to the Practice's Governmental Receivables to remit all such
payments directly to such Governmental Lockbox Account pursuant to a
Notification Letter. In addition, the Practice shall attach written instructions
to each invoice representing such Governmental Receivables generated subsequent
to the date of this Agreement which will instruct such third-party payor or
Account Debtor that-payment under such invoice is to be paid to the Governmental
Lockbox Account. So long as this Agreement has not been terminated pursuant to
Section 10.3 or so long as any Purchased Accounts Receivable remains
outstanding, the Practice agrees that it shall not deposit any funds other than
payments on Governmental Receivables into, nor make any withdrawals from, the
Governmental Lockbox Account without the prior written consent of MidSouth. The
Practice
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further agrees that it shall not during the term of this Agreement terminate,
modify or amend in any manner the Lockbox Agreement applicable to the
Governmental Lockbox Account.
(ii) In accordance with the Lockbox Agreement pertaining to Governmental
Receivables, the Practice shall instruct the Collecting Bank to transfer
automatically on a daily basis all amounts deposited in Governmental Lockbox
Account constituting good funds to the Disbursement Account. The Practice shall
have no right or interest in the Disbursement Account. The Practice shall not,
so long as any Purchased Accounts Receivable remains outstanding, change or
cancel such automatic transfer order at any time, or, without the prior written
consent of MidSouth, change either the identity of Governmental Lockbox Account
or the instructions to each Account Debtor on the related Governmental
Receivable regarding making payments to such account. Any such action shall be
considered a breach of this Agreement for which MidSouth shall be entitled to
all remedies at Applicable Law and in equity, including obtaining an injunction.
(iii) The Practice will cooperate with MidSouth and its agents in the
identification of sums deposited into Governmental Lockbox Account, which
cooperation shall continue until all Purchased Accounts Receivable sold
hereunder have been collected.
(iv) The Practice agrees to pay, on demand, a finance charge equal to the
Finance Charge Rate, on any payment on a Governmental Receivable received by the
Practice that is not deposited into the Governmental Lockbox Account within two
(2) business days after receipt by the Practice.
(B) COLLECTION OF NON-GOVERNMENTAL RECEIVABLES. With respect to
------------------------------------------
payments on Non-Governmental Receivables, at the request and option of MidSouth,
the Practice agrees that the following procedures shall apply:
(i) Prior to the acquisition of the Purchased Accounts Receivable,
MidSouth, the Collecting Bank and Lender (if requested by Lender) shall enter
into the Lockbox Agreement applicable to Non-Governmental Receivables in a form
acceptable to counsel for MidSouth and MidSouth shall establish the Non-
Governmental Lockbox Account. All payments with respect to the Non-Governmental
Receivables are to be made directly to the Non-Governmental Lockbox Account. If
MidSouth exercises its option herein, the Practice shall instruct each Account
Debtor with respect to the Practice's Non-Governmental Receivables to remit all
payments directly to the Non-Governmental Lockbox Account pursuant to a
Notification Letter. In addition, the Practice shall attach written instructions
to each invoice representing a Non-Governmental Receivable generated subsequent
to the date of this Agreement instructing such third-party payor or Account
Debtor that payment under the invoice is to be paid to the Non-Governmental
Lockbox Account.
(ii) In accordance with the Lockbox Agreement, Practice shall instruct the
Collecting Bank to transfer automatically on a daily basis all amounts deposited
in the Non-Governmental Lockbox Account constituting good funds to the
Disbursement Account. The Practice shall not, so long as any Purchased Accounts
Receivable remains outstanding, and in any event, during the term of this
Agreement, at any time, or, without the prior written consent of MidSouth,
change the instructions
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to each Account Debtor on the related Non-Governmental Receivable regarding
making payments to the Lockbox Account. Any action shall be considered a breach
of this Agreement for which MidSouth shall be entitled to all remedies under
Applicable Law and in equity, including obtaining an injunction.
(iii) The Practice will cooperate with MidSouth and its agents in the
identification of sums deposited into the Non-Governmental Lockbox Account,
which cooperation shall continue until all Purchased Accounts Receivable sold
hereunder have been collected.
(iv) The Practice agrees to pay, on demand, a finance charge equal to the
Finance Charge Rate, on any Non-Governmental Receivable received by the Practice
that is not deposited in the Non-Governmental Lockbox Account within two (2)
business days after receipt by the Practice.
(c) PROCEDURES WITHOUT LOCKBOX. It is MidSouth's intention to utilize the
--------------------------
Governmental Lockbox Account and Non-Governmental Lockbox Account procedure as
provided in Section 6.2.6(a) and (b) unless circumstances change which would
make the Governmental Lockbox Account and Non-Governmental Lockbox Account
procedures inappropriate. The procedures under this subsection (c) for the
collection of Accounts Receivable without a lockbox will not be instituted
without approval of the Management Team. The Practice and MidSouth shall
instruct the Collecting Bank to transfer automatically all amounts constituting
good funds in the account or accounts of the Practice established for the
collection of Governmental Receivables and Non-Governmental Receivables to the
bank account established with the Lender pursuant to a standing order in a form
acceptable to MidSouth's legal counsel (the "Bank Account"). In the event
MidSouth exercises this option, the Practice shall instruct each Account Debtor
with respect to the Purchased Accounts Receivable to remit all payments directly
to the Collecting Bank account or accounts pursuant to a Notification Letter. In
addition, the Practice shall attach written instructions to each invoice
representing the Purchased Account Receivable generated subsequent to the date
of this Agreement instructing such third-party payor or Account Debtor that
payment under the invoice is to be paid to the Collecting Bank account or
accounts. The Practice shall not, so long as any Purchased Accounts Receivable
remain outstanding, change or cancel such standing order at any time, or,
without the prior written consent of MidSouth, change the instructions to each
Account Debtor on each Governmental Receivable and Non-Governmental Receivable
to make its payments to such account. Any such action shall be considered a
breach of this Agreement for which MidSouth shall be entitled to all remedies
under Applicable Law and in equity, including obtaining an injunction.
(d) MISDIRECTED PAYMENTS. (i) If after the date of this Agreement, an
--------------------
Account Debtor shall make a payment on the Purchased Accounts Receivable to a
location other than is provided in the Notification Letter or the Practice
otherwise receives payments on Purchased Accounts Receivable under the terms of
this Agreement ("Misdirected Payments"), the Practice (at its own cost and
expense) shall promptly take all necessary steps to effect collection of the
Misdirected Payment from any other party claiming an interest therein or having
possession thereof and (A) hold the Misdirected Payment in trust for MidSouth,
(B) segregate the Misdirected Payment, (C) use its
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best efforts not to commingle the Misdirected Payment with the Practice's own
funds or other assets, and (D) deliver the Misdirected Payment no later than two
(2) business days from the day of receipt to the Collecting Bank account or
accounts, as applicable.
(ii) The Practice agrees to pay, on demand, the Finance Charge Rate on any
Misdirected Payment received by the Practice that is not deposited in the
appropriate account within two (2) business days after receipt by the Practice.
(e) All Purchased Accounts Receivable of the Practice pursuant to this
Section 6.2 hereof will, as the Purchased Accounts Receivable are purchased, be
treated as Practice Revenues for accounting and financial purposes.
SECTION 6.3. EARLY TERMINATION OF PHYSICIAN MEMBERS. The Physician Members
--------------------------------------
hereby acknowledge that the terms and conditions of this Agreement are based
upon numerous factors, including the Physician Members continuing to practice
medicine in the future. In connection therewith, each Physician Shareholder
agrees as follows:
(a) RETIREMENT. If at any time during the Term hereof, a Physician
----------
Shareholder desires to retire, or assume full-time teaching responsibilities,
the Physician Shareholder shall notify MidSouth in writing at least twelve (12)
months prior to the date of such retirement or start of teaching position;
provided, however, that if such retiring physician elects to, and has located a
replacement physician suitable to the Practice, MidSouth shall waive the
remaining months of said twelve (12) month notice period, and such retirement
shall be effective upon the earlier of twelve (12) months from the date of
notice or commencement of the replacement physician's employment. Upon such
retirement or start of the teaching position, the Physician Shareholder shall
have no further obligations under this Agreement; provided, however, the
restrictive covenants provided for under Article Section 7 shall remain in full
force and effect. In fulfilling any such full-time teaching responsibilities,
the Physician Shareholder will be permitted to attend patients in a manner
normal and customary for such faculty position; provided, however, such services
must be incident to the academic/teaching aspects of the institution, and not
incident to the regular examination of patients for a fee whether billed in the
name of the institution or the name of the attending physician. It is not the
intent of the parties to permit a retired physician to conduct a medical
practice through an academic institution.
(b) PHYSICIAN SHAREHOLDER CHANGE IN PRACTICE/GROUP AFFILIATION. In the
----------------------------------------------------------
event that a Physician Shareholder leaves the employment of or terminates his or
her affiliation with the Practice, the terminating Physician Shareholder may
join or establish another group/practice which has or will enter into a service
agreement with MidSouth, subject to any other existing agreements between
Physician Shareholder and Practice. Upon entering into such new service
agreement with MidSouth, the terminating Physician Shareholder shall, except as
limited by separate employment agreements between the Practice and the Physician
Members, be released from any obligation under this Agreement. In the event the
(i) Practice consents to MidSouth entering into a new service agreement; (ii)
service agreement will not adversely affect the operations and earnings of
MidSouth; and (iii) new group/practice can satisfy the representations and
warranties set forth in Article 12
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hereof, then MidSouth will not unreasonably withhold or refrain from entering
into a new service agreement with the terminating Physician Shareholder's new
group/practice. Except as set forth herein, in the event the Physician
Shareholder affiliates with a new group/practice that is not a party to a
service agreement with MidSouth, then MidSouth, will terminate this Agreement
solely with respect to the terminating Physician Shareholder; provided, however,
that the provisions of Article 7 hereof shall apply. In the event that MidSouth
does not enter into a new service agreement, then MidSouth shall terminate this
Agreement with respect to the Physician Shareholder, and the terminating
Physician Shareholder shall be obligated as set forth in Article 7 hereof
(c) DEATH OR DISABILITY. In the event that a Physician Shareholder dies or
-------------------
becomes disabled, then the Physician Shareholder shall have no continuing
obligations under this Agreement; provided, however, in the event of disability,
the restrictive covenants described in Article 7 hereof shall remain in full
force and effect.
ARTICLE 7. RESTRICTIVE COVENANTS AND ENFORCEMENT.
-------------------------------------
MidSouth and the Practice recognize that the benefits each is to receive
under this Agreement shall be realized only if the Practice operates an active
medical practice to which the physicians associated with the Practice devote
their full time and attention to the extent of their arrangement with the
Practice. Accordingly, MidSouth and the Practice desire to set forth the
following reasonable restrictions and agreements regarding competition by the
physicians during the term of this Agreement and after the termination of this
Agreement.
SECTION 7.1. EXCLUSIVE ARRANGEMENT. During the term of this Agreement,
---------------------
MidSouth shall be the Practice's and the Physician Members' sole provider of the
management services described in this Agreement and neither the Practice, the
Physician Members nor any of the Practice's or the Physician Members' employees
shall provide similar management services. During the term of this Agreement,
the Practice and the Physician Members agree that neither the Practice nor
Physician Members will enter into any similar agreement with any physician
practice management company or entity.
SECTION 7.2. RESTRICTIVE COVENANTS BY THE PRACTICE. The Practice agrees
-------------------------------------
that, during the term hereof, neither the Practice or its Physician Employees
will engage, directly or indirectly, as a principal owner, shareholder (other
than a holder of fewer than 5% of the outstanding shares of a publicly-traded
company), partner, joint venturer, employee, agent, equity owner, or in any
other capacity whatsoever, in any corporation, partnership, joint venture, or
other business association or entity that operates ambulatory surgery or
diagnostic centers, imaging centers, physical therapy centers, or rehabilitation
centers, or provides management services of the nature provided by MidSouth
pursuant to this Agreement in the Restricted Area. Provided that this Agreement
may allow any Physician Employee to own any ownership interest in the above
facilities which was acquired prior to the execution this Agreement. If this
Agreement is terminated by MidSouth for breach by the Practice, pursuant to 10.4
hereof, neither the Practice nor its current or future Physician Employees shall
establish, operate, or provide physician services at any medical office, clinic,
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ambulatory surgery or diagnostic centers, imaging centers, physical therapy
centers, rehabilitation centers or other health care facility providing services
substantially similar to those provided by the Practice within the Restricted
Area for a period of twenty-four (24) months ("Restricted Period") after the
termination of the Agreement.
SECTION 7.3. RESTRICTIVE COVENANTS BY CURRENT PHYSICIAN EMPLOYEES.
----------------------------------------------------
Contemporaneous with the execution of this Agreement, the Practice shall obtain
formal agreements from its current Physician Employees, pursuant to which each
agrees during the term of their respective employment and for the Restricted
Period after any termination of employment with the Practice, they will not (i)
establish, operate or engage, directly or indirectly, as a principal owner,
shareholder (other than a holder of fewer than 5% of the outstanding shares of a
publicly-traded company), partner, joint venturer, employee, agent, equity
owner, or in any other capacity whatsoever, in any corporation, partnership,
joint venture, or other business association or entity that operates ambulatory
surgery or diagnostic centers, imaging centers, physical therapy, or
rehabilitation centers providing services similar to those provided by the
Practice within the Restricted Area; or (ii) solicit, induce or attempt to
induce any Practice patient, employee, consultant or other persons associated or
affiliated with MidSouth or any Affiliate of MidSouth to leave the care of a
Physician Employee, to leave the employment of, or to discontinue their
association with the Practice, MidSouth or such affiliate of the Practice or
MidSouth within the Restricted Area. Provided that the employment agreements may
exclude from the restrictive covenant the employment of Physician Employees in
facilities that have historically been deemed emergency room facilities once the
Physician Employee's employment has been terminated if the Physician Employee
has no private practice. The employment agreements shall provide that MidSouth
is an intended third-party beneficiary to such agreements and that such third-
party beneficiary rights may be assigned to any Lender. The Practice agrees to
enforce the restrictive covenants. The cost and expense of such enforcement
shall be a Practice Expense, and all damages and other amounts recovered thereby
shall be considered Practice Revenue. In the event that after a request by
MidSouth, the Practice does not pursue any remedy that may be available to it by
reason of a breach or Default of a restrictive covenant, such event shall not be
a Default or breach of this Agreement and upon the request of MidSouth, the
Practice shall assign to MidSouth such causes of action and/or other rights it
has related to such breach or Default and shall cooperate with and provide
reasonable assistance to MidSouth with respect thereto; in which case, all costs
and expenses incurred in connection therewith shall be MidSouth Expenses, and
MidSouth shall be entitled to all damages and other amounts recovered thereby.
If the Practice and/or any Physician Employee violate the covenants set forth in
this Section 7.3, then the duration of the restrictions contained in this
Section 7.3 shall be extended an additional month against the violator for each
month during which such violation occurred but was not discovered by MidSouth,
beginning upon the date that MidSouth learns of the violation and so notifies
the Practice and/or the Physician Employee in writing.
SECTION 7.4. RESTRICTIVE COVENANTS BY FUTURE PHYSICIAN EMPLOYEES. The
---------------------------------------------------
Practice shall obtain and enforce formal agreements from each of its future
Physician Employees hired or contracted, pursuant to which each agrees to be
bound by an agreement containing the terms and conditions as contained in
Section 7.3 hereof.
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SECTION 7.5. PHYSICIAN EMPLOYEE LIQUIDATED DAMAGES. The restrictive
-------------------------------------
covenants described above may provide that the Physician Employees (current or
future) may be released from their Restrictive Covenants by paying liquidated
damages in an amount as follows:
(a) if the Practice were the breaching party or the party desiring to be
released from the covenant, the Practice shall be liable to MidSouth for an
amount equal to the reasonably estimated fee payable to MidSouth hereunder for
one hundred twenty (120) months following the termination; and
(b) if a Physician Employee was the breaching party or the party desiring
to be released from the covenant, then S200,000.00 per breaching party or party
desiring to be released from the covenant must be paid to MidSouth in order to
obtain Physician Employee's release from Article 7 of this Agreement.
SECTION 7.6. RIGHTS OF MIDSOUTH. During the term of this Agreement and
------------------
thereafter, MidSouth shall at all times of this Agreement have the right to
enter into additional service agreements with other physicians and practices,
regardless of where such physicians and/or practices are located, providing for
management services and facilities to such physicians and/or practices.
SECTION 7.7. EXCLUDED ACTIVITIES. Physician Employees shall be allowed to
-------------------
participate in Excluded Activities and retain Excluded Revenues, at any time so
long as the Excluded Activities do not materially interfere with any rights,
responsibilities or obligations as contained in this Agreement or any employment
agreement by and between the Practice and the Physician Employee.
SECTION 7.8. ENFORCEMENT. MidSouth, the Practice and the Physician Members
-----------
acknowledge and agree that since a remedy under Applicable Law for any breach or
attempted breach of the provisions of this Article 7 shall be inadequate,
MidSouth shall be entitled to specific performance and injunctive or other
equitable relief in the event of any breach or attempted breach, in addition to
whatever other remedies may exist under Applicable Law or in equity. If any
provision of Article 7 relating to any applicable Restrictive Period, scope of
activity restricted or the Restricted Area described therein shall be declared
by a court of competent jurisdiction to exceed the maximum time period, scope of
activity restricted or geographical area the court deems reasonable and
enforceable under Applicable Law, the time period, scope of activity restricted
and/or area of restriction held reasonable and enforceable by the court shall
thereafter be the Restrictive Period, scope of activity restricted and/or the
Restricted Area applicable to the restrictive covenant provisions in this
Article 7. The invalidity or non-enforceability of this Article 7 in any respect
shall not affect the validity or enforceability of the remainder of this Article
7 or of any other provisions of this Agreement.
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ARTICLE 8. DUTIES OF THE MANAGEMENT TEAM.
-----------------------------
SECTION 8.1. FORMATION AND OPERATION OF THE MANAGEMENT TEAM. The parties
----------------------------------------------
shall establish a Management Team which shall be responsible for developing
management and administrative policies for the overall operation of the
Practice. No party shall have the authority to undertake any actions described
in Section 8.2 below without the authority of the Management Team. The
Management Team shall consist of four (4) members. MidSouth shall designate, in
its sole discretion, two (2) members of the Management Team, one of which shall
be the Management Team Chief Executive; provided, however, in MidSouth's sole
discretion, MidSouth may replace the Management Team Chief Executive as one of
its designees in the event MidSouth institutes disciplinary measures against the
Management Team Chief Executive in connection with his employment with MidSouth.
The Practice shall designate, in its sole discretion, two (2) physician members
of the Management Team. The chairman of the Management Team shall be a designee
of the Practice selected by the Practice. Except as may otherwise be provided
herein, the act of a majority of the members of the Management Team shall be the
act of the Management Team. Attached hereto as Schedule 8.1 are the initial
"Policies and Procedures" to be used by the Management Team until the Management
Team amends the Policies and Procedures. The chairman of the Management Team
shall be responsible for organizing the agenda for the Management Team meetings
referred to in this Article 8. In the event that a deadlock occurs on a matter
brought before the Management Team, then the relative parties, duties and
responsibilities with respect to such matter shall remain status quo.
SECTION 8.2. DUTIES AND RESPONSIBILITIES OF THE MANAGEMENT TEAM. The
--------------------------------------------------
Management Team shall have the following duties and obligations:
8.2.1. Capital Improvements and Expansion. Any renovation and expansion
----------------------------------
plans and capital equipment expenditures with respect to the Practice shall be
reviewed and approved by the Management Team and shall be based upon economic
feasibility, physician support, productivity and then current market conditions
and the budget. If the Management Team determines that the acquisition of
additional equipment or facilities is appropriate, then MidSouth shall use its
best efforts to arrange for the financing and acquisition of the property.
8.2.2. Annual Budgets. All annual capital and operating budgets prepared by
--------------
MidSouth, as set forth in Section 3.2, shall be subject to the review and
approval of the Management Team.
8.2.3. Exceptions to Inclusion in the Revenue Calculation. The exclusion of
--------------------------------------------------
any revenue from Practice Revenue, whether now or in the future, shall be
subject to the unanimous approval of the Management Team, and the treatment of
any expense as Practice Expense which is not otherwise addressed herein or in
any budget shall be subject to the unanimous approval of the Management Team.
8.2.4. Advertising. All advertising and other marketing of the services
-----------
performed at the Practice Facilities or any hospital or similar facility shall
be subject to the prior review and approval of the Management Team.
27
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8.2.5. Fees. As a part of the annual operating budget, in consultation with
----
the Practice and MidSouth, to the extent allowed by Applicable Law, the
Management Team shall review the fee schedule or capitation arrangement for all
hospital, physician and ancillary services rendered by the Practice. In
addition, the Management Team shall approve the credit collection policies of
the Practice and MidSouth for the Practice's Accounts Receivable.
8.2.6. Provider and Payor Relationships. Decisions regarding the
--------------------------------
establishment or maintenance of relationships with institutional health care
providers and payors shall be made by the Practice in consultation with the
Management Team.
8.2.7. Strategic Planning. The Management Team shall develop long-term
------------------
strategic planning objectives.
8.2.8. Capital Expenditures. The Management Team shall determine the
--------------------
priority of major capital expenditures.
8.2.9. Physician Hiring. The Management Team shall recommend the number and
----------------
type of physicians required for the efficient and effective operation of the
Practice.
8.2.10. Management Team Chief Executive. The retention, and/or selection of
-------------------------------
the Management Team Chief Executive pursuant to Section 3.5 by MidSouth shall be
subject to the reasonable input of the Management Team. If the Practice is
dissatisfied with the services provided by the Management Team Chief Executive,
the Practice shall refer the matter to the Management Team. MidSouth and the
Management Team shall each in good faith determine whether the performance of
the Management Team Chief Executive could be brought to acceptable levels
through counsel and assistance, or whether the Management Team Chief Executive
should be terminated.
8.2.11. Grievance Referrals. The Management Team shall consider and make
---------------------
final decisions regarding grievances pertaining to matters not specifically
addressed in this Agreement as referred to it by the Practice's Board of
Directors.
ARTICLE 9. INSURANCE AND INDEMNITY
-----------------------
SECTION 9.1 INSURANCE TO BE MAINTAINED BY THE PRACTICE. Throughout the term
-------------------------------------------
of this Agreement, subject to the provisions of Section 3.1(m) providing for
malpractice premiums and deductibles to be a Practice Expense, the Practice
shall maintain comprehensive professional liability insurance with limits of not
less than $1,000,000 per claim and with aggregate policy limits of not less than
$3,000,000 per Physician Employee and Physician Extender Employee and a separate
limit for the Practice with the carrier which shall be determined by Practice
upon recommendation by the MidSouth. The Practice shall be responsible for all
liabilities in excess of the limits of the policies, and under no circumstances
shall any excess be deemed a Practice Expense. MidSouth shall have the option,
with Management Team approval, of providing the professional liability insurance
through an alternative program, provided the program meets the requirements of
the Insurance
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Commissioner of the State. If the Practice's existing professional liability
insurance program is canceled and replaced by a professional liability insurance
program initiated by MidSouth, MidSouth shall pay over to the Practice any
unearned professional liability insurance premiums paid by the Practice to the
extent the Practice's carrier pays the amounts to MidSouth. Any insurance
program for the Practice shall include director and officer liability insurance
for the Practice, and the cost of the coverages shall be a Practice Expense.
SECTION 9.2. INSURANCE TO BE MAINTAINED BY MIDSOUTH. Throughout the term of
--------------------------------------
this Agreement, MidSouth shall, unless determined not necessary by the
Management Team, provide and maintain, as a Practice Expense, comprehensive
general liability and property insurance covering the Practice premises and
operations.
SECTION 9.3. TAIL INSURANCE COVERAGE. Tail insurance coverage shall be
-----------------------
purchased in the following manner:
9.3.1. The Practice will cause each Physician Employee associated with the
Practice to enter into an agreement with the Practice that upon termination of
the physician's relationship with the Practice, for any reason, tail insurance
coverage will be purchased by the individual physician to the extent that it can
not be purchased by the Practice. The provisions may be contained in employment
agreements, restrictive covenant agreements or other agreements entered into by
the Practice and the Physician Employees, and the Practice hereby covenants with
MidSouth to enforce the provisions relating to the tail insurance coverage or to
provide the coverage, which will be a Practice Expense.
9.3.2. The Practice shall obtain continuing liability insurance under
either a tail policy or an acts policy with the same limits and deductibles as
the comprehensive professional liability insurance at the time of the
termination of this Agreement pursuant to Article 10, which will not be a
Practice Expense.
SECTION 9.4. ADDITIONAL INSURED. The Practice and MidSouth agree to use
-----------------
their renewable best efforts to have each other named as an additional insured
on the other's respective professional liability insurance programs, which will
be a Practice Expense.
SECTION 9.5. INDEMNIFICATION.
---------------
9.5.1. The Practice Indemnification.
----------------------------
(a) The Practice shall indemnify, hold harmless and defend MidSouth, its
officers, directors, shareholders and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance in the name
of the Practice or MidSouth, caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of medical services or the
performance of any intentional acts, negligent acts or omissions by the Practice
and/or its members, agents, employees and/or subcontractors (other than MidSouth
or any other party engaged by MidSouth) during the
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term hereof, or as a result of a breach of the representations and warranties
contained in Article 12 of this Agreement or a breach of any covenant in Article
14 of this Agreement.
(b) The Practice shall not be liable to MidSouth for any claims under
Section 9.5.1(b)(ii) above until the claims exceed in the aggregate $25,000.00
that would otherwise be subject to indemnification under said provisions, and
then only for the amount by which the claims exceed $25,000.00.
9.5.2. MidSouth Indemnification. MidSouth shall indemnify, hold harmless
------------------------
and defend the Practice, its officers, members, directors and employees, from
and against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees), to the extent not covered by
insurance in the name of MidSouth, caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of any intentional
acts, negligent acts or omissions by MidSouth and/or its members, agents,
employees and/or subcontractors (other than the Practice) during the term of
this Agreement or as a result of a breach of the representations and warranties
contained in Article 13 of this Agreement. In addition, MidSouth shall
indemnify, hold harmless and defend the Practice, its officers, members,
directors and employees, from and against any and all liability, loss, damage,
claim, causes of action, and expenses (including reasonable attorneys' fees)
caused by any claim against the Practice relating to liabilities of the Practice
assumed by MidSouth as a result of the Merger which were disclosed by the
Practice in the Merger Agreement and for which the Practice does not have an
obligation to indemnify MidSouth as provided above.
9.5.3. Indemnification Payment Escrow. In the event that either party makes
------------------------------
a claim for indemnification under either the Merger Agreement or this Agreement
(the "Indemnified Party"), then the party who must provide indemnity (the
"Indemnifying Party"), shall have the right, to the extent it owes
indemnifications, to pay amounts owed to the Indemnified Party under the Merger
Agreement or this Agreement into an escrow account (established pursuant to an
escrow agreement to be agreed upon by the parties) to be held by the escrow
agent in an interest bearing account until a determination by either (i) the
parties, (ii) a court of proper jurisdiction or (iii) an agreed upon panel of
arbitrators, has been made regarding the Indemnified Party's right to
indemnification. In the event that the Indemnified Party is entitled to
indemnification, then such escrowed funds shall be paid to the Indemnified Party
in partial or complete satisfaction of such indemnification obligation. Any
excess funds remaining in the escrow account after the payment of the
indemnification obligation or any funds held in escrow account if it is
determined that no indemnification obligation is owed shall be paid to the
Indemnifying Party.
ARTICLE 10. TERM AND TERMINATION.
--------------------
SECTION 10.1. TERM OF AGREEMENT. This Agreement shall commence on the date
-----------------
hereof and shall expire on August 31, 2022 unless earlier terminated pursuant to
the provisions hereof (the "Term").
SECTION 10.2. EXTENDED TERM. Unless earlier terminated as provided for in
-------------
this Agreement, the term of this Agreement shall be automatically extended for
an additional term of five (5) years
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and for a new term thereafter, unless either party delivers to the other party,
not less than one hundred eighty (180) days prior to the expiration of the
preceding term, written notice of the party's intention not to extend the term
of this Agreement.
SECTION 103. TERMINATION BY THE PRACTICE. The Practice may terminate this
---------------------------
Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by MidSouth, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state Applicable
Law for the benefit of creditors by MidSouth, except for the filing of a
petition in bankruptcy by or against MidSouth which is dismissed within ninety
(90) days thereafter, the Practice may give notice of the immediate termination
of this Agreement;
(b) In the event MidSouth shall Default in the performance of any duty or
obligation imposed upon it by this Agreement and the Default continues for a
period of ninety (90) days after written notice thereof has been given to
MidSouth by the Practice (or in the event the Default cannot be cured within the
period and MidSouth is diligently pursuing a cure in the Practice's reasonable
opinion, the period shall be extended so long as MidSouth diligently and in good
faith continues to cure the Default until completion), or if MidSouth shall fail
to remit the payments due as provided in this Agreement and the failure to remit
continues for a period of two (2) business days after written notice thereof,
the Practice may terminate this Agreement;
(c) In the event that MidSouth shall intentionally or in bad faith violate
Applicable Law resulting in a direct, continuing material adverse effect on the
operations, earnings and cash flow of the Practice; or
(d) In the event that MidSouth has not has not successfully completed an
initial public offering of MidSouth common stock or MidSouth has not merged with
a publicly traded entity with an initial market price of stock or if the market
price of the merged stock is not greater than five (5) dollars per share, within
thirty-six (36) months from the date of this Agreement, the Physician Members
may, at that time, terminate this Agreement and be released from the restrictive
covenants contained in Article 7.
SECTION 10.4. TERMINATION BY MIDSOUTH. MidSouth may terminate this
-----------------------
Agreement as follows:
(a) ln the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the Practice, or upon other action
taken or suffered, voluntarily or involuntarily, under any Applicable Law for
the benefit of creditors by the Practice, except for the filing of a petition in
involuntary bankruptcy against the Practice which is dismissed within ninety
(90) days thereafter, MidSouth may give notice of the immediate termination of
this Agreement;
(b) In the event the Practice shall Materially Default in the performance
of any duty or obligation imposed upon it by this Agreement, and the Default
continues for a period of ninety (90)
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days after written notice thereof has been given to the Practice by MidSouth (or
in the event the Default cannot be cured within the period, the period shall be
extended so long as the Practice diligently and in good faith continues to cure
the Default until completion), or the Practice fails to remit the payments due
as provided in this Agreement and the failure to remit continues for a period of
thirty (30) days after written notice thereof, MidSouth may terminate this
Agreement; or
(c) In the event the Practice's Medicare or Medicaid provider number shall
be terminated or suspended as a result of the action or inaction of the Practice
or a Physician Employee, and such termination or suspension continues for thirty
(30) days after notice of the termination or suspension, MidSouth may give
notice of the immediate termination of this Agreement, unless the Practice, at
that time, is acting in good faith (and shall provide reasonable evidence of the
action being taken) to reverse such termination or suspension. Notwithstanding
any good faith effort on the part of the Practice to reverse such termination or
suspension, if such termination or suspension is not reversed within ninety (90)
days after notice of the termination or suspension of the Medicare or Medicaid
provider number by Medicare or Medicaid, MidSouth shall have the right to
terminate this Agreement immediately.
SECTION 10.5. ACTIONS AFTER TERMINATION. Upon termination of this Agreement
---------------------------
by either party or upon expiration of this Agreement, the Practice (and/or its
Physician Members) shall:
(a) If this Agreement is terminated by MidSouth pursuant to Section 10.4 or
upon the expiration of the Term of this Agreement, purchase from MidSouth at
book value all intangible assets acquired in the Merger, as adjusted through the
last day of the month most recently ended prior to the date of the termination
or expiration to reflect amortization or depreciation of the "service agreement
costs" and intangibles in accordance with GAAP. If the Agreement is terminated
by Practice for MidSouth's breach pursuant to Section 10.3, all intangible
assets acquired in the Merger shall be repurchased at the fair market value as
if the termination of this Agreement had occurred immediately prior to such
valuation;
(b) Purchase all improvements, additions or leasehold improvements to
Practice Facilities which have been made by MidSouth and which relate solely to
the performance of its obligations under this Agreement at book value;
(c) Assume all debt and all contracts, payables incurred as Practice
Expenses and leases which are obligations of MidSouth and which relate
principally to the performance of its obligations under this Agreement or the
properties subleased by MidSouth; and
(d) Purchase from MidSouth at book value all of the equipment acquired in
the Merger, including all replacements and additions thereto made by MidSouth
pursuant to the performance of its obligations under this Agreement, and all
other tangible assets, including inventory, and supplies, as adjusted through
the last day of the month most recently ended prior to the date of the
termination or expiration in accordance with GAAP to reflect operations of the
Practice depreciation and other adjustments of such tangible assets.
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SECTION 10.6. CLOSING OF REPURCHASE BY, THE PRACTICE AND EFFECTIVE DATE OF
------------------------------------------------------------
TERMINATION. Except as provided in this Section 10.6, the Practice shall pay
- -------------
cash to repurchase the practice assets as provided in Section 10.5 (the
"Repurchase Price"). The Repurchase Price shall be reduced by the amount of debt
and liabilities of MidSouth assumed by the Practice and shall also be reduced by
any payment MidSouth has failed to make under this Agreement. The Practice and
any physician associated with the Practice shall execute all documents as may be
required to assume the liabilities set forth in Section 10.5, to remove MidSouth
from any liability with respect to the repurchased assets and with respect to
any property leased or subleased by MidSouth, and to consummate the transactions
contemplated by Section 10.5. The closing date for the purchase shall be
determined by the Practice, but shall in no event occur later than ninety (90)
days from the date of the notice of termination. The termination or expiration
of this Agreement shall become effective upon the closing of the sale of the
assets. On the date of termination or expiration, but only in the event the
termination or expiration of the Agreement was the result of the expiration of
the Term of this Agreement or a termination pursuant to Section 10.3, the
Practice shall be released from the restrictive covenants provided from in
Article 7. From and after any termination or expiration, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit the requesting party to satisfy reporting and contractual
obligations which may be required of it. Except as otherwise provided herein,
the restrictive covenants contained in Article 7 shall survive the expiration or
earlier termination of this Agreement. MidSouth shall give the Practice credit
towards the Repurchase Price for the fair market value of any of MidSouth's
Common Stock tendered to MidSouth in exchange for such assets. As used in this
Section 10.6, the term "fair market value" with respect to a single share of
MidSouth Common Stock shall mean; (i) in the event this Agreement is terminated
for any reason prior to an initial public offering of MidSouth's Common Stock or
MidSouth's merger into a publicly traded company, five dollars ($5.00) per
share; (ii) in the event MidSouth terminates this Agreement pursuant to the
terms of Section 10.4 subsequent to an initial public offering of MidSouth's
Common Stock or MidSouth's merger into a publicly traded company, five dollars
per share ($5.00); or (iii) in the event the Practice terminates this Agreement
pursuant to the terms of Section 10.3 or the Term of this Agreement expires
subsequent to an initial public offering of MidSouth's Common Stock or
MidSouth's merger into a publicly traded company, the closing "asking price" for
a single share of MidSouth's Common Stock as of the date on which the repurchase
is consummated, as reported on a securities exchange or quoted on a national
quotation system upon which the MidSouth Common Stock is traded or quoted.
ARTICLE 11. INTELLECTUAL PROPERTY AND RECORDS.
---------------------------------
SECTION 11.1. PROPRIETARY INFORMATION. The Practice acknowledges that
------------------------
MidSouth possess significant proprietary and confidential know-how, technology
and business information, including but not limited to, utilization protocols,
practice guidelines and proprietary management software and data ("Proprietary
lnformation"), which MidSouth has developed and will continue to develop on its
own, in its relationship with vendors, practitioner groups, integrated delivery
systems and other providers. The Practice and MidSouth acknowledge that one of
their mutual objectives is the development of Proprietary Information to be used
in connection with MidSouth's operations or which MidSouth intends to use or
license in its relationship with third parties, including other
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medical groups, integrated delivery systems and other providers. In addition,
the Practice acknowledges that as of the Closing Date, by virtue of execution
and delivery of the Merger Agreement, MidSouth will have acquired all of the
Practice's existing Proprietary Information, excluding patient medical records.
Therefore, the parties agree that MidSouth shall own all new Proprietary
Information, as well as existing Proprietary Information, excluding patient
medical records, regardless of whether the new Proprietary Information is
developed by one or more physicians in the Practice or Affiliates. The Practice
agrees to execute and deliver such documentation as may be requested by MidSouth
from time to time to evidence such ownership. During the term of this Agreement,
MidSouth shall license and provide access to all existing Proprietary
Information to the Practice.
SECTION 11.2. OWNERSHIP OF MIDSOUTH'S BUSINESS RECORDS AND SYSTEMS. All
----------------------------------------------------
business records, information, software and systems of MidSouth relating to the
provision of its services under this Agreement shall remain the property of
MidSouth and may be removed by MidSouth upon any termination of this Agreement;
provided, however, that the Practice shall be entitled, upon reasonable written
request, to access such records and make copies or extracts thereof to the
extent necessary to prosecute or defend against any tax or other liabilities
imposed on the Practice by any Governmental Authority or other party.
SECTION 11.3. MAINTENANCE AND ACCESS OF RECORDS. Except as otherwise
---------------------------------
provided in this Agreement, the parties shall safeguard all records maintained
by them pursuant to this Agreement for a period of time specified by the
Management Team from the date of the last activity recorded in such records. In
particular, the parties agree, to the extent necessary to permit receipt of
reimbursement for services by the Practice, to make available to the Secretary
of the United States Department of Health and Human Services, the Comptroller
General at the General Accounting Office, or their authorized representatives,
any books, documents and records in their possession relating to the nature and
extent of the costs of services hereunder for a period of four (4) years after
the provision of such services. Each party further agrees that, if it contracts
with any third party to provide services that are valued in excess of $10,000,
it shall require the contracting party to comply with the requirements of the
previous sentence. During the term of this Agreement, and thereafter, the
Practice or its designee shall have reasonable access during normal business
hours to the Practice's and MidSouth's financial and accounting, including, but
not limited to, records of collections, expenses and disbursements as kept by
MidSouth in performing MidSouth's obligations under this Agreement, and the
Practice may copy any or all records at its expense. Nothing in this Section
11.3 constitutes the waiver of any attorney-client privilege, and neither party
shall be required hereunder to give the other party document if, as a result, an
existing attorney-client privilege would be waived.
SECTION 11.4. PATIENT RECORDS. Upon termination of this Agreement, the
---------------
Practice shall retain all patient medical records maintained by the Practice or
MidSouth in the name of the Practice.
SECTION 11.5. ACCESS TO RECORDS. During the term of this Agreement, and
-----------------
thereafter, the Practice or its designee shall have reasonable access during
normal business hours to the Practice's and MidSouth's financial records,
including, but not limited to, records of collections, expenses and
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disbursements as kept by MidSouth in performing MidSouth's obligations under
this Agreement, and the Practice may copy any or all records at its expense.
ARTICLE 12. REPRESENTATIONS AND WARRANTS OF THE PRACTICE AND
------------------------------------------------
PHYSICIAN Members.
------------------
The Practice and the Physician Members jointly and severally represent,
warrant, covenant and agree with MidSouth regarding subsection 12.1, 12.2, 12.4,
12.5 and 12.7 and Practice agrees with MidSouth regarding all other subsections
contained in Article 12 that:
SECTION 12.1. VALIDITY. The Practice is a professional corporation and is
--------
duly qualified to do business as a foreign professional corporation where such
qualifications is necessary or required. The Practice has the full power and
authority to own the Practice property, to carry on the Practice business as
presently being conducted, to enter into this Agreement, and to consummate the
transactions contemplated hereby. Each Physician Shareholder is an adult citizen
and resident of the State of Tennessee [or the State of Mississippi.] Each
Physician Shareholder has the full power and authority to own his or her
property, carry on his or her business as presently conducted, to enter into
this Agreement, and to consummate the transactions contemplated hereby.
SECTION 12.2. LITIGATION. Except as disclosed pursuant to the Merger
----------
Agreement, there is no suit, action, proceeding at Applicable Law or in equity,
arbitration, administrative proceeding or other proceeding pending, or
threatened against, or affecting the Practice or any Physician Employee, or to
the best of the Practice's and each Physician Shareholder's knowledge, any
provider or other health care professional associated with or employed by the
Practice as pertains to any claim involving the provision of health care related
services, and there is no basis for any of the foregoing.
SECTION 123. PERMITS. The Practice and all health care professionals
---------
associated with or employed by the Practice have all permits and licenses and
other Necessary Authorizations required by all Applicable Law, except where
failure to secure such licenses, permits and other Necessary Authorizations does
not have a Material Adverse Effect; have made all regulatory filings necessary
for the conduct of Practice's business; and are not in violation of any of said
permitting or licensing requirements.
SECTION 12.4. POWER AND AUTHORITY. The Practice has the full authority to
---------------------
execute and deliver this Agreement and to carry out and consummate the
transactions contemplated hereby on the Closing Date. The execution and delivery
of this Agreement, the performance by the Practice of its obligations hereunder,
and the transactions contemplated hereby, have been duly authorized and approved
by all necessary actions of the Practice and Members. This Agreement
constitutes, and all agreements and other instruments and documents to be
executed and delivered by the Practice pursuant to this Agreement, will
constitute, legal, valid and binding obligations of the Practice, enforceable in
accordance with its terms and conditions except as enforceability may be limited
by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
creditor's rights generally, and is subject to general principles of equity
(regardless of whether any enforceability is considered in a proceeding in
equity or at law).
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SECTION 12.5. COMPLIANCE WITH APPLICABLE LAW. To the best of the Practice's
-------------------------------
and each Physician Shareholder's knowledge and belief, the Practice and each
Physician Employee has operated in compliance with all Applicable Law and
neither the Practice nor any provider associated with or employed by the
Practice has received payment or any remuneration whatsoever to induce or
encourage the referral of patients or the purchase of goods and/or services as
prohibited under 42 U.S.C. (S) 1320a-7b(b) or 42 U.S.C. (S)1395nn, or otherwise
perpetrated any Medicare or Medicaid fraud or abuse, nor has any fraud or abuse
been alleged within the last five (5) years by any Governmental Authority, a
carrier or a third party payor.
SECTION 12.6. HEALTH CARE COMPLIANCE. The Practice is presently
----------------------
participating in or otherwise authorized to receive reimbursement from or is a
party to Medicare, Medicaid, and other Third Party Payor Programs. All necessary
certifications and contracts required for participation in such programs are in
full force and effect and have not been amended or otherwise modified,
rescinded, revoked or assigned as of the date hereof, and no condition exists or
to the knowledge of the Practice no event has occurred which in itself or with
the giving of notice or the lapse of time or both would result in the
suspension, revocation, impairment, forfeiture or non-renewal of any Third Party
Payor Program. The Practice is in full compliance with the Material requirements
of all the Third Party Payor Programs applicable thereto.
SECTION 12.7. FRAUD AND ABUSE. The Practice, the Practice Employees and
-----------------
other persons and entities providing professional services for the Practice have
not, to the knowledge of the Practice and each Physician Shareholder, after due
inquiry, engaged in any activities which are prohibited by or are in violation
of the rules, regulations, policies, Contracts or Applicable Law pertaining to
any Third Party Payor Program, or which are prohibited by rules of professional
conduct ("Governmental Rules and Regulations"), including but not limited to the
following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a Material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a Material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on the Practice's own behalf or on behalf of another,
with intent to fraudulently secure such benefit or payment; or (d) knowingly and
willfully soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind or offering to pay or receive such remuneration (i) in return for referring
an individual to a person for the furnishing of 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 of any good,
facility, service or item for which payment may be made in whole or in part by
Medicare or Medicaid.
SECTION 12.8. PRACTICE COMPLIANCE. The Practice has all licenses necessary
--------------------
to operate the Practice in accordance with the requirements of any Applicable
Law and has all Necessary Authorizations for the use and operation of the
Practice, all of which are in full force and effect. There are no outstanding
notices of deficiencies relating to the Practice issued by any Governmental
Authority or third party payor requiring conformity or compliance with any
Applicable Law or
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condition for participation of the Governmental Authority or third party payor,
and after reasonable and independent inquiry and due diligence and
investigation, the Practice has neither received notice nor has any knowledge or
reason to believe that the Necessary Authorizations may be revoked or not
renewed in the ordinary course.
SECTION 12.9. RATES AND REIMBURSEMENT POLICIES. The jurisdiction in which
--------------------------------
the Practice is located does not currently impose any restrictions or
limitations on rates which may be charged to private pay patients receiving
services provided by the Practice. The Practice does not have any rate appeal
currently pending before any Governmental Authority or any administrator of any
Third Party Payor Program. The Practice has no knowledge of any Applicable Law
which has been enacted, promulgated or issued within the eighteen (18) months
preceding the date of this Agreement or any legal requirement proposed or
currently pending in the jurisdiction in which the Practice is located which
could have a Material Adverse Effect on the Practice or may result in the
imposition of additional Medicaid, Medicare, charity, free care, welfare, or
other discounted or government assisted patients at the Practice or require the
Practice to obtain any necessary authorization which the Practice does not
currently possess.
SECTION 12.10. ACCOUNTS RECEIVABLE. To the best of Practice's knowledge and
--------------------
information with respect to the Purchased Accounts Receivable, as of the date of
purchase:
12.10.1. All documents and agreements relating to the Purchased Accounts
Receivable that have been delivered to MidSouth with respect to the Purchased
Accounts Receivable are true and correct; the Practice has billed the applicable
Account Debtor and the Practice has delivered or caused to be delivered to the
Account Debtor all requested supporting claim documents and, if any error has
been made, the Practice will promptly correct the same and, if necessary, rebill
or, if requested by MidSouth, cooperate with MidSouth to rebill the Purchased
Accounts Receivable.
12.10.2. The Purchased Accounts Receivable are exclusively owned by the
Practice and there is no security interest or lien in favor or any third party,
or the recording or filing against the Practice, as debtor, covering or
purporting to cover any interest of any kind in any Purchased Accounts
Receivable, except as has been released by each party holding the adverse
interest in the Purchased Accounts Receivable. Upon payment of the Purchase
Price with respect to the Purchased Accounts Receivable and with respect to
Governmental Receivables, to the extent permissible by Applicable Law, all
right, title and interest of the Practice with respect thereto shall be vested
in MidSouth, free and clear of any lien, security interest, claim or encumbrance
of any kind, and the Practice agrees to defend the same against the claims of
all persons.
12.10.3. The Purchased Accounts Receivable (i) are payable, in an amount
not less than their face amount, as adjusted pursuant to the provisions of
Article 6, by the Account Debtor identified by the Practice as being obligated
to do so, (ii) are based on an actual and bona fide retention of services or
sale of goods to the patient by the Practice in the ordinary course of business,
(iii) are denominated and payable only in legal currency of the United States,
and (iv) are accounts or general intangibles within the meaning of the UCC of
the state in which the Practice has its principal place of business, or are
rights to payment under a policy of insurance or proceeds thereof, and are not
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evidenced by any instrument or chattel paper. There are no payors other than the
Account Debtor identified by the Practice as the payor primarily liable on any
Purchased Accounts Receivable.
12.10.4. The Purchased Accounts Receivable are not (i) subject to any
action, suit, proceeding or dispute (pending or threatened), set-off,
counterclaim, defense, abatement, suspension, deferment, deductible, reduction
or termination by the Account Debtors other than routine adjustments and
disallowances made in the ordinary course of business, (ii) past or within sixty
(60) days of, the statutory limit for collection applicable to the Account
Debtor, (iii) subject to an invoice which provides for payment more than forty-
five (45) days from the date of such invoice, (iv) an account which arises out
of a sale or other transaction by and between the Practice or an affiliate of
Practice, (v) an account in which the Account Debtor has commenced a voluntary
case, or an involuntary proceeding has been instituted, under the federal
bankruptcy Applicable Law, as now constituted or hereafter amended, or made an
assignment for the benefit or creditors, or an account in which a decree or
order for relief has been entered by a court having jurisdiction in the premises
in respect to the Account Debtor, (vi) an account in which the goods giving rise
to the Purchased Accounts Receivable have not been shipped and delivered to and
accepted by the Account Debtor or the services giving rise to the Purchased
Accounts Receivable have not been performed by the Practice and accepted by the
Account Debtor or the Purchased Accounts Receivables otherwise do not represent
a final sale, (vii) is evidenced by an instrument or chattel paper unless such
instrument or chattel paper is delivered to MidSouth with all appropriate
endorsements in favor of MidSouth, or (viii) other than a complete bona fide
transaction which requires no further act under any circumstances on the part of
Practice to make the Purchased Accounts Receivable payable by the Account
Debtor.
12.10.5. The Practice does not have any guaranty of, letter of credit
providing credit support for, or collateral security for, the Purchased Accounts
Receivable, other than any such guaranty, letter of credit or collateral
security as has been assigned to MidSouth, and any such guaranty, letter of
credit or collateral security is not subject to any lien in favor of any other
person.
12.10.6. The goods or services provided and reflected by the Purchased
Accounts Receivable were medically necessary for the patient in the opinion of
the Practice and the patient received such goods or services.
12.10.7. The face amount of the Purchased Accounts Receivable for the
services constituting the basis for the Purchased Accounts Receivable are
consistent with the usual, customary and reasonable fees charged by other
similar medical service providers in the Practice's community for the same or
similar service.
12.10.8. Each Account Debtor with respect to the Purchased Accounts
Receivable purchased by MidSouth (i) is not currently the subject of any
bankruptcy, insolvency or receivership proceeding, nor is it generally unable to
make payments on its obligations when due, (ii) is located in the United States,
and (iii) is one of the following: (w) the individual, or party legally
responsible for the individual, who received the health care services; (x) a
party which in the ordinary course of its business or activities agrees to pay
for healthcare services received by individuals, including,
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without limitation, Medicare, Medicaid, governmental bodies, commercial
insurance companies and non-profit insurance companies (such as Blue Cross and
Blue Shield entities) issuing health, personal injury, workers compensation or
other types of insurance; (y) employers or unions which self-insure for employee
or member health insurance, prepaid healthcare organizations, preferred provider
organizations, health maintenance organizations or any other similar person, or
(z) a third party payor of the type described in the definition of Governmental
Receivables.
12.10.9. The proceeds of the sale of the Purchased Accounts Receivable
purchased by MidSouth pursuant to Article 6 will be used for the business and
commercial purposes of the Practice. The sale of the Purchased Accounts
Receivable hereunder is made in good faith and without actual intent to hinder,
delay or defraud present or future creditors of the Practice.
12.10.10. Except with respect to Governmental Receivables, the insurance
policy, Contract or other instrument obligating an Account Debtor to make
payment with respect to the Purchased Accounts Receivable (i) does not contain
any provision prohibiting the transfer of such payment obligation from the
patient to the Practice, or from the Practice to MidSouth, (ii) has been duly
authorized by the Practice and to the knowledge of the Practice has been duly
authorized by the Account Debtor and, together, with the Purchased Accounts
Receivable, constitutes the legal, valid and binding obligation of the Account
Debtor in accordance with its terms, (iii) together with the applicable
Purchased Accounts Receivable, does not contravene in any Material respect any
requirement of Applicable Law applicable thereto, and (iv) was in full force and
effect and applicable to the patient at the time the services constituting the
basis for the Purchased Account Receivable were performed.
The Purchased Accounts Receivable are purchased without recourse, except
for the representations, warranties and covenants made by the Practice and the
Physician Members with respect thereto. None of the foregoing representations
and warranties with respect to the Purchased Accounts Receivable shall be deemed
to constitute a guaranty by the Practice that the Purchased Accounts Receivable
will be collected by MidSouth. The Practice shall not be responsible for any
damages for any breach of a representation or warranty under this Section 12
until MidSouth has suffered a loss on the purchase of Purchased Accounts
Receivable. Damages for such breach shall be limited to the amount of MidSouth's
loss on the purchase of the Purchased Accounts Receivable.
SECTION 12.11. FULL DISCLOSURE. When considered in the context of all
---------------
information contained herein, to the knowledge of the Practice no representation
or warranty made by the Practice in this Agreement 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 contained herein or therein not
misleading.
SECTION 12.12. EXHIBITS AND SCHEDULES. All the facts recited in Exhibits
----------------------
and Schedules annexed hereto shall be deemed to be representations of fact by
the Practice as though recited in this Article 12.
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ARTICLE 13. REPRESENTATIONS AND WARRANTIES OF MIDSOUTH.
-----------------------------------------
SECTION 13.1. ORGANIZATION. MidSouth is a corporation duly organized,
------------
validly existing and in good standing under the Applicable Law of the State of
Tennessee. MidSouth has the full power to own its property, to carry on its
business as presently conducted, to enter into this Agreement and to consummate
the transactions contemplated hereby.
SECTION 13.2. AUTHORITY. MidSouth has taken all necessary action to
--------
authorize the execution, delivery and performance of this Agreement, as well as
the consummation of the transactions contemplated hereby. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, violate any provisions of the charter or bylaws of
MidSouth or any indenture, mortgage, deed of trust, lien, lease, agreement,
arrangement, Contract, instrument, license, order, judgment or decree or result
in the acceleration of any obligation thereunder to which MidSouth is a party or
by which it is bound.
SECTION 13.3. ABSENCE OF LITIGATION. No action or proceeding by or before
---------------------
any court or other Governmental Authority has been instituted or is, to the best
of MidSouth's knowledge, threatened with respect to the transactions
contemplated by this Agreement.
SECTION 13.4. TRANSACTIONS WITH AFFILIATES. MidSouth shall not enter into
----------------------------
any transaction or series of transactions, whether or not related to or in the
ordinary course of business, with any Affiliate of the Practice or MidSouth,
other than on terms and conditions substantially as favorable to MidSouth as
would be obtainable by MidSouth at the time in a comparable arm's-length
transaction with a person not an Affiliate.
SECTION 13.5. FULL DISCLOSURE. When considered in the context of all
---------------
information contained herein, to the knowledge of the MidSouth no representation
or warranty made by the MidSouth in this Agreement 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 contained herein or therein not
misleading.
SECTION 13.6. EXHIBITS AND SCHEDULES. All the facts recited in Exhibits and
----------------------
Schedules annexed hereto shall be deemed to be representations of fact by the
MidSouth as though recited in this Article 13.
ARTICLE 14. COVENANTS OF THE PRACTICE AND PHYSICIAN MEMBERS.
-----------------------------------------------
SECTION 14.1. MERGER, CONSOLIDATION AND OTHER ARRANGEMENTS. The Practice
--------------------------------------------
shall not incorporate, merge or consolidate with any other entity or individual
or liquidate or dissolve or windup the Practice's affairs or enter into any
partnership, joint ventures or sale-leaseback transactions or purchase or
otherwise acquire (in one or a series of related transactions) any part of the
property or assets (other than purchases or other acquisitions of inventory,
materials and equipment in the ordinary course of business) of any other person
or entity.
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SECTION 14.2. NECESSARY AUTHORIZATIONS/ASSIGNMENT OF LICENSES AND PERMITS.
-----------------------------------------------------------
The Practice and each Physician Employee, and each Physician Extender Employee
shall maintain all licenses, permits, certifications, or other Necessary
Authorizations and shall not assign or transfer any interest in any license,
permit, certificate or other Necessary Authorization granted to it by any
Governmental Authority, nor shall the Practice or any Physician Employee assign,
transfer, or remove or permit any other individual or entity to assign, transfer
or remove any records of the Practice or any Physician Employee, including
without limitation, patient records, medical and clinical records (except for
removal of such patient records required under any Applicable Law).
SECTION 14.3. TRANSACTION WITH AFFILIATES. Neither the Practice nor any
---------------------------
Physician Shareholder shall enter into any transaction or series of
transactions, whether or not related or in the ordinary course of business, with
any Affiliate of the Practice or MidSouth, other than on terms and conditions
substantially as favorable to the Practice or the Physician Shareholder, as
would be obtainable by the Practice or the Physician Shareholder at the time in
a comparable arms-length transaction with a person not an Affiliate.
SECTION 14.4. COMPLIANCE WITH ALL APPLICABLE LAW. The Practice and each
----------------------------------
Physician Shareholder shall use their best efforts to comply with all Applicable
Law and regulations relating to the Practice's practice and the operation of any
facility, including, but not limited to, all Applicable Law relating to the
acquisition or operation of a health care practice. Furthermore, neither the
Practice nor any Physician Shareholder shall intentionally violate any
Applicable Law.
SECTION 14.5. THIRD PARTY PAYOR PROGRAMS. The Practice shall maintain its
--------------------------
compliance with the requirements of all Third Party Payor Programs in which
Practice will be participating or authorized to participate.
SECTION 14.6. CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. The
--------------------------------------------------
Practice shall not make any change in the character of Practice business or in
the credit and collection policy, which change would, in either case, impair the
collectability of any Purchased Accounts Receivable or any Accounts Receivable
received by MidSouth pursuant to the Merger or otherwise modify, amend or extend
the terms of any such account other than in the ordinary course of business.
SECTION 14.7. TREATMENT OF ACCOUNTS RECEIVABLE. The Practice will (i) treat
--------------------------------
transfers to MidSouth of Purchased Accounts Receivable hereunder as a sale for
all purposes, including tax and accounting (and shall accurately reflect such
sale in its financial statements), and will advise all persons who inquire about
the ownership of the Purchased Accounts Receivable that they have been sold to
MidSouth; (ii) not treat any Purchased Accounts Receivable as an asset on the
Practice's books and records; (iii) record in the Practice's books, records and
computer files pertaining thereto that the Purchased Accounts Receivable have
been sold to MidSouth; (iv) pay all taxes, if any, relating to the transfer of
the Purchased Accounts Receivable after the same have been purchased by
MidSouth; (v) not impede or interfere with MidSouth's collection of the
Purchased Accounts Receivable; (vii) not amend, waive or otherwise permit or
agree to any deviation from the terms or conditions of the Purchased Accounts
Receivable; (viii) use all reasonable efforts to obtain all
41
<PAGE>
consents from patients which are required by Applicable Law in order for
MidSouth, or any servicing entity retained by MidSouth, to secure information
needed to obtain or to expedite payment from the respective Account Debtors; and
(ix) have billed the Purchased Accounts Receivable on the same bases and using
the same policies and practices that it has used in the past unless MidSouth has
been advised in writing of a change prior to the purchase of the Purchased
Accounts Receivable. MidSouth or its designated representatives from time to
time may verify the Purchased Accounts Receivable, inspect, check, take copies
or extracts from the Practice's books, records and files, and the Practice will
make the same available to MidSouth or such representatives at any reasonable
time for such purposes.
SECTION 14.8. SECURITY INTEREST. If, contrary to the mutual intent of the
-----------------
Practice and MidSouth, any purchase of Purchased Accounts Receivable is not
characterized as a sale, the Practice shall, effective as of the date hereof, be
deemed to have granted and the Practice does hereby grant to MidSouth a first
priority security interest in and to any and all of the Purchased Accounts
Receivable and the proceeds thereof to secure the repayment of all amounts
advanced to the Practice hereunder with accrued interest thereon, and this
Agreement shall be deemed to be a security agreement. With respect to such grant
of a security interest, MidSouth may at its option exercise from time to time
any and all rights and remedies available to it under the UCC or otherwise. The
Practice agrees that five (5) days shall be reasonable prior notice of the date
of any public or private sale or other disposition of all or part of the
Purchased Accounts Receivable. The Practice represents and warrants that the
location of the Practice's principal place of business, and all locations where
the Practice maintains records with respect to its accounts are set forth under
its name in Section 15.12 hereof. The Practice agrees to notify MidSouth in
writing thirty (30) days prior to any change in any such location. The exact
name of the Practice is as set forth at the beginning of this Agreement, and
except as set forth on the signature page hereof, the Practice has not changed
its name in the last five (5) years, and during such period the Practice did not
use, nor does the Practice now use, any fictitious or trade name. The Practice
shall notify MidSouth in writing thirty (30) days prior to any change in any
such name.
ARTICLE 15. MISCELLANEOUS.
-------------
SECTION 15.1. ASSIGNMENT. MidSouth shall have the right to assign without
----------
the consent of the Practice all of its rights hereunder to any person, firm or
corporation (i) under common control with MidSouth, (ii) to any lending
institution, for security purposes or as collateral, from which MidSouth obtains
financing, or (iii) that is an affiliate of MidSouth, including, but not limited
to, a parent, subsidiary, or brother-sister corporation, and MidSouth shall have
the right to assign with the consent of the Practice (which shall not be
unreasonably withheld) all rights hereunder to any firm, person or corporation
that merges, reorganizes, or otherwise consolidates with MidSouth and further
agrees that upon receipt of notice from such assignee, the Practice shall pay to
the assignee or cause to be paid to the assignee all amounts due and payable to
MidSouth pursuant to this Agreement. Without limiting the foregoing, the
Practice acknowledges that, as collateral for certain obligations, MidSouth has
assigned all of its rights hereunder to a Lender as Agent (the "Agent") for
itself and other banks and institutional lenders from time to time (collectively
the "Banks") and has granted the Agent for the benefit of the Banks a lien and
security interest upon all real and personal property
42
<PAGE>
owned by MidSouth ("Pledged Assets"). As an inducement for the Banks to extend
or continue the extension of credit to MidSouth, the Practice (i) acknowledges
that the collateral assignment to the Agent covers all rights of MidSouth
hereunder, including, but not limited to, rights arising from warranties and
representations made by the Practice, rights to enforce covenants made by the
Practice, and rights to receive all payments due MidSouth; (ii) agrees to regard
the Agent as the owner of any and all of the assigned rights upon written notice
to the Practice of this election from the Agent; (iii) agrees that neither the
Agent nor any of the Banks has obligation for the performance of the duties of
MidSouth hereunder, and shall not assume any such duty by the exercise of rights
as a secured lender; (iv) agrees to give the Agent written notice of any
Material Default hereunder on MidSouth's part at the address provided in writing
to Practice by the Agent and to allow cure periods as provided in Section 10.3
thereafter for the cure of Default before the Practice terminates this
Agreement; (v) agrees that the rights of the Practice under this Agreement,
including, but not limited to, the right to the use of the Pledged Assets, are
and shall be junior to any security interest that the Agent and the Banks, their
successors or assigns may have in the Pledged Assets at any time; (vi) agrees
that the benefits of the above undertakings in favor of the Agent and Banks
shall further extend to all successors and assigns of the Agent and Banks,
provided that any notices given by the Practice under this Section 15.1 shall be
given to the Agent at the foregoing address unless the Practice has received
written notice of a change thereof; and (vii) agrees that this Section 15.1 may
not be modified, and no provision of this Section 15.1 may be waived, absent the
written approval of the Agent and Banks. Further, if a majority of the
shareholders of MidSouth entitled to vote on a sale of all of the assets or
substantially all of the assets or common stock of MidSouth authorize the sale
or transfer of all or substantially all of the assets or common stock of
MidSouth to a third party (the "Acquiring Party"), this Agreement shall be
deemed automatically assigned and transferred to the Acquiring Party without the
necessity of obtaining the consent of the Practice. Except as set forth above,
neither MidSouth nor the Practice shall have the right to assign their
respective rights and obligations hereunder without the written consent of the
other party.
SECTION 15.2. THIS AGREEMENT. This Agreement sets forth the entire
----------------
agreement of the parties with respect to the subject matter hereof and it
supersedes and discharges all prior agreements (written or oral) and
negotiations and all contemporaneous oral agreements concerning the subject
matter. There are no oral conditions precedent to the effectiveness of this
Agreement.
SECTION 15.3. NO PRACTICE OF MEDICINE. The parties acknowledge that
-----------------------
MidSouth is not authorized or qualified to engage in any activity which may be
construed or deemed to constitute the practice of medicine. To the extent any
act or service required of MidSouth in this Agreement should be construed or
deemed by any Governmental Authority or court to constitute the practice of
medicine, the performance of said act or service by MidSouth shall be deemed
waived and unenforceable to the minimum extent required to comply with
Applicable Law.
SECTION 15.4. NON-WAIVER. Neither the failure of nor any delay by any party
----------
to this Agreement to enforce any right hereunder or to demand compliance with
its terms is a waiver of any right hereunder. No action or inaction taken
pursuant to this Agreement on one or more occasions is a waiver of any right
hereunder or constitutes a course of dealing that modifies this Agreement.
43
<PAGE>
SECTION 15.5. WAIVERS. No waiver of any right or remedy under this
-------
Agreement shall be binding on any party unless it is in writing and is signed by
the party to be charged. No waiver of any right or remedy under any term of this
Agreement shall in any event be deemed to apply to any subsequent Default under
the same of any other term contained herein.
SECTION 15.6. AMENDMENTS. No amendment, modification or termination of this
----------
Agreement shall be binding on any party hereto unless it is in writing and is
signed by the party to be charged.
SECTION 15.7. SEVERABILITY. The terms of this Agreement are severable and
--------------
the invalidity of all or any part of any term of this Agreement shall not render
invalid the remainder of this Agreement or the remainder of the term. If any
term of this Agreement is so broad as to be unenforceable, the term shall be
interpreted to be only so broad as is enforceable.
SECTION 15.8. SUCCESSORS. The terms of this Agreement shall be binding upon
----------
and inure to the benefit of the parties, their respective successors, assigns,
heirs and beneficiaries.
SECTION 15.9. THIRD PARTIES. Nothing herein expressed or implied is
-------------
intended or shall be construed to give any person other than the parties hereto
any rights or remedies under this Agreement.
SECTION 15.10. SATURDAYS, SUNDAYS AND HOLIDAYS. Where this Agreement
-------------------------------
authorizes or requires a payment or performance on a Saturday, Sunday or public
holiday, the payment or performance shall be deemed to be timely if made on the
next succeeding business day.
SECTION 15.11. CAPTIONS. The captions and section numbers appearing in this
--------
Agreement are inserted only as a matter of convenience. They do not define,
limit or describe the scope or intent of the provisions of this Agreement.
SECTION 15.12. NOTICES. All notices required or permitted by this Agreement
---------
shall be in writing and shall be deemed to have been given (a) when received if
given in person, (b) on the date of acknowledgment of receipt if sent by telex,
facsimile or other wire transmission, (c) one business day after being sent by
overnight delivery service, or (d) three (3) days after being deposited in the
United States mail, certified or registered mail, postage prepaid, addressed as
follows:
To MidSouth Practice Management, Inc.: 889 Ridge Lake Blvd., Suite 111
Memphis, Tennessee 38120
Attention: Dan Caldwell
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With a copy to: Black Bobango & Morgan
A Professional Corporation
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: John A. Bobango, Esq.
To Practice: Foundation Medical Group, PLLC
5200 Blueridge Drive
Memphis, Tennessee 38134
With a copy to: Baker Donelson Bearman & Caldwell
165 Madison Avenue, 20th Floor
Memphis, Tennessee 38103
Attention: John A. Good, Esq.
or to such other address as either party shall notify the other.
SECTION 15.13. COUNTERPARTS. This Agreement may be executed in any number
------------
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing one or more counterparts.
SECTION 15.14. FURTHER ASSURANCES. Each of the parties hereto agrees to
------------------
execute any document or documents that may be requested from time to time by the
other party to implement or complete the party's obligations pursuant to this
Agreement.
SECTION 15.15. ATTORNEYS' FEES. If legal action is commenced by either
---------------
party to enforce or defend its rights under this Agreement, the prevailing party
in the action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
SECTION 15.16. TIME IS OF THE ESSENCE. Time is hereby expressly declared to
----------------------
be of the essence in this Agreement.
SECTION 15.17. CONFIDENTIALITY. Except for disclosure to its bankers,
---------------
underwriters or lenders, or as necessary or desirable for conduct of business,
including negotiations with other acquisition candidates, neither party hereto
shall disseminate or release to any third party any information regarding any
provision of this Agreement, or any financial information (past, present or
future) regarding the other that was obtained by the other in the course of the
negotiation of this Agreement or in the course of the performance of this
Agreement, without the other party's written approval; provided, however, the
foregoing shall not apply to information which (i) is generally available to the
public other than as a result of a breach of confidentiality provisions; (ii)
becomes available on a non-confidential basis from a source other than the other
party or its affiliates or agents, which source was not itself bound by a
confidentiality agreement, or (iii) which is required to be disclosed by
Applicable Law, including securities Applicable Law or pursuant to court order.
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SECTION 15.18. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS AND COST
------------------------------------------------------------
REDUCTIONS. In the event Applicable Law, now existing or enacted or promulgated
- ----------
after the effective date of this Agreement, are interpreted by judicial
decision, a regulatory agency or legal counsel in a manner so as to indicate
that the structure of this Agreement may be in violation of Applicable Law or
regulations, the Practice and MidSouth shall amend this Agreement as necessary.
To the maximum extent possible, any amendment shall preserve the underlying
economic and financial arrangements between the Practice and MidSouth. In
addition, the parties agree that in the event an opportunity is presented to
reduce the tax costs of either party, the parties will present the matter to the
Management Team, and the parties will cooperate with each other to reduce the
costs to the other party, including considering and negotiating in good faith
amendments to this Agreement.
SECTION 15.19. REMEDIES CUMULATIVE. No remedy set forth in this Agreement
-------------------
or otherwise conferred upon or reserved to any party shall be considered
exclusive of any other remedy available to any party, but the same shall be
distinct, separate and cumulative and may be exercised from time to time as
often as occasion may arise or as may be deemed expedient.
SECTION 15.20. NO OBLIGATION TO THIRD PARTIES. None of the obligations and
------------------------------
duties of MidSouth or the Practice under this Agreement shall in any way or in
any manner be deemed to create any obligation of MidSouth or of the Practice to,
or any rights in, any person or entity not a party to this Agreement, except as
related to assignments pursuant to Section 15.1.
SECTION 15.21. COMPLIANCE WITH FEDERAL APPLICABLE LAW. Notwithstanding
---------------------------------------
anything herein to the contrary, any clinical laboratory or other service shall
be operated in full compliance with Section 6204 of the Omnibus Budget
Reconciliation Act of 1989, as amended.
SECTION 15.22. FORCE MAJEURE. Neither party shall be liable to the other
-------------
for failure to perform hereunder in the event of strikes, lock-outs, calamities,
acts of God, unavailability of supplies or other events over which the party has
no control for so long as the events continue, and for a reasonable period of
time thereafter.
SECTION 15.23. COMMUNICATIONS. The Practice and MidSouth agree that good
--------------
communication between the parties is essential to the successful performance
of this Agreement, and each pledges to communicate fully and clearly with the
other on matters relating to the successful operation of the Practice.
SECTION 15.24. GOVERNING APPLICABLE LAW. The validity, interpretation and
------------------------
performance of this Agreement shall be governed by and construed in accordance
with the Applicable Law of the State of Tennessee. Each of the parties submits
to the jurisdiction of any state or federal court sitting in Memphis, Tennessee,
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect to the action or proceeding may be heard and
determined in any such court. Each party agrees not to bring any action or
proceeding arising out of or relating to this
46
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Agreement in any other court. Each of the parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
party with respect thereto.
[REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
MIDSOUTH PRACTICE MANAGEMENT, INC.
a Tennessee corporation
By: /s/ Daniel J. Caldwell
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
-------------------------
-------------------------
-------------------------
FOUNDATION MEDICAL GROUP, PLLC
By: /s/ William C. Stewart, Jr.
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
-------------------------
-------------------------
-------------------------
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<PAGE>
JOINDER AGREEMENT
The following Physician Members hereby agree to be bound to the Management
Services Agreement by and between MidSouth Practice Management, Inc. and
Foundation Medical Group, PLLC dated as of September 17, 1997 solely for the
purposes of being bound by Articles I, Section 6.3, Article 7, and Section 10.5
of this Agreement.
Physician Members:
/s/ William C. Stewart, Jr., M.D.
--------------------------------
William C. Stewart, Jr., M.D.
/s/ Beau B. Pittman, M.D.
--------------------------------
Beau B. Pittman, M.D.
/s/ David B. Wright
--------------------------------
David B. Wright, M.D.
/s/ Michael Steffan, M.D.
--------------------------------
Michael Steffan, M.D.
/s/ Lynda Freeland, M.D.
--------------------------------
Lynda Freeland, M.D.
/s/ Martha N. Taylor, M.D.
--------------------------------
Martha N. Taylor, M.D.
/s/ Ann D. Brown, M.D.
--------------------------------
Ann D. Brown, M.D.
/s/ Mark Vlasak, M.D.
--------------------------------
Mark Vlasak, M.D.
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SCHEDULE 8.1
MANAGEMENT TEAM POLICIES AND PROCEDURES
8.1.1. Number, Tenure and Qualification. The Management Team shall consist
--------------------------------
of four (4) members. MidSouth shall designate, in its sole discretion, two (2)
members of the Management Team. The Practice shall designate, in the Practice's
sole discretion, two (2) members of the Management Team. One of MidSouth's
designees shall be the Management Team Chief Executive; provided, however, that
MidSouth may replace the Management Team Chief Executive, in its sole
discretion, as one of its Management Team designees if MidSouth institutes
disciplinary measures against the Management Team Chief Executive arising out of
his employment by MidSouth. The initial Management Team shall be chosen at the
time of the closing of the Merger. Thereafter, the respective Management Team
members shall be chosen at such time and in such manner as shall be determined
by the respective party making the appointment.
8.1.2. Duties and Responsibilities of the Management Team. The Management
-------------------------------------------------
Team shall have the duties and responsibilities more particularly described in
Article 8 of this Agreement.
8.1.3. Regular Meetings of the Management Team. Regular meetings of the
---------------------------------------
Management Team shall be held on the first Monday of each calendar quarter at
such times and places as the Management Team by resolution may determine and
specify, and if so determined no notice thereof need be given.
8.1.4. Special Meetings. Special meetings of the Management Team may be
----------------
held at any time or place whenever called by written request of at least two (2)
Management Team members, notice thereof being given to each Management Team
member by the Management Team members calling the meeting, or they may be held
at any time without formal notice provided all of the Management Team members
are present or those not present shall at any time waive or have waived notice
thereof.
8.1.5. Notice. Notice of any special meeting shall be given at least ten
------
(10) days previously thereto by written notice delivered in accordance with the
provisions of 15.13 of the Agreement.
8.1.6. Meetings by any Form of Communication. The Management Team shall
-------------------------------------
have the power to permit any and all Management Team members to participate in a
regular or special meeting by, or conduct the meeting through the use of any
means of communication which all Management Team members participating may
simultaneously hear each other during the meeting. A Management Team member
participating in a meeting by this means is deemed to be present in person at
the meeting.
8.1.7. Quorum. All of the members of the Management Team as constituted
------
from time to time shall constitute a quorum for the transaction of business, but
a lesser number may adjourn any meeting and the meeting may be held as adjourned
without further notice. When a quorum is present at any meeting, a majority of
the members present thereat shall decide any question brought before such
meeting, except as otherwise provided by this Agreement or by these policies and
procedures.
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The fact that a Management Team members has an interest in a matter to be voted
on at the meeting shall not prevent his vote from being counted for purposes of
a quorum.
8.1.8. Vacancies. Any vacancy occurring in the Management Team shall be
---------
filled by the party which chose the vacated Management Team member(s).
8.1.9. Removal. Any Management Team member may be removed without cause by
-------
the party which chose the Management Team member.
8.1.10. Committees. The majority of the Management Team may appoint an
----------
executive committee or such other committees as it may deem advisable, composed
of one (1) or more Management Team members, and may delegate authority to such
committees as is not inconsistent with this Agreement. The members of such
committee shall serve at the pleasure of the Management Team.
8.1.11. Presumption of Assent. A Management Team member who is present at a
---------------------
meeting of the Management Team at which action on any matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the secretaries of the MidSouth and the Practice immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
Management Team who voted in favor of such action.
8.1.12. Informal Action by Management Team Members. Any action required to
-------------------------------------------
be taken at a meeting of the Management Team, or any other action which may be
taken at a meeting of the Management Team, may be taken without a meeting if all
Management Team members consent to taking such action without a meeting. If all
Management Team members consent to taking such action without a meeting, the
affirmative vote of a majority of the Management Team members is the act of the
Management Team. The action must be evidenced by one or more written consents
describing the action taken, signed by each Management Team member, indicating
each signing Management Team member's vote or abstention on the action, and
shall be included in the minutes or filed with the Management Team records
reflecting the action taken.
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SCHEDULE 1.1.46
PRACTICE EXPENSES
"Practice Expenses" shall include:
(a) Salaries, benefits, (including contributions under any MidSouth
employee benefits plan, severance benefits as set by the Management Team and
other direct costs of all employees of the Practice (other than Physician
Employees and Physician Extender Employees) and MidSouth working at the Practice
Facilities.
(b) Direct costs of all outside consultants, without mark-up, retained by
MidSouth with the advance approval of the Management Team to provide services at
or in connection with the Practice.
(c) Obligations of MidSouth or the Practice under leases or subleases for
the Practice Facilities and any personal property used by the Practice.
(d) The expenses and charges incurred for the Practice Facilities,
including without limitation, utilities, telephone charges, etc.
(e) Personal property and intangible taxes assessed against MidSouth's
assets utilized by the Practice from and after the date of the Agreement.
(f) The costs of any goods purchased for resale by or on behalf of the
Practice.
(g) Interest expense on indebtedness incurred by MidSouth to (i) satisfy
the obligations of the Practice if any, assumed under the Merger Agreement, (ii)
establish any new ancillary services on behalf on the Practice; or (iii)
purchase equipment on behalf of the Practice.
(h) Insurance expenses to the extent provided in Section 3.1(m) and
Article 9.
(i) Other expenses incurred by MidSouth in carrying out its obligations
under this Agreement or incurred by the Practice which are budgeted as Practice
Expenses.
(j) Except as excluded in part (4) of Schedule 1.1.13, the depreciation as
determined in accordance with GAAP, for any equipment or depreciable property
owned by MidSouth and used at the Practice Facilities by the Practice to be
billed to the Practice on a monthly basis and paid to MidSouth at the same time
MidSouth pays for the Practice's Accounts Receivable pursuant to Section
6.2; and
(k) Any marketing or presentation expense of any kind, including slide
production, travel, meals, entertainment or similar expenses incurred at the
direction of the Management Team.
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SCHEDULE 1.1.13
EXCLUDED EXPENSES
"Excluded Expenses" shall be the sole obligation of the Practice and shall
mean pursuant to GAAP applied on a consistent basis:
(1) Salaries, advances or other distributions made to Physician Employees
or Physician Extender Employees;
(2) Expenses of Physician Employees and Physician Extender Employees to
meet continuing education requirements, including related travel expenses; and
(3) Any indemnification obligation of the Practice.
(4) Any other items specifically designated as Excluded Expenses elsewhere
in this Agreement including but not limited to the following items:
(a) Accounting, legal and other professional fees attributed to the
Practice or to Physician Employees; provided, however, legal and accounting
expenses incurred in the ordinary course of Practice's business and approved by
the Management Team will be the Practice Expenses.
(b) Contribution expenses, cash or non-cash, which include, but are
not limited to costs of sponsoring sports teams, political contributions,
unapproved marketing expenses, and contributions to hospitals and staff.
(c) Automobile expenses including payments, repairs and maintenance,
mileage, depreciation, etc.
(d) Except as provided in Schedule 1.1.46(k), entertainment expenses
of any kind.
(e) Benefits including health insurance, life insurance, (except to
the extent allowed under subparagraph h of the definition of Practice Expenses,
etc.) vacation time, sick time, paid leave of absence, contributions to and
administration of physician retirement plans (pension, 401(k), IRA, others),
etc. for Physician Members, Physician Employees and Physician Extender
Employees, but excluding malpractice insurance which shall be a Practice
Expense.
(f) Employment tax expenses including Federal and State Unemployment
taxes, FICA taxes, Medicare taxes, etc. for Physician Members, Physician
Employees and Physician Extender Employees.
53
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(g) Home office expenses including the acquisition costs,
depreciation, repairs and maintenance, and ongoing operating expenses of
computers, software, copying machines, fax machines, telephones and telephone
lines, cellular telephones, etc.; and the costs of having an office in one's
home including allocated rent, utility and depreciation expenses.
(h) Meal expenses.
(i) Medical supplies and drugs either used or distributed by a
Physician Employee without billing for such supplies and drugs at standard
rates.
(j) Except as provided in Schedule 1.1.46(k), presentation expenses of
any kind including, professional services, slide production, travel, meals,
entertainment, etc.
(k) Personal postage expenses.
(l) Personal laundry expenses.
(m) Personal assistant expenses (including the time staff spends on
personal errands for Physician Employees).
(n) Uninsured damages or claims paid or expenses related thereto from
any Applicable Lawsuit or claim against the Practice, or any Physician
Shareholder, or Physician Employee, including but not limited to malpractice
claims or litigation.
(5) Any expenses or responsibilities of the Practice which are not
expressly designated herein as Practice Expenses.
54
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[SCHEDULE 1.1.47]
LIST OF PRACTICE FACILITIES
---------------------------
WALNUT GROVE MEDICAL GROUP, P.C.
SOLE FACILITY: Baptist Memorial Hospital Professional Building
6025 Walnut Grove Road
Suite #200
Memphis, Tennessee 38120
INTERNAL MEDICINE ASSOCIATES OF CORDOVA, P.C.
SOLE FACILITY: Cordova Medical Plaza
8066 Walnut Run
Suite #200
Cordova, Tennessee 38018
MARK VLASAK, M.D.
SOLE FACILITY: 7655 Poplar Avenue
Germantown, Tennessee 38138
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SCHEDULE 1.133
MIDSOUTH EXPENSES
"MidSouth Expenses" shall mean, pursuant to GAAP applied on a consistent basis:
(a) Any corporate overhead charges of MidSouth and other items incurred
by MidSouth that are not incurred specifically for the purpose of
providing services to the Practice or are not directly attributable
to the Practice, as reasonably determined by MidSouth, including,
without limitation, salaries and benefits of the executive officers
of MidSouth, except as otherwise provided in the definition of
Practice Expenses;
(b) Any amortization of any intangible asset resulting from the Merger;
(c) Any depreciation attributable to increases in the book value of
tangible depreciable assets resulting from the Merger,
(d) Any legal and/or accounting expenses incurred by MidSouth in
connection with the merger; and
(e) All taxes of MidSouth, including but not limited to, state and
federal employee taxes related solely to MidSouth employees who
provide services directly to the Practice at the Practice
Facilities, property taxes on assess used by the Practice and other
taxes specifically included in Practice Expenses.
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[SCHEDULE 4.1]
LIST OF PHYSICIAN EMPLOYEES
---------------------------
1. LYNDA FREELAND, M.D.
2. MARTHA N. TAYLOR, M.D.
3. ANN D. BROWN, M.D.
4. WILLIAM C. STEWART, JR., M.D.
5. BEAU B. PITTMAN, M.D.
6. DAVID B. WRIGHT, M.D.
7. MICHAEL STEFFAN, M.D.
8. MARK C. VLASAK, M.D.
9. MARVIN T. MILLER, M.D.
57
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EXHIBIT 10.16
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
MIDSOUTH PRACTICE MANAGEMENT, INC.,
AND
MEMPHIS CHILDREN'S CLINIC, PLLC
AND
ELIZABETH M. ANDREW, M.D.
DOROTHY H. BUTLER, M.D.
RICHARD M. BUTLER, M.D.
TIMOTHY G. GILLESPIE, M.D.
FARANAK MOTAGHIAN, M.D.
HARRY V. PHILLIPS, III, M.D.
KENNETH R. ROBERTSON, M.D.
CHARLES VAN SNIDER, M.D.
ROBERT W. RIIKOLA, M.D.
TERRY GESHKE, M.D.
Dated as of September 22, 1997
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PRELIMINARY STATEMENTS ....................................................... 6
ARTICLE 1. INTERPRETATION ................................................. 6
Section 1.1. Definitions............................................... 13
Section 1.2. Effect of Definitions..................................... 13
Section 1.3. This Agreement............................................ 13
Section 1.4. Case and Gender .......................................... 13
ARTICLE 2. RELATIONSHIP OF THE PARTIES..................................... 13
Section 2.1. Independent Relationship.................................. 13
Section 2.2. Responsibilities of the Parties........................... 13
Section 2.3. Practice Matters.......................................... 14
Section 2.4. Patient Referrals......................................... 14
Section 2.5. Professional Judgment..................................... 14
ARTICLE 3. ADMINISTRATIVE AND MANAGEMENT SERVICES
OF MIDSOUTH..................................................... 14
Section 3.1. Management Services and Administration.................... 14
Section 3.2. Budgets and Finances ..................................... 17
Section 3.3. Financial Statements and Audits .......................... 18
Section 3.4. Inventory and Supplies ................................... 18
Section 3.5. Management Team Chief Executive .......................... 18
Section 3.6. Personnel ................................................ 18
Section 3.7. Capital Expenditures and Loans ........................... 19
Section 3.8. Compliance with Applicable Law ........................... 19
Section 3.9. Quality Assurance ........................................ 19
Section 3.10. Ancillary Services........................................ 19
Section 3.11. New Medical Services and Additional Practice Offices...... 20
Section 3.12. Manner of Performance..................................... 20
ARTICLE 4. OBLIGATIONS OF THE PRACTICE..................................... 20
Section 4.1. Physicians................................................ 20
Section 4.2. Provision of Medical Services............................. 21
Section 4.3. Professional Standards.................................... 20
Section 4.4. Billing Information....................................... 21
Section 4.5. Medical Practice.......................................... 21
Section 4.6. Additional Physicians..................................... 21
Section 4.7. Utilization Review: Quality Assurance..................... 21
Section 4.8. Non-discrimination: Compliance with Applicable Law........ 21
Section 4.9. Non-discriminatory Patient Selection and Service: Non-
discriminatory Patient Assignment......................... 22
Section 4.10. Standards, Accreditation, Surveys and Inspections......... 22
Section 4.11. Contracts................................................. 22
Section 4.12. Organization and Area of Care............................. 22
Section 4.13. Records and Reports....................................... 22
Section 4.14. The Practice to Provide Necessary Billing Information..... 22
Section 4.15. Continuing Education...................................... 22
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Section 4.16. Referrals................................................. 23
Section 4.17. Provider Numbers.......................................... 23
ARTICLE 5. FACILITIES OF THE PRACTICE...................................... 23
Section 5.1. The Practice Facilities................................... 23
Section 5.2. Right to Use Property..................................... 23
ARTICLE 6. COMPENSATION.................................................... 24
Section 6.1. Fees...................................................... 24
Section 6.2. Purchase of Accounts Receivable........................... 24
Section 6.3. Payments on Early Termination of Physician Members........ 29
ARTICLE 7. RESTRICTIVE COVENANTS AND ENFORCEMENT........................... 30
Section 7.1. Exclusive Arrangement..................................... 30
Section 7.2. Restrictive Covenants by the Practice..................... 31
Section 7.3. Restrictive Covenants By Current Physician Employees...... 31
Section 7.4. Restrictive Covenants By Future Physician Employees....... 32
Section 7.5. Physician Employee Liquidated Damages..................... 32
Section 7.6. Rights of MidSouth........................................ 32
Section 7.7. Excluded Activities....................................... 32
Section 7.8. Enforcement............................................... 33
ARTICLE 8. DUTIES OF THE MANAGEMENT TEAM................................... 33
Section 8.1. Formation and Operation of the Management Team............ 33
Section 8.2. Duties and Responsibilities of the Management Team........ 33
ARTICLE 9. INSURANCE AND INDEMNITY......................................... 35
Section 9.1. Insurance to be Maintained by the Practice................ 35
Section 9.2. Insurance to be Maintained by MidSouth.................... 35
Section 9.3. Tail Insurance Coverage................................... 35
Section 9.4. Additional Insured........................................ 36
Section 9.5. Indemnification........................................... 36
ARTICLE 10. TERM AND TERMINATION........................................... 37
Section 10.1. Term of Agreement......................................... 37
Section 10.2. Extended Term............................................. 37
Section 10.3. Termination by the Practice............................... 37
Section 10.4. Termination by MidSouth................................... 38
Section 10.5. Actions after Termination................................. 38
Section 10.6. Closing of Repurchase by the Practice and
Effective Date of Termination............................. 39
ARTICLE 11. INTELLECTUAL PROPERTY AND RECORDS.............................. 40
Section 11.1. Proprietary Information................................... 40
Section 11.2. Ownership of MidSouth's Business Records and Systems...... 40
Section 11.3. Maintenance and Access of Records......................... 41
Section 11.4. Patient Records........................................... 41
Section 11.5. Access to Records......................................... 41
ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF THE
PRACTICE AND PHYSICIAN MEMBERS................................. 41
Section 12.1. Validity.................................................. 41
Section 12.2. Litigation................................................ 42
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Section 12.3. Permits................................................... 42
Section 12.4. Authority................................................. 42
Section 12.5. Compliance with Applicable Law............................ 42
Section 12.6. Health Care Compliance.................................... 42
Section 12.7. Fraud and Abuse........................................... 43
Section 12.8. Practice Compliance....................................... 43
Section 12.9. Rates and Reimbursement Policies.......................... 43
Section 12.10. Accounts Receivable....................................... 44
Section 12.11. Limitation of Liability of Members........................ 46
Section 12.12. Exhibits.................................................. 46
ARTICLE 13. REPRESENTATIONS AND WARRANTIES OF MIDSOUTH..................... 46
Section 13.1. Organization.............................................. 46
Section 13.2. Authority................................................. 46
Section 13.3. Absence of Litigation..................................... 47
Section 13.4. Transactions with Affiliates.............................. 47
ARTICLE 14. COVENANTS OF THE PRACTICE AND
PHYSICIAN MEMBERS.............................................. 47
Section 14.1. Exchange, Consolidation and Other Arrangements............ 47
Section 14.2. Necessary Authorizations/Assignment of Licenses
and Permits............................................... 47
Section 14.3. Transaction with Affiliates............................... 47
Section 14.4. Compliance with All Applicable Law........................ 47
Section 14.5. Third Party Payor Programs................................ 48
Section 14.6. Change in Business or Credit and Collection Policy........ 48
Section 14.7. Treatment of Accounts Receivable.......................... 48
Section 14.8. Security Interest......................................... 48
ARTICLE 15. MISCELLANEOUS.................................................. 49
Section 15.1. Assignment................................................ 49
Section 15.2. This Agreement............................................ 50
Section 15.3. No Practice of Medicine................................... 50
Section 15.4. Non-Waiver................................................ 50
Section 15.5. Waivers................................................... 50
Section 15.6. Amendments................................................ 50
Section 15.7. Severability.............................................. 50
Section 15.8. Successors................................................ 50
Section 15.9. Third parties............................................. 50
Section 15.10. Saturdays, Sundays and Holidays........................... 50
Section 15.11. Joint Preparation......................................... 51
Section 15.12. Captions.................................................. 51
Section 15.13. Notices................................................... 51
Section 15.14. Counterparts.............................................. 51
Section 15.15. Further Assurances........................................ 52
Section 15.16. Attorneys' Fee............................................ 52
Section 15.17. Time is of the Essence.................................... 52
Section 15.18. Confidentiality........................................... 52
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Section 15.19. Contract Modifications for Prospective Legal
Events and Cost Reductions................................ 52
Section 15.20. Remedies Cumulative....................................... 52
Section 15.21. Construction.............................................. 52
Section 15.22. No Obligation to Third Parties............................ 53
Section 15.23. Compliance with Federal Applicable Law.................... 53
Section 15.24. Patient Referrals......................................... 53
Section 15.25. Independent Contractors................................... 53
Section 15.26. Force Majeure............................................. 53
Section 15.27. Communications............................................ 53
Section 15.28. Governing Applicable Law.................................. 53
</TABLE>
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") dated as of
September 22, 1997, by and between MIDSOUTH PRACTICE MANAGEMENT, INC., a
Tennessee corporation ("MidSouth"), MEMPHIS CHILDREN'S CLINIC, PLLC, a Tennessee
professional limited liability company (the "Practice") and the Physicians
Members set forth on Schedule 1 for the limited purposes as set forth herein.
PRELIMINARY STATEMENTS
1. The Practice is a professional limited liability company in the Memphis,
Tennessee area which provides pediatric professional medical care to the general
public through the operation of a pediatric medical clinic.
2. MidSouth is in the business of owning certain assets of and managing
and administering the businesses of medical practices.
3. The Practice desires for MidSouth to provide management and
administrative services for the Practice.
NOW, THEREFORE, in consideration of the foregoing and the promises
contained herein, and ten dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of all of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE 1. INTERPRETATION.
--------------
Section 1.1. DEFINITIONS. For the purposes of this Agreement, the following
-----------
definitions shall apply:
1.1.1. "Account Debtor" shall mean an account debtor or any other person
obligated in respect of an Account Receivable.
1.1.2. "Accounts" shall mean, with respect to the Practice, all Accounts
Receivable including any and all rights to payment of money or other forms of
consideration of any kind (whether classified under the Uniform Commercial Code
as accounts, chattel paper, general intangibles, or otherwise) for goods sold or
leased or for services rendered by the Practice, including, but not limited to,
accounts receivable, proceeds of any letters of credit naming the Practice as
beneficiary, chattel paper, insurance proceeds, contract rights, notes, drafts,
instruments, documents, acceptances, and all other debts, obligations and
liabilities in whatever form from any other person.
<PAGE>
1.1.3. "Accounts Receivable" shall mean, with respect to the Practice, all
Accounts and any and all rights to payment of money or other forms of
consideration of any kind now owned or hereafter acquired (whether classified
under the Uniform Commercial Code as accounts, chattel paper, general
intangibles or otherwise) for goods sold or leased or arising out of the
delivery of medical, surgical, diagnostic or other professional medical services
rendered by the Practice, including, but not limited to, accounts receivable,
proceeds of any letters of credit naming the Practice as beneficiary, chattel
paper, insurance proceeds, contract rights, notes, drafts, instruments,
documents, acceptances and all other debts, obligations and liabilities in
whatever form from any other Person; provided that, cash, checks and credit card
purchases are not included in the definition of Accounts Receivable.
1.1.4. "Applicable Law" shall mean all provisions of constitutions, laws,
statutes, codes, rules, regulations, ordinances and orders of all Governmental
Authorities and all orders and decrees of all courts, tribunals and arbitrators,
and shall include, without limitation, any Health Care Law, applicable to a
person or an entity or its assets, liabilities or business.
1.1.5. "CHAMPUS" shall mean the Civilian Health and Medical Program of the
Uniformed Services.
1.1.6. "Collecting Bank" shall mean the main office of any financial
institution agreed to by MidSouth for the collection of Purchased Accounts
Receivable.
1.1.7. "Contract" shall mean any material written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument, lease
obligation, plan, practice, restriction, understanding or undertaking of any
kind or character, or other document to which any person is a party or by which
any person is bound.
1.1.8. "Default" shall mean (i) any breach or violation of or default
under this Agreement or any Contract, order, or permit, (ii) any occurrence of
any event that with the passage of time or the giving of notice or both would
constitute a breach or violation of or default under any Contract, order or
permit, or (iii) any occurrence of any event that with or without the passage of
time or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate, increase, or
impose any liability under, any Contract, order or permit.
1.1.9. "Disbursement Account" shall mean the bank account maintained by
MidSouth for payment of the Service Fee and the Purchase Price.
1.1.10. "Effective Time" shall mean that date, as defined in the Exchange
Agreement, when the Exchange becomes effective with the Secretary of State of
the State of Tennessee.
1.1.11. "Exchange" shall mean the transaction contemplated hereunder and in
accordance with Section 351 of the Code between Practice and MidSouth.
2
<PAGE>
1.1.12. "Exchange Agreement" means that document dated as of
September 17, 1997, by and among MidSouth, the Practice and Physician Members
which combined the organizations.
1.1.13. "Excluded Activities" shall mean: (i) teaching at any educational
institution and attending patients as a part of the Physician Employee's duties
as are normal and customary for such faculty position; provided, however, such
services must be incident to the academic/teaching aspects of the institution
and not incident to the regular examination of patients for a fee whether billed
in the name of the institution or the name of the Physician Employee; (ii)
authoring text books, research papers, or newspaper articles, or appearing on
radio or television shows or any other provision of medical advice via broad
mediums; (iii) engaging in research and development the material components of
which do not constitute medical practice management; (iv) serving as medical
director or administrative employee of any organization offering medical care,
but not providing clinical services or which is not in competition with the
Practice; (v) serving as an expert witness; and (vi) working in an urgent care
center as defined in Section 7.3.
1.1.14. "Excluded Expenses" shall be defined pursuant to Schedule 1.1.14.
1.1.15. "Excluded Revenue" shall mean revenue earned by the Physician
Employees from Excluded Activities.
1.1.16. "Finance Charge Rate" means a rate of interest equal to the lesser
of (i) eighteen percent (18%) per annum or (ii) the maximum rate of interest
allowed by Applicable Law in effect at the usage.
1.1.17. "GAAP" shall mean generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in any other
statements by any other entity or other practices and procedures as may be
approved by a significant segment of the accounting profession. For purposes of
this Agreement, GAAP shall be applied in a manner consistent with the historical
practices used by MidSouth or the Practice, as applicable.
1.1.18. "Governmental Authority" shall mean any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasigovernmental, judicial, public or statutory
instrumentality, authority, board, body, agency, bureau or entity or any
arbitrator with authority to bind a party.
1.1.19. "Governmental Lockbox Account" shall mean the account established
at the Collecting Bank by the Practice into which all proceeds of the Practice's
Governmental Receivables are remitted.
1.1.20. "Governmental Receivables" shall mean the Accounts Receivable of
the Practice which (i) arise in the ordinary course of business of the Practice,
(ii) have as their third party payor
3
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the United States of America or any state or any agency or instrumentality of
the United States of America or any state which makes any payment with respect
to Medicare or Medicaid or with respect to any other program (including CHAMPUS)
established by Applicable Law, and (iii) are required by federal or state law to
be paid to the Practice as a healthcare provider. Governmental Receivables shall
not, however, refer to amounts payable by private insurers under contract to
provide benefits under the Federal Employee Health Benefit Program.
1.1.21. "Health Care Law" shall mean any Applicable Law regulating the
acquisition, construction, operation, maintenance or management of a health care
practice, facility, provider or payor, including without limitation, 42 U.S.C.
(S)1395nn and 42 U.S.C. (S)1320a-7b.
1.1.22. "HMO" shall mean health maintenance organization; an entity that
combines health care services delivery and financing in one prepaid capitated
benefit plan.
1.1.23. "Lender" shall mean any lender to MidSouth that has a security
interest in the Purchased Accounts Receivable from time to time.
1.1.24. "Lockbox Agreements" shall mean that certain lockbox operating
procedural agreement for Governmental Receivables to be entered into between the
Collecting Bank, Lender, Practice, in a form acceptable to counsel for MidSouth
as to Governmental Receivables and that certain lockbox operating procedure
agreement for Non-Governmental Receivables to be entered between the Collecting
Bank, Lender and Practice in a form acceptable to counsel for MidSouth.
1.1.25. "Managed Care Payments" shall mean all payments actually recorded,
whether on a prepayment or accrual basis, for (i) capitation payments to the
Practice or MidSouth from managed care organizations where payment is made
periodically on a per member basis for the partial or total medical care needs
of a patient, co-payments and all HMO incentive bonuses, including hospital
incentive bonuses, and (ii) fees and revenue recorded by or on behalf of the
Practice, whether from the assumption of institutional or professional risk in
managed care risk assumption arrangements or otherwise, including bonus,
incentive and surplus payments from capitated services.
1.1.26. "Management Team" shall mean a committee consisting of four (4)
members established pursuant to and functioning in accordance with the
guidelines set forth in Article 8.
1.1.27. "Management Team Chief Executive" shall mean the MidSouth employee
who shall manage and administer all of the day-to-day business functions of the
Practice subject to the terms of this Agreement.
1.1.28. "Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the financial position, business or results of
operations of any party and its subsidiaries, taken as a whole, or (ii) the
ability of such party to perform its obligations under this Agreement or the
transactions contemplated by this Agreement, provided that Material Adverse
Effect shall not be deemed to include the impact of (x) changes in Applicable
Law or interpretations thereof by courts
4
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or Governmental Authorities, (y) changes in GAAP, and (z) the Exchange and
compliance with the provisions of this Agreement on the operating performance of
the parties or actions taken pursuant to or required by this Agreement.
1.1.29. "Medicaid" shall mean any state program pursuant to which health
care providers are paid or reimbursed for care given or goods afforded to
indigent persons and administered pursuant to a plan approved by the Health Care
Financing Administration under Title XIX of the Social Security Act.
1.1.30. "Medicare" shall mean any medical program established under Title
XVIII of the Social Security Act and administered by the Health Care Financing
Administration.
1.1.31. "MidSouth" shall mean MidSouth Practice Management, Inc., a
Tennessee corporation.
1.1.32. "Misdirected Payments" means payments made by an Account Debtor to
a location other than as provided in the Notification Letter or that the
Practice otherwise receives on Purchased Accounts Receivable under the terms of
this Agreement.
1.1.33. "Monthly Adjustments" shall mean adjustments to the estimated
payments that are made to reconcile actual amounts due under Section 6.1; these
adjustments are made by the end of the month in which the estimated payments are
made pursuant to Section 6.1(b).
1.1.34. "Necessary Authorizations" shall mean with respect to the Practice,
all certificates of need, authorizations, certificates, consents, approvals,
permits, licenses, notices, accreditations and exemptions, filings and
registrations, and reports required by Applicable Law, which are necessary or
reasonably useful to the lawful ownership and operation of the Practice's
business.
1.1.35. "Non-Governmental Lockbox Account" shall mean the account
established by Practice with the Collecting Bank into which all proceeds from
the Purchased Accounts Receivable, under which a third party is the Account
Debtor (other than Governmental Receivables), are remitted.
1.1.36. "Non-Governmental Receivables" shall mean Accounts Receivable which
are not Governmental Receivables.
1.1.37. "Notification Letter" shall mean a written notification, in a form
acceptable to counsel for MidSouth, from the Practice to third party payors
informing such third party payors that all proceeds due under the Practice's
Accounts are to be remitted to the Non-Governmental Lockbox Account or the
Governmental Lockbox Account, as the case may be.
1.1.38. "Offsets" shall mean any adjustments for uncollectible Accounts,
discounts, Medicare and Medicaid disallowances, worker's compensation,
employee/dependent health care benefit
5
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programs, professional courtesies and other activities of the Practice that do
not generate a collectible fee and excise taxes assessed against MidSouth's or
the Practice's gross revenue by the State (it being understood that excise taxes
assessed against the fees paid to MidSouth hereunder as well as Practice Revenue
generated by MidSouth shall be included in Monthly and Yearly Adjustments).
1.1.39. "Opening Balance Sheet" shall mean the balance sheet of MidSouth
immediately after the Effective Time of the Exchange (as defined in the Exchange
Agreement) prepared in accordance with GAAP (except for the absence of certain
note information).
1.1.40. "Other Revenue" shall mean all fees or revenue actually recorded
each month (net of Monthly and Yearly Adjustments) by or on behalf of the
Practice or MidSouth which are not the Practice Revenues or Managed Care
Payments, including, but not limited to, global and technical fees from medical
ancillary services, and fees for medical management and utilization, but
excluding (1) rental income on any leases or subleases between MidSouth and the
Practice; (2) any investment income on funds of the Practice segregated from the
bank accounts referred to herein and available to the Practice; and (3) all
Excluded Revenue.
1.1.41. "Physician Employees" shall mean those individuals (A) who are
employees or Members of the Practice, on a full-time or part-time basis or are
otherwise under contract with the Practice to provide professional services to
patients of the Practice, (B) whose services are billed or billable by and in
the name of the Practice and (C) who are duly licensed as physicians to provide
professional medical services in the State.
1.1.42. "Physician Extender Employees" shall mean (i) nurse anesthetists,
physician assistants, nurse practitioners, podiatrists, psychologists and other
positions, examples of which are set forth on Schedule 1.1.42, and (ii) any
position that generates a professional charge and whose services are billed or
billable by and in the name of the Practice and who are duly licensed to provide
professional medical services in the State.
1.1.43. "Physician Members" shall mean those physicians who are members of
the Practice.
1.1.44. "PPO" shall mean preferred provider organization; a joint venture
by providers to obtain contracts with payors by agreeing to give the payor a
discount in order to participate in the payor's plan.
1.1.45. "Practice" shall mean Memphis Children's Clinic, PLLC, a Tennessee
professional limited liability company.
1.1.46. "Practice Account" shall mean that bank account maintained by the
Practice for payment of Excluded Expenses and the receipt and disbursal of the
Purchase Price.
1.1.47. "Practice Expenses" shall be determined using GAAP as set forth on
Schedule 1.1.47.
6
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1.1.48. "Practice Facilities" shall mean the properties and facilities
owned by the Practice as described in Schedule 1.1.48 and properties and
facilities acquired by the Practice and managed by MidSouth.
1.1.49. "Practice Net Revenue" shall mean Practice Revenue less Practice
Expenses.
1.1.50. "Practice Revenues" shall mean all fees actually recorded each
month (net of Monthly and Yearly Adjustments), by or on behalf of the Practice
as a result of professional medical services personally furnished to patients by
Physician Employees or other professionals under control of the Practice and
other fees or income generated in their capacity as professionals, whether
rendered in an inpatient or outpatient setting, including but not limited to
Managed Care Payments and payments from other Third Party Payor Programs.
1.1.51. "Purchase Price" shall mean the face amount of the Accounts
Receivable recorded each month, less any non-allowed contractual adjustments and
net of any reserve for uncollectible Accounts Receivable based on the most
recently completed six (6) month historical experience of the Practice or the
predecessor of the Practice, calculated on a rolling basis as the case may be,
as determined by MidSouth.
1.1.52. "Purchased Accounts Receivable" shall mean all Accounts Receivable
of the Practice purchased by MidSouth pursuant to this Agreement.
1.1.53. "Restricted Area" shall mean a thirty (30) mile radius from any
Practice Facility.
1.1.54. "Service Fee" shall mean the monthly fee equal to ten percent
(10%) of the Practice Net Revenue plus the amount of the Practice Expenses paid
by MidSouth; the calculation of the Service Fees shall not include Excluded
Revenues or Excluded Expenses.
1.1.55. "Settlement Date" shall mean the day MidSouth pays for the
Purchased Accounts Receivable which shall not be later than the tenth (10th) day
of each month following the month in which the Account Receivable is created.
1.1.56. "State" shall mean the State of Tennessee.
1.1.57. "Technical Employees" shall mean individuals who provide billable
services on behalf of the Practice and are employees of the Practice.
1.1.58. "Term" shall mean the period from which this Agreement is commenced
to June 30, 2022, unless terminated earlier pursuant to the terms of this
Agreement.
1.1.59. "Third Party Payor Programs" shall mean Medicare, Medicaid,
CHAMPUS, insurance provided by BlueCross and/or Blue Shield, managed care plans,
and any other private health care insurance programs and employee assistance
programs as well as any future similar programs.
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1.1.60. "Yearly Adjustments" shall mean final adjustments made to reconcile
estimated payments made pursuant to Section 6.1(b), Monthly Adjustments, and
actual Service Fees owed for the year.
SECTION 1.2. EFFECT OF DEFINITIONS. The definitions set forth in Section
---------------------
1.1 above or referenced herein shall apply equally to the singular, plural,
adjectival, adverbial, and other forms of any of the words and phrases defined
regardless of whether they are capitalized.
SECTION 1.3. THIS AGREEMENT. This Agreement consists of the information set
--------------
forth herein, the schedules attached hereto and the certificates, documents and
other instruments required to be delivered hereunder and any reference to this
Agreement shall refer to all of the constituents. The date first set forth above
shall be deemed to be the date hereof for all purposes.
SECTION 1.4. CASE AND GENDER. In this Agreement words in the singular
---------------
number include the plural, and words in the plural number include the singular;
and words of the masculine gender include the feminine and the neuter, and when
the sense so indicates words of the neuter gender may refer to any gender.
ARTICLE 2. RELATIONSHIP OF THE PARTIES.
---------------------------
SECTION 2.1. INDEPENDENT RELATIONSHIP. The Practice, the Physician Members
------------------------
and MidSouth intend to act and perform as independent contractors, and the
provisions hereof are not intended to create any partnership, joint venture,
agency or employment relationship between the parties. Notwithstanding the
authority granted to MidSouth herein, MidSouth, the Practice, and the Physician
Members agree that the Practice and the Physician Employees shall retain all
authority to direct the medical, professional, and ethical aspects of the
Practice and the Physician Employees' medical practices. Each party shall be
solely responsible and shall comply with all Applicable Law pertaining to
employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes applicable to that party, including the
payment of any applicable payment for employees; it being understood that
MidSouth shall provide services to the Practice to assist the Practice in
satisfying its obligations described above.
SECTION 2.2. RESPONSIBILITIES OF THE PARTIES. As more specifically set
-------------------------------
forth herein, MidSouth shall manage Practice's offices and facilities and
provide the Practice with offices and facilities, equipment, supplies, certain
support personnel, management, financial and advisory services. As more
specifically set forth herein, the Practice shall be responsible for the
recruitment and hiring of physicians and all issues related to the professional
practice of medicine, medical practice patterns and documentation thereof.
Notwithstanding anything herein to the contrary, no "designated health service,"
as defined in 42 U.S.C. (S)1395nn, including any amendment or successor thereto,
shall be provided by MidSouth under this Agreement. MidSouth shall neither
exercise control over nor interfere with any physician-patient relationship,
which shall be maintained strictly between the physicians of the Practice and
their patients.
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SECTION 2.3. PRACTICE MATTERS. Matters involving the internal agreements
----------------
and finances of the Practice, including the disposition of professional fee
income, tax planning, and investment planning (and expenses relating solely to
these internal business matters) shall remain the sole responsibility of the
Practice.
SECTION 2.4. PATIENT REFERRALS. The parties agree that the benefits to the
-----------------
Practice and Physician Members hereunder do not require, are not payment for,
and are not in any way contingent upon the admission, referral or any other
arrangement for the provision of any item or service offered by MidSouth to any
of the Practice's patients.
SECTION 2.5. PROFESSIONAL JUDGMENT. Each of the parties acknowledges and
---------------------
agrees that the terms and conditions of this Agreement pertain to and control
solely the business and financial relationship between and among the parties and
do not pertain to and do not control the professional and clinical relationship
between and among the Practice, the Physician Employees, the Practice's
employees and the Practice's patients. Nothing in this Agreement shall be
construed to alter or in any way affect the legal, ethical, and professional
relationship between and among the Practice, Physician Employees and the
Practice's patients, nor shall anything contained in this Agreement abrogate any
right, privilege, or obligation arising out of or applicable to the physician-
patient relationship.
ARTICLE 3. ADMINISTRATIVE AND MANAGEMENT SERVICES OF MIDSOUTH.
--------------------------------------------------
SECTION 3.1. MANAGEMENT SERVICES AND ADMINISTRATION.
--------------------------------------
(a) General Authority. The Practice hereby appoints MidSouth and MidSouth
-----------------
shall serve as the exclusive manager and administrator of all daily business
functions of the Practice. The Practice agrees that the purpose and intent of
this Agreement is to relieve the Practice and Physician Employees to the maximum
extent possible of the administrative, accounting, personnel and other business
aspects of their practice, with MidSouth assuming responsibility and being given
all necessary authority to perform these functions including, without
limitation, the authority to incur obligations in the name of the Practice to be
paid by Practice as Practice Expenses in accordance with the policies and
procedures adopted by the Management Team. MidSouth shall have the sole
authority to perform the administrative, accounting and business aspects of the
Practice as set forth herein and pursuant to the policies and procedures adopted
by the Management Team. The Practice hereby appoints MidSouth to be its true and
lawful attorney-in-fact to incur all expenses and to perform all functions in
the name and on behalf of the Practice. MidSouth will have no authority,
directly or indirectly, to perform, and will not perform, any medical function.
MidSouth may, however, advise the Practice to the relationship between the
Practice's performance of medical functions and the overall administrative and
business functioning of the Practice. To the extent that a MidSouth employee
assists Physician Employees in performing medical functions, such employees
shall be subject to the professional direction and supervision of Physician
Employees and in the performance of such medical functions shall not be subject
to any direction or control by, or liability to, MidSouth, except as may be
specifically authorized in writing by MidSouth.
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(b)(l) Billing and Collecting. MidSouth shall, on behalf of the Practice,
----------------------
bill patients and Third Party Payor Programs and collect the fees for medical
services rendered by the Practice regardless of when or where such services are
rendered. All billings for Technical Employees' and Physician Employees'
services shall be made in the name of and under the provider number of the
Practice. The Practice hereby appoints MidSouth for the term hereof to be its
true and lawful attorney-in-fact, for the following purposes: (i) to bill
patients in the Practice's name and on its behalf; (ii) to collect Accounts
Receivable resulting from billing in the Practice's name and on its behalf;
(iii) to receive payments and prepayments from Third Party Payor Programs; (iv)
to take possession of and endorse in the name of the Practice (and/or in the
name of an individual physician, the payment intended for purpose of payment of
a bill) any notes, checks, money orders, insurance payments and other
instruments received in payment of Accounts Receivable; and (v) at the direction
of the Management Team to initiate the institution of legal proceedings in the
name of the Practice to collect any Accounts Receivable and monies owed to the
Practice, to enforce the rights of the Practice as creditors under any Contract
or in connection with the rendering of any service, and to contest adjustments
and denials by governmental agencies (or its fiscal intermediaries) as third
party payors. All adjustments made for uncollectible accounts, professional
courtesies and other activities that do not generate a collectible fee shall be
performed in a reasonable and consistent manner approved by the Management Team.
(b)(2) Bank Accounts. All cash, checks and credit card purchases paid at
-------------
the time of the delivery of medical services by the Practice shall be remitted
to the Practice Account. All payments received by the Practice with respect to
the Purchased Accounts Receivable shall be deposited into the respective
Governmental Lockbox Account or Non-Governmental Lockbox Account. Proceeds
collected in the Governmental Lockbox Account and the Non-Governmental Lockbox
Account shall be automatically swept daily into the Disbursement Account.
MidSouth will transfer monies from the Disbursement Account to the Practice
Account for the payment of the Purchase Price. On the Settlement Date pursuant
to Article VI hereof, Practice shall transfer monies from the Practice Account
to the Disbursement Account to pay the Service Fee due to MidSouth for all cash,
checks, and credit card purchases and other payments received (i.e., prepay
capitation fees) prior to the time of delivery of medical services. The Practice
shall establish and maintain a separate account for the Practice, which is the
Practice Account. The Practice Account shall be controlled solely by the
Practice. The parties acknowledge and agree that in the event that the mix
between Accounts Receivable and non-Accounts Receivable receipts is altered to
the point where proceeds from Accounts Receivable are not sufficient to pay for
the Service Fee, the parties will establish mutually agreeable terms to allow
MidSouth access to the Practice Account to pay the Service Fee. The Practice
shall use the monies in the Practice Account to pay all the Excluded Expenses.
MidSouth will transfer monies to the Practice Account to remit, on a monthly
basis, the Purchase Price for the Purchased Accounts Receivables. The
calculation of the Purchase Price will be made so that the Practice will receive
an amount equal to the face amount of the Accounts Receivable recorded each
month, less any non-allowed contractual and instruments and net of any reserve
for uncollectible Account Receivable based on the most recently completed six
(6) month historical experience of the Practice or the predecessor of the
Practice calculated on a rolling basis, as the case may be, as determined by
MidSouth. MidSouth will provide to the Practice a full accounting and
reconciliation of the Governmental Lockbox Account and the Non-Governmental
Lockbox Account on a monthly
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basis, and, upon the reasonable request of the Practice, MidSouth shall supply
to the Practice at all other times, as the Practice shall deem necessary, an
accounting and reconciliation of the Governmental Lockbox Account and the Non-
Governmental Lockbox Account.
(c) Files and Records. MidSouth shall design, supervise and maintain, at
-----------------
the premises of the Practice, all files and records relating to the operation of
the Practice, including, but not limited to, accounting, billing, patient
medical records, and collection records. Patient medical records shall remain
the property of the Practice and shall be located at the premises of the
Practice so the medical records are readily accessible for patient care. The
management of all files and records shall comply with the Applicable Law. The
Physician Employees shall have the obligation to oversee the preparation and
maintenance of patient medical records, and to provide any medical information
as shall be necessary and appropriate to record the Practice's clinical function
and to sustain and ensure the availability to Third Party Payor Program
reimbursement for services rendered. MidSouth shall use its reasonable efforts
to preserve the confidentiality of patient medical records and use information
contained in the records only for the limited purpose necessary to perform the
services set forth herein.
(d) Miscellaneous Services. MidSouth shall arrange for necessary clerical,
----------------------
accounting, bookkeeping and computer services, printing, postage and copier
services, medical transcribing services and any other ordinary, necessary or
appropriate service for the operation of the Practice, all of which shall be
Practice Expenses.
(e) Marketing. Subject to approval by the Management Team, MidSouth shall
---------
supervise the design and implementation of an appropriate marketing program on
behalf of the Practice, with appropriate emphasis on public awareness of the
availability of the services of the Practice. The costs of any marketing
services shall be a Practice Expense. The marketing program shall be conducted
in compliance with Applicable Law, regulations and applicable canons or
principles of professional ethics governing the Physician Employees or Physician
Extender Employees.
(f) Tax Returns. MidSouth shall provide of the date necessary for the
-----------
Practice to prepare its annual federal and state income and general excise tax
returns and upon the request of the Practice shall arrange for the preparation
of all returns. The cost of preparing the data and tax returns shall be a
Practice Expense. MidSouth shall have no responsibility for the payment of the
income taxes and the Practice's income taxes shall not be a Practice Expense.
(g) Recruitment of Physicians. Subject to the provisions of Section 4.6.
-------------------------
MidSouth shall assist the Practice in recruiting additional physicians, carrying
out all administrative functions as may be appropriate, including, but not
limited to, advertising for and identifying potential candidates, checking
credentials, and arranging interviews; provided, however, the Practice shall
interview and make the ultimate decision as to the suitability of any physician
to become associated with the Practice. All physicians recruited by MidSouth and
accepted by the Practice shall be the sole employees of the Practice, to the
extent the physicians are hired as employees. Any expenses incurred in the
recruitment of physicians, including, but not limited to, employment agency
fees,
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relocation and interviewing expenses shall be budgeted as a Practice Expense and
shall be payable by the Practice.
(h) Managed Care Contracts. MidSouth shall negotiate and administer all
----------------------
managed care Contracts on behalf of the Practice and shall consult with the
Practice on all professional or clinical matters relating thereto. The Practice,
at its discretion, shall have the right to enter into or reject such contracts
negotiated by MidSouth. Such contracts shall be and will remain the property of
the Practice.
(i) Legal and Accounting Services. Subject to the provisions of Sections
-----------------------------
3.3 and 3.l(f), MidSouth shall arrange for legal and accounting services
related to operations of the Practice, as approved by the Management Team,
incurred in the ordinary course of business, including the attorneys' fees and
other costs of enforcing any physician employment agreement containing
restrictive covenants and attorneys' fees and other costs and expenses of
litigation, arbitration or other proceedings for malpractice suits against the
Practice and its personnel to the extent the fees, costs and expenses are not
covered by insurance, provided the services shall be approved in advance by the
Management Team Chief Executive. The legal and accounting services expenses
shall be Practice Expenses.
(j) Maintenance. MidSouth shall supervise the proper cleanliness of the
-----------
premises of the Practice Facilities, and maintenance and cleanliness of the
equipment, furniture and furnishings located upon the premises of the Practice,
which shall be a Practice Expense.
(k) Licensing. MidSouth shall pay all professional licensure fees and board
---------
certification fees of Physician Employees and Physician Extender Employees
associated with the Practice, and governmental filings for any and all licenses
and certifications for the Practice, all of which shall be a Practice Expense.
(l) Reports. MidSouth shall supervise the preparation and filing of all
-------
Medicare cost reports and other governmental reports, which shall be a Practice
Expense.
(m) Insurance. MidSouth shall negotiate for the insurance provided for in
---------
Section 9.1. Premiums and deductibles with respect to the insurance policies
shall be a Practice Expense.
SECTION 3.2. BUDGETS AND FINANCES. MidSouth shall prepare annual capital
--------------------
and operating budgets (the "Budgets") reflecting in reasonable detail the
anticipated revenue and expenses, and sources and uses of capital for growth in
the Practice and medical services rendered at the Practice. Said budgets shall
reflect amounts, if any, allocated for capital purchases, improvements,
expansion and any new leasing arrangements. Within sixty (60) days of the date
of this Agreement, MidSouth shall submit a proposed budget to the Management
Team for its approval. In subsequent years, not later than thirty (30) days
prior to the end of the fiscal year, MidSouth shall submit a budget for the
upcoming fiscal year to the Management Team. In the event that the Management
Team does not approve the budget submitted by MidSouth, then the budget for the
"unapproved" year shall be the budget for the most recent agreed year adjusted
on an item-by-item basis by the all cities consumer
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<PAGE>
price index with the items of the most recent agreed budget as the base year.
The budget shall be binding upon MidSouth and the Practice. MidSouth shall
consult with the Practice and the Management Team in the preparation of all
budgets. MidSouth and the Practice acknowledge and agree that once a budget has
been approved, neither MidSouth nor the Practice shall make capital expenditures
or incur capital expenses in excess of budgeted amounts without the prior
approval of the Management Team. In addition, neither party shall pay operating
expenses in excess of the budgeted amounts without the approval of the
Management Team.
SECTION 3.3. FINANCIAL STATEMENTS AND AUDITS. MidSouth shall prepare
--------------------------------------------
annual, unaudited financial statements for the operations of MidSouth (the
"Financial Statements") in form and substance satisfactory to MidSouth. At the
Practice's request, MidSouth shall obtain annual financial statements for the
operations of the Practice which shall be audited by a nationally recognized
certified public accounting firm selected by MidSouth, which shall not be a
Practice Expense. The Practice may obtain its own independent audit of the
Practice, at its own expense, which shall not be a Practice Expense. MidSouth
shall prepare monthly unaudited financial statements containing a balance sheet
and statements of income from the Practice operations and shall deliver the
statements to the Management Team within thirty (30) days after the close of
each calendar month.
SECTION 3.4. INVENTORY AND SUPPLIES. MidSouth shall order and purchase all
----------------------
inventory, supplies, and other ordinary, necessary or appropriate materials
reasonably necessary for the operation of the Practice which are requested by
the Practice and are within the Budget for the applicable fiscal year. Items
ordered hereunder shall be purchased by the Practice, which shall be a Practice
Expense. MidSouth shall not purchase inventory, goods or supplies from any
affiliate of MidSouth without approval of the Management Team after full
disclosure of all terms to the Management Team.
SECTION 3.5. MANAGEMENT TEAM CHIEF EXECUTIVE. Subject to the provisions of
-------------------------------
Section 8.2.10, MidSouth shall hire and appoint the Management Team
Chief Executive who shall serve as an employee of MidSouth and who shall manage
and administer all of the day-to-day business functions of the Practice.
MidSouth shall determine the salary and fringe benefits of the Management Team
Chief Executive. At the direction, supervision and control of MidSouth, the
Management Team Chief Executive, subject to the terms of this Agreement, shall
implement the policies established by the Management Team and shall generally
perform the duties and have the responsibilities of a chief executive officer.
SECTION 3.6. PERSONNEL.
---------
3.6.1. Physician Employees and Physician Extender Employees shall be
employees of the Practice, and any and all salaries, benefits, (including
contributions under any employee benefits plan), severance benefits and other
direct or indirect costs of all employees shall be payable by the Practice,
which shall not be a Practice Expense. Except that MidSouth shall advance to the
Practice the amount necessary to compensate the Physician Extender Employees and
the Physician Employees, who are not Physician Members, for the first month of
the term of this Agreement in an
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amount equal to the regular payroll payments made to such Physician Extender
Employees and Physician Employees, who are not Physician Members. The sum
advanced shall be divided into twelve (12) equal parts and deducted from
Purchase Price paid to Practice each month until the advance is repaid. The
advance shall not be a Practice Expense.
3.6.2. Subject to the provisions of Article 2, all other personnel
necessary to carry out the duties of MidSouth hereunder or reasonably necessary
for the conduct of the Practice shall be employees of MidSouth and shall be
under the supervision of the Management Team Chief Executive or his designee.
MidSouth shall determine the salaries and fringe benefits of all personnel,
within the budget policies and procedures adopted by the Management Team, the
cost of which will be payable by the Practice as a Practice Expense. Personnel
performing patient care services shall be subject to the professional
supervision of the Physician Employees. If the Practice is dissatisfied with the
services of any person, the Practice shall consult with MidSouth. MidSouth shall
in good faith determine whether the performance of that employee could be
brought to acceptable levels through counsel and assistance, or whether the
employee should be terminated.
SECTION 3.7. CAPITAL EXPENDITURES AND LOANS. All capital expenditures shall
------------------------------
be approved by the Management Team. MidSouth shall determine whether approved
capital expenditures shall be funded by MidSouth through borrowings, leases,
loans, or other financing methods through independent third-party financial
institutions, or investments by MidSouth for reinvestment.
SECTION 3.8. COMPLIANCE WITH APPLICABLE LAW. MidSouth shall comply with all
------------------------------
Applicable Law, including, but not limited to, federal, state and local laws,
regulations and restrictions in the conduct of its obligations under this
Agreement affecting billing and reimbursement, referrals, patient privacy and
confidentiality, management of hazardous materials and infectious waste.
MidSouth shall implement procedures designed to detect and deter potential
violations of Applicable Law including (i) distributing annually a set of
guidelines for Physician Employees and Physician Extender Employees regarding
proper compliance with all Applicable Law; (ii) establishing a "Compliance
Committee" with representatives from the Management Team and MidSouth; and (iii)
engaging qualified professional advisors to review operations and acquisitions
by MidSouth or its subsidiaries. In the event that changes in such laws occur,
resulting in a need for modification of the manner in which MidSouth operates,
MidSouth shall make such appropriate modifications to maintain compliance with
such laws.
SECTION 3.9. QUALITY ASSURANCE. MidSouth shall assist the Practice in
-----------------
fulfilling its obligations to its patients to maintain a professionally
recognized quality of medical and professional services.
SECTION 3.10. ANCILLARY SERVICES. MidSouth shall operate ancillary services
------------------
as approved by the Management Team upon the receipt of an opinion from counsel
that the proposed ancillary service does not violate any Applicable Law,
including, but not limited to, 42 U.S.C. (S)1395nn ("Stark I and Stark II").
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SECTION 3.11. NEW MEDICAL SERVICES AND ADDITIONAL PRACTICE OFFICES. If the
----------------------------------------------------
Practice desires to have a new ancillary service provided at any of the
Practice's offices or desires to establish a new Practice office, a proposal of
such ancillary service or the establishment of such new office shall be
submitted to the Management Team. Should the Management Team approve the
provision of such new ancillary service or the establishment of such new
Practice office, MidSouth at its option, shall have the exclusive right to: (i)
provide services necessary to support the Practice in the Practice's delivery of
such new ancillary services at the Practice office or new Practice office, as
applicable, and (ii) invest and have ownership in any new ancillary services for
which facility fees may be generated; provided, however, if the type of service
is an ancillary service that would be improper under any Applicable Law for
MidSouth to offer to the Practice's patients, then MidSouth shall not have the
option to provide such service. Should MidSouth decline to provide the necessary
support service or ownership for the new ancillary service or new Practice
office, the Practice shall be entitled to perform such service at the Practice's
own expense and the revenue therefrom shall not be included in the calculation
of MidSouth's Service Fees under this Agreement.
SECTION 3.12. MANNER OF PERFORMANCE. MidSouth shall provide (or cause to be
---------------------
provided) to the Practice the services set forth above. MidSouth shall
efficiently manage the Practice and perform its duties hereunder in the manner
as it deems appropriate, exercising reasonable judgment, to meet the daily
requirements of the operations of the Practice in accordance with the provisions
of this Agreement and the general standards approved by the Management Team. The
Practice shall not act in a manner which would prevent MidSouth from efficiently
managing the Practice.
ARTICLE 4. OBLIGATIONS OF THE PRACTICE.
---------------------------
In providing its professional services to patients, the Practice shall
have the following obligations:
SECTION 4.1. PHYSICIANS. The Practice shall notify MidSouth, upon execution
----------
of this Agreement, of the identities of the Physician Employees and their
respective areas of practice. A list of the Physician Employees and the practice
are shall be attached hereto as Schedule 4.1. The Practice shall enter into
physician employment agreements with all Physician Employees. Any new employment
agreements shall be reviewed prior to execution, and MidSouth shall promptly be
provided with copies of the executed employment agreements and any revisions or
amendments thereto. All Physician Employees shall be licensed in all states in
which the Physician Employee practices.
SECTION 4.2. PROVISION OF MEDICAL SERVICES. The Practice shall perform, or
-----------------------------
subcontract to perform as necessary, all medically necessary services for
patients, including managed care patients, in accordance with the terms of
managed care agreements and subject to the utilization review protocols. All
subcontracts shall be reviewed by MidSouth prior to their execution.
SECTION 4.3. PROFESSIONAL STANDARDS. The Practice and its Physician
----------------------
Employees shall provide the professional services to patients described in
Section 4.2. above in compliance at all
15
<PAGE>
times with ethical standards, Applicable Law and regulations relating to the
Practice's professional practice. The Practice shall also make all reports and
inquiries to any national practitioners data bank and/or any state data bank
required by Applicable Law. The Practice shall use its best efforts to determine
that each Physician Employee and Technical Employee associated with the
Practice, who provides medical care to patients of the Practice, is licensed by
the state or states in which he or she renders professional services. If any
disciplinary or medical malpractice action is initiated against any such
individual, the Practice shall immediately provide MidSouth with copies of any
third-party documents served on the Practice or letters delivered to the
Practice (not otherwise privileged). The information shall be deemed
confidential information and shall, notwithstanding disclosure, remain subject
to all privileges and immunities provided by Applicable Law. MidSouth shall take
all steps reasonably necessary to assure that their privileges and immunities
remain intact. Pursuant to Section 4.l0, the Practice shall carry out a
program to monitor the quality of medical care provided by the Practice.
SECTION 4.4. BILLING INFORMATION. The Practice shall promptly provide
-------------------
MidSouth with all billing information requested by MidSouth to enable MidSouth
to bill and collect the Practice's charges, and the Practice shall procure
consents to assignments and other approvals and documents necessary to enable
MidSouth to obtain payment or reimbursement from third party payors and/or
patients.
SECTION 4.5. MEDICAL PRACTICE. The Practice shall use and occupy the
----------------
Practice Facilities exclusively for the practice of medicine and shall comply
with all Applicable Law and standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Practice Facilities shall be conducted solely by physicians or medical
practitioner associated with the Practice, and no other physician or medical
practitioner shall be permitted to use or occupy the Practice Facilities without
the prior written consent of MidSouth.
SECTION 4.6. ADDITIONAL PHYSICIANS. The Practice shall use its best efforts
---------------------
to provide any additional physicians required by the level of patient activity
anticipated by MidSouth and communicated to the Practice.
SECTION 4.7. UTILIZATION REVIEW; QUALITY ASSURANCE. The Practice shall
-------------------------------------
contractually bind each Physician Employee and Physician Extender Employee to
cooperate with and participate in applicable programs and systems of quality of
care assessment, grievance procedures, peer review and utilization review.
Information developed in the course of physician quality assurance and peer
review activities shall be maintained by the Practice as privileged and
confidential, except where its disclosure is consented to by the Practice or is
required by Applicable Law.
SECTION 4.8. NON-DISCRIMINATION; COMPLIANCE WITH APPLICABLE LAW. All
--------------------------------------------------
employment policies, standards and procedures of the Practice shall be in
accordance with non-discrimination provisions of the Applicable Law. In the
event that any government Contract or regulation requires reports or disclosures
of MidSouth and its contractors, the Practice, upon MidSouth's request, shall
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make, execute and deliver all reports, disclosures or other written information,
guarantees or assurances as may be reasonably requested by MidSouth to assure
timely compliance.
SECTION 4.9. NON-DISCRIMINATORY PATIENT SELECTION AND SERVICE; NON-
-----------------------------------------------------
DISCRIMINATORY PATIENT ASSIGNMENT. No Patient shall be discriminated against in
- ---------------------------------
accordance with Applicable Law.
SECTION 4.10. STANDARDS, ACCREDITATION, SURVEYS AND INSPECTIONS. The
-------------------------------------------------
Practice shall meet all medical practice, licensure and ethical standards, which
are pertinent to its activities or which by Contract it has agreed to abide. The
Practice shall in good faith cooperate with inspections and on-site surveys of
the Practice as may be conducted by governmental agencies, accrediting
organizations or payors. MidSouth shall, to the extent possible, give the
Practice advance notice of the inspections and surveys and schedule the
inspections during reasonable business hours.
SECTION 4.11. CONTRACTS. The Practice, the Physician Employees and the
---------
Physician Extender Employees shall abide by the terms of any Managed Care
Agreements entered into by on behalf of and with the consent of the Practice,
including, without limitation, self-insured, PPO, EPO, HMO and indemnity
agreements.
SECTION 4.12. ORGANIZATION AND AREA OF CARE. The Practice shall comply with
-----------------------------
policies and procedures pertinent to scheduling, billing, reconciliation of
capitation, and other administrative matters relating to the organization of the
non-professional aspects of the delivery of care as may be established, from
time to time, by MidSouth after consultation with the Practice.
SECTION 4.13. RECORDS AND REPORTS. The Practice shall assist MidSouth in
-------------------
maintaining and, where by Applicable Law or legal process require, in divulging
records and information concerning its health care services. The Practice shall
give MidSouth full access to all of its medical and financial records for the
Practice Account.
SECTION 4.14. THE PRACTICE TO PROVIDE NECESSARY BILLING INFORMATION. The
-----------------------------------------------------
Practice agrees to provide MidSouth with all billing information for fee-for-
service and managed care patients, including, but not limited to, the name of
the patient, the date of service, the nature and extent of services provided and
any supporting medical information necessary to obtain payment or reimbursement
for services.
SECTION 4.15. CONTINUING EDUCATION. The Practice shall ensure that all
--------------------
Physician Employees and Physician Extender Employees maintain competence in, and
remain currently well-informed as to recent developments about, their
particular areas of medical practice, interest and specialization. Accordingly,
subject to the Practice at all times providing sufficient physicians to care for
the needs of patients, the Physician Employees and Physician Extender Employees
shall attend seminars, keep current with journals and take other reasonable
steps to remain proficient in their particular specialties. All seminars
necessary to maintain licensure or competence shall be the responsibility of the
Practice and the individual Physician Employees and Physician Extender
Employees. At a minimum, the Practice shall ensure that each Physician Employee
and each
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Physician Extender Employee participates in such continuing medical education as
is necessary for the Physician Employee and each Physician Extender Employee to
remain licensed.
SECTION 4.16. REFERRALS. The Practice and the Physician Employees shall
---------
make referrals to specialists in a manner consistent with (a) pertinent policies
and procedures (which shall be developed in consultation with the Management
Team), (b) the terms and conditions of government programs or managed care
agreements applicable to the care of the patient, and (c) any Applicable Law,
including, but not limited to, Stark I and Stark II, as amended.
SECTION 4.17. PROVIDER NUMBERS. The Practice shall procure and maintain
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medical group provider numbers, including without limitation, Medicare and
Medicaid provider numbers, necessary or appropriate to obtain payment or
reimbursement on the Practice's behalf
ARTICLE 5. FACILITIES OF THE PRACTICE.
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SECTION 5.1. THE PRACTICE FACILITIES. MidSouth agrees to maintain in good
-----------------------
order the properties and facilities owned by the Practice on the date of this
Agreement and/or more fully described in Schedule 1.1.48 attached hereto (the
"Practice Facilities "), and shall pay for lease payments, costs of repairs,
maintenance and improvements, utility (telephone, electric, gas, water)
expenses, normal janitorial services, refuse disposal and all other costs and
expenses reasonably incurred in conducting operations of the Practice during the
term of this Agreement. MidSouth shall use its best efforts to create comparable
properties and facilities if the Practice Facilities are damaged by fire or
other casualty or taken through eminent domain. All of these costs shall be
Practice Expenses; however, the costs of debt service on any real property owned
by the Practice shall not be a Practice Expense. Nothing contained herein is
intended to require MidSouth to provide the foregoing services if the services
are required to be provided by the landlord (without costs) under a lease for a
specific property. The Management Team shall make all determinations regarding
the condition, use and needs for the offices, facilities and improvements. The
Management Team shall determine any changes to the office and facility locations
of the Practice.
SECTION 5.2. RIGHT TO USE PROPERTY. MidSouth shall have access to the
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foregoing facilities and premises of the Practice during the term of this
Agreement, or, with respect to property leased by the Practice, during the term
of any lease or sublease of the premises and any additional premises leased,
subleased or acquired by the Practice during the term of this Agreement. The
Practice shall not enter into any new leases or subleases or agree to amend any
currently existing lease or sublease without the express written consent of the
Management Team. The right to have access to the premises shall not constitute a
lease or sublease of the premises, shall not constitute an assignment of any of
the Practice's rights under existing leases, and shall not be construed as an
assignment or other transfer of any rights of the Practice to its owned property
or any rights under any existing leases.
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ARTICLE 6. COMPENSATION.
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SECTION 6.1. FEES. MidSouth shall be paid as follows:
----
(a) The Practice shall pay to MidSouth a Service Fee equal to ten percent
(10%) of the Practice Net Revenue plus the amount of Practice Expenses incurred
by MidSouth.
(b) The amounts to be paid to MidSouth under this Section 6. l shall be
payable monthly and shall reflect the Service Fee for funds deposited into the
Practice Account, at the time that MidSouth pays the Practice for the Purchased
Accounts Receivable as described in Section 6.2 below. The Practice shall
receive the Purchase Price as defined below, plus other payments received by the
Practice to the extent such payments are not reflected as Accounts Receivable of
the Practice. The amount of the Service Fee payable shall be estimated based
upon the previous month's operating results of the Practice. Monthly Adjustments
to the estimated payments shall be made to reconcile actual amounts due under
this Section 6.1 or the Purchase Price payable under Section 6.2 or the Purchase
Price payable under Section 6.2 for the preceding month, by the end of the
following month during each calendar year ("Monthly Adjustments"). Upon
preparation of annual financial statements as provided in Section 3.3 hereof,
final adjustments to the Service Fees due under this Section 6.1 for the
preceding year or the Purchase Price payable under Section 6.2 shall be made and
any additional payments owing to MidSouth or the Practice shall then be made to
the party owed the additional sum of money ("Yearly Adjustments"). The Yearly
Adjustments and any amount owed shall be calculated and paid within ninety (90)
days following the close of MidSouth's fiscal year. The Physician Members
acknowledge and agree that they are parties, individually, tO this Agreement and
that if the Practice fails to pay the Service Fees herein described, MidSouth
shall have the right to collect the Service Fees from the Physician Members. The
Management Team shall establish the relative amount of the Service Fee
applicable to each Physician Member. Parties agree tO cooperate in good faith
and on a timely basis to take all necessary actions to transfer all monies due
to the other party on the Settlement Date, or through the Monthly Adjustments
or Yearly Adjustments as necessary.
SECTION 6.2. PURCHASE OF ACCOUNTS RECEIVABLE.
-------------------------------
Section 6.2.l. On the date hereof, MidSouth has purchased the Accounts
Receivable set forth on Schedule 6.2.1 attached hereto (the "Initial Purchased
Accounts Receivable"). The Initial Purchased Accounts Receivable shall be billed
and collected in accordance with the provisions of the Agreement. During the
Term of this Agreement, the Practice hereby agrees to sell and assign to
MidSouth and MidSouth agrees to purchase, all of the Practice's Accounts
Receivable generated each month ("Purchased Accounts Receivable"). Purchased
Accounts Receivable shall not include, and MidSouth shall not purchase, any
cash, checks or credit card receivables.
Section 6.2.2. The purchase price for the Purchased Accounts Receivable
(the "Purchase Price") will be equal to the face amount of the Accounts
Receivable recorded each month in a final billable form, less (i) any non-
allowed contractual adjustments imposed by Third Party Payors
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Program, and (ii) any reserve for uncollectible Accounts Receivable. The
Purchase Price will be estimated each month to take into account contractual
adjustments and uncollectible Accounts Receivable based on the most recently
completed six (6) month historical experience of the Practice or the predecessor
of the Practice, calculated on a rolling basis, as determined by MidSouth. It is
the intent of the parties that the Purchase Price reflect the actual net
realizable value of the Accounts Receivable.
Section 6.2.3. The Practice will sell all Accounts Receivable to MidSouth
and each purchase will be deemed to be made on the day after which the Accounts
Receivable are created. MidSouth shall pay the estimated Purchase Price for the
Purchased Accounts Receivable no later than the tenth (lOth) day of each month
following the month in which the Purchased Accounts Receivable are created (the
"Settlement Date"). MidSouth and the Practice will determine the actual Purchase
Price based on the actual amount realized from the Purchased Accounts Receivable
on an annual basis as set forth in Section 6.1(b). MidSouth shall pay the
Practice for all Purchased Accounts Receivable by check, wire transfer or
intrabank transfer to the Practice Account. The purchase of Accounts Receivable
shall be evidenced by the Practice sending MidSouth (i) a copy of each invoice
with respect to each third-party payor on the Purchased Accounts Receivable; and
(ii) any other information or documentation (including all required Uniform
Commercial Code ("UCC") releases or financing statements) MidSouth may
reasonably need to identify the Purchased Accounts Receivable and obtain payment
from the Account Debtors; provided that the failure to send any documentation
shall not affect the obligation of the Practice to sell the Purchased Accounts
Receivable or MidSouth to purchase the Purchased Accounts Receivable. As
consideration for the acquisition of the Purchased Accounts Receivable by
MidSouth pursuant to this Section 6.2. MidSouth promises to pay and shall be
obligated to pay the Purchase Price for the Purchased Accounts Receivable at the
time and in the manner provided above. To the extent permissible by Applicable
Law, the Practice will be deemed to have sold to MidSouth all of the Practice's
right, title and interest in the Purchased Accounts Receivable and in any
proceeds thereof, and MidSouth will be the sole and absolute owner thereof and
will own all of the Practice's rights and remedies represented by the Purchased
Accounts Receivable (including, without limitation, rights to payment from the
respective Account Debtors on the Purchased Accounts Receivable), and MidSouth
will have obtained all of the Practice's rights under all guarantees,
assignments and securities with respect to all of the Purchased Accounts
Receivable.
Section 6.2.4. MidSouth hereby grants the Practice a subordinated security
interest in the amount necessary to fund MidSouth's obligation to pay the
Purchase Price for the Purchased Accounts Receivable which will be transferred
on a daily basis pursuant to Section 6.2.3. until the Purchase Price is paid.
Practice's security interest shall only be subordinate to the Lender's security
interest in the Purchased Accounts Receivable. MidSouth shall execute any and
all documentation necessary to evidence Practice's subordinated security
interest in the Purchased Account's Receivable until the Purchase Price has been
paid.
Section 6.2.5. Upon expiration or termination of this Agreement for any
reason; (i) all Accounts Receivable purchased by MidSouth shall remain the
property of MidSouth; and (ii) all
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Accounts Receivable purchased and not paid for at the termination or expiration
of this Agreement shall be paid for by the 10th day of the following month for
all Purchased Accounts Receivable as of the date of the expiration or
termination date, less the amount of any Service Fees earned by MidSouth at the
termination or expiration pursuant to Section 6.1 of this Agreement.
Section 6.2.6. In connection with the initial purchase of Accounts
Receivable by MidSouth and pursuant to this Agreement, the Practice will execute
all financing statements or amendments under the UCC (naming MidSouth as secured
party and Lender as assignee) as MidSouth may reasonably request with respect to
any Purchased Accounts Receivable.
Section 6.2.7. The Practice agrees to cooperate with MidSouth in the
collection of the Purchased Accounts Receivable transferred pursuant to Section
6.2. At the option of and upon the request of MidSouth, the Practice shall
execute any and all documentation necessary for the transfer of amounts
constituting Purchased Accounts Receivables and/or the establishment of the
Lockbox Agreement as follows:
(a) COLLECTION OF GOVERNMENTAL RECEIVABLES. With respect to payments on
--------------------------------------
Governmental Receivables, at the request and option of MidSouth, the Practice
agrees that the following procedures shall apply:
(i) The Practice shall enter into a Lockbox Agreement applicable to
Governmental Receivables in a form acceptable to counsel for MidSouth and in a
form reasonably acceptable to the Practice which shall establish a Governmental
Lockbox Account. The Governmental Lockbox Account shall be an account in the
name of the Practice. All payments with respect to the Practice's Governmental
Receivables are to be made directly to the Governmental Lockbox Account. In the
event MidSouth exercises this option, the Practice shall instruct each Account
Debtor with respect to the Practice's Governmental Receivables to remit all such
payments directly to such Governmental Lockbox Account pursuant to a
Notification Letter. In addition, the Practice shall attach written instructions
to each invoice representing such Governmental Receivables generated subsequent
to the date of this Agreement which will instruct such third-party payor or
Account Debtor that payment under such invoice is to be paid to the Governmental
Lockbox Account. The Practice agrees that it shall not deposit any funds other
than payments on Governmental Receivables into, nor make any withdrawals from,
the Governmental Lockbox Account without the prior written consent of MidSouth.
The Practice further agrees that it shall not during the term of this Agreement
terminate, modify or amend in any manner the Lockbox Agreement applicable to the
Governmental Lockbox Account.
(ii) In accordance with the Lockbox Agreement pertaining to Governmental
Receivables, the Practice shall instruct the Collecting Bank to transfer
automatically all amounts deposited in Governmental Lockbox Account constituting
good funds to the Disbursement Account in accordance with Section 3.l(b)(2).
The Practice shall have no right or interest in the Disbursement Account. The
Practice shall not, so long as this Agreement has not been terminated pursuant
to Section 10.3 or so long as any Purchased Accounts Receivable remains
outstanding, change or cancel such
21
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automatic transfer order at any time, or, without the prior written consent of
MidSouth, change either the identity of Governmental Lockbox Account or the
instructions to each Account Debtor on the related Governmental Receivable
regarding making payments to such account. Any such action shall be considered a
breach of this Agreement for which MidSouth shall be entitled to all remedies at
Applicable Law and in equity, including obtaining an injunction.
(iii) The Practice will cooperate with MidSouth and its agents in the
identification of sums deposited into Governmental Lockbox Account, which
cooperation shall continue until all Purchased Accounts Receivable sold
hereunder have been collected.
(iv) The Practice agrees to pay, on demand, a finance charge equal to the
Finance Charge Rate, on any payment on a Governmental Receivable received by the
Practice that is not deposited in Governmental Lockbox Account within two (2)
business days after receipt by the Practice. Except that the finance charge
shall not apply to payments made on Purchased Accounts Receivables which are
made as part of a cash, check or credit card payment at the time of the delivery
of medical services by the Practice which are remitted to the Practice Account
("Joint Payment"). All Joint Payments shall be allocated and remitted to the
appropriate party on the Settlement Date.
(b) COLLECTION OF NON-GOVERNMENTAL RECEIVABLES. With respect to
------------------------------------------
payments on Non-Governmental Receivables, at the request and option of MidSouth,
the Practice agrees that the following procedures shall apply:
(i) The Practice, Collecting Bank and Lender (if requested by Lender) shall
enter into a Lockbox Agreement applicable to Non-Governmental Receivables in a
form acceptable to counsel for Practice, MidSouth and Lender, which shall
establish a Non-Governmental Lockbox Account. The Non-Governmental Lockbox
Account shall be an account in the name of the Practice. Practice agrees to
enter into additional agreements with the Lender to acknowledge the Lender's
security interest in the Purchased Accounts Receivable and to set forth the
procedures to account for and reconcile the Non-Governmental Lockbox Account.
All payments with respect to the Practice's Non-Governmental Receivables are to
be made directly to the Non-Governmental Lockbox Account. In the event MidSouth
exercises this option, the Practice shall instruct each Account Debtor with
respect to the Practice's Non-Governmental Receivables to remit all such
payments directly to such Non-Governmental Lockbox Account pursuant to a
Notification Letter. In addition, the Practice shall attach written instructions
to each invoice representing such Non-Governmental Receivables generated
subsequent to the date of this Agreement which will instruct such third-party
payor or Account Debtor that payment under such invoice is to be paid to the
Non-Governmental Lockbox Account. So long as this Agreement has not been
terminated pursuant to Section 10.3, the Practice agrees that it shall not
deposit any funds other than payments on Non-Governmental Receivables into, nor
make any withdrawals from, the Non-Governmental Lockbox Account without the
prior written consent of MidSouth. The Practice further agrees that it shall
not during the term of this Agreement terminate, modify or amend in any manner
the Lockbox Agreement applicable to the Non-Governmental Lockbox Account.
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(ii) In accordance with the Lockbox Agreement, Practice shall instruct the
Collecting Bank to transfer all amounts deposited in the Non-Governmental
Lockbox Account constituting good funds to the Disbursement Account in
accordance with Section 3.1(b)(2). So long as this Agreement has not been
terminated pursuant to Section 10.3, or so long as any Purchased Accounts
Receivable remains outstanding, and in any event, during the term of this
Agreement, at any time, or, without the prior written consent of MidSouth, the
Practice shall not change the instructions to each Account Debtor on the related
Non-Governmental Receivable regarding making payments to the Lockbox Account.
Any action shall be considered a breach of this Agreement for which MidSouth
shall be entitled to all remedies under Applicable Law and in equity, including
obtaining an injunction.
(iii) The Practice will cooperate with MidSouth and its agents in the
identification of sums deposited into the Non-Governmental Lockbox Account,
which cooperation shall continue until all Purchased Accounts Receivable sold
hereunder have been collected.
(iv) The Practice agrees to pay, on demand, a finance charge equal to the
Finance Charge Rate, on any Non-Governmental Receivable received by the Practice
that is not deposited in the Non-Governmental Lockbox Account within two (2)
business days after receipt by the Practice. Except that the finance charge
shall not apply to payments made on Purchased Accounts Receivables which are
made as part of a cash, check or credit card payment at the time of the delivery
of medical services by the Practice which are remitted to the Practice Account.
All Joint Payments shall be allocated and remitted to the appropriate party on
the Settlement Date.
(c) PROCEDURES WITHOUT LOCKBOX. It is MidSouth's intention to utilize the
--------------------------
Governmental Lockbox Account and Non-Governmental Lockbox Account procedure as
provided in Section 6.2.6(a) and (b) unless circumstances change which would
make the Governmental Lockbox Account and Non-Governmental Lockbox Account
procedures inappropriate. The procedures under this subsection (c) for the
collection of Accounts Receivable without a lockbox will not be instituted
without approval of the Management Team. The Practice and MidSouth shall
instruct the Collecting Bank to transfer automatically all amounts constituting
good funds in the account or accounts of the Practice established for the
collection of Governmental Receivables and Non-Governmental Receivables to the
Bank Account established with the Lender pursuant to a standing order in a form
acceptable to MidSouth's legal counsel (the "Bank Account"). In the event
MidSouth exercises this option, the Practice shall instruct each Account Debtor
with respect to the Purchased Accounts Receivable to remit all payments directly
to the Collecting Bank account or accounts pursuant to a Notification Letter. In
addition, the Practice shall attach written instructions to each invoice
representing the Purchased Account Receivable generated subsequent to the date
of this Agreement instructing such third-party payor or Account Debtor that
payment under the invoice is to be paid to the Collecting Bank account or
accounts. So long as this Agreement has not been terminated pursuant to Section
10.3 or so long as any Purchased Accounts Receivable remain outstanding, the
Practice shall not change or cancel such standing order at any time, or, without
the prior written consent of MidSouth, change the instructions to each Account
Debtor on each Governmental Receivable end Nor-Governmental Receivable to make
its payments to such account. Any such action shall be considered a breach of
this Agreement for which MidSouth shall be entitled to all remedies under
Applicable Law and in equity, including obtaining an injunction.
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(d) MISDIRECTED PAYMENTS. (i) If after the date of this Agreement, an
--------------------
Account Debtor shall make a payment on the Purchased Accounts Receivable to a
location other than is provided in the Notification Letter or the Practice
otherwise receives payments on Purchased Accounts Receivable under the terms of
this Agreement ("Misdirected Payments"), the Practice (at its own cost and
expense) shall promptly take all necessary steps to effect collection of the
Misdirected Payment from any other party claiming an interest therein or having
possession thereof and (A) hold the Misdirected Payment in trust for MidSouth,
(B) segregate the Misdirected Payment, (C) use its best efforts not to commingle
the Misdirected Payment with the Practice's own funds or other assets, and (D)
deliver the Misdirected Payment no later than two (2) business days from the day
of receipt to the Collecting Bank account or accounts, as applicable.
(ii) The Practice agrees to pay, on demand, the Finance Charge Rate on any
Misdirected Payment received by the Practice that is not deposited in the
appropriate account within two (2) business days after receipt by the Practice.
Except that the finance charge shall not apply to payments made on Purchased
Accounts Receivables which are made as part of a cash, check or credit card
payment at the time of the delivery of medical services by the Practice which
are remitted to the Practice Account. All Joint Payments shall be allocated and
remitted to the appropriate party on the Settlement Date.
(e) All Purchased Accounts Receivable of the Practice pursuant to this
Section 6.2 hereof will, as the Purchased Accounts Receivable are purchased, be
treated as Practice Revenues for accounting and financial purposes.
SECTION 6.3. EARLY TERMINATION OF PHYSICIAN MEMBERS. The Physician Members
--------------------------------------
hereby acknowledge that the terms and conditions of this Agreement are based
upon numerous factors, including the Physician Members continuing to practice
medicine in the future. ln connection therewith, each Physician Member agrees as
follows:
(a) RETIREMENT. If at any time during the Term hereof, a Physician Member
----------
desires to retire, or assume full-time teaching responsibilities, the Physician
Member shall notify MidSouth in writing at least twelve (12) months prior to the
date of such retirement or start of teaching position; provided, however, that
if such retiring physician elects to, and has located a replacement physician
suitable to the Practice, MidSouth shall waive the remaining months of said
twelve (12) month notice period, and such retirement shall be effective upon
the earlier of twelve (12) months from the date of notice or commencement of the
replacement physician's employment. Upon such retirement or start of the
teaching position, the Physician Member shall have no further obligations under
this Agreement; provided, however, the restrictive covenants provided for under
Article Section 7 shall remain in full force and effect. In fulfilling any such
full-time teaching responsibilities, the Physician Member will be permitted to
attend patients in a manner normal and customary for such faculty position;
provided, however, such services must be incident to the academic/teaching
aspects of the institution, and not incident to the regular examination of
patients for a fee whether billed in the name of the institution or the name of
the attending physician. It is not the intent of the parties to permit a retired
physician to conduct a medical practice through an academic institution.
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(b) PHYSICIAN MEMBER CHANGE IN PRACTICE/GROUP AFFILIATION. In the event
-----------------------------------------------------
that a Physician Member leaves the employment of or terminates his or her
affiliation with the Practice, the terminating Physician Member may join or
establish another group/practice which has or will enter into a service
agreement with MidSouth, subject to any other existing agreements between
Physician Member and Practice. Upon entering into such new service agreement
with MidSouth, the terminating Physician Member shall, except as limited by
separate employment agreements between the Practice and the Physician Members,
be released from any obligation under this Agreement. MidSouth shall have the
right to enter into a new service agreement without satisfying the requirements
of Article 7 hereof. In the event the (i) Practice consents to MidSouth
entering into a new service agreement; (ii) service agreement will not adversely
affect the operations and earnings of MidSouth; and (iii) new group/practice can
satisfy the representations and warranties set forth in Article 12 hereof, then
MidSouth will not unreasonably withhold or refrain from entering into a new
service agreement with the terminating Physician Member's new group/practice.
Except as set forth herein, in the event the Physician Member affiliates with a
new group/practice that is not a party to a service agreement with MidSouth,
then MidSouth, will terminate this Agreement solely with respect to the
terminating Physician Member; provided, however, that the provisions of
Article 7 hereof shall apply. In the event that MidSouth does not enter into a
new service agreement, then MidSouth shall terminate this Agreement with respect
to the Physician Member, and the terminating Physician Member shall be obligated
as set forth in Article 7 hereof.
(c) DEATH OR DISABILITY. In the event that a Physician Member dies or
-------------------
becomes disabled, then the Physician Member shall have no continuing obligations
under this Agreement; provided, however, in the event of disability, the
restrictive covenants described in Article 7 hereof shall remain in full force
and effect.
ARTICLE 7. RESTRICTIVE COVENANTS AND ENFORCEMENT.
-------------------------------------
MidSouth and the Practice recognize that the benefits each is to receive
under this Agreement shall be realized only if the Practice operates an active
medical practice to which the Physicians Members associated with the Practice
devote their full time and attention to the extent of their arrangement with the
Practice. Accordingly, MidSouth and the Practice desire to set forth the
following reasonable restrictions and agreements regarding competition by the
Physicians Members during the term of this Agreement and after the termination
of this Agreement.
SECTION 7.1. EXCLUSIVE ARRANGEMENT. During the term of this Agreement,
---------------------
MidSouth shall be the Practice's and the Physician Members' sole provider of the
management services described in this Agreement and neither the Practice, the
Physician Members nor any of the Practice's or the Physician Members' employees
shall provide similar management services. During the term of this Agreement,
the Practice and the Physician Members agree that neither the Practice nor
Physician Members will enter into any similar agreement with any physician
practice management company or entity.
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SECTION 7.2. RESTRICTIVE COVENANTS BY THE PRACTICE. The Practice agrees
-------------------------------------
that, during the term hereof, neither the Practice or its Physician Members will
engage, directly or indirectly, as a principal owner, Member (other than a
holder of fewer than 5% of the outstanding shares of a publicly-traded company),
partner, joint venturer, employee, agent, equity owner, or in any other capacity
whatsoever, in any corporation, partnership, joint venture, or other business
association or entity that operates ambulatory surgery or diagnostic centers,
imaging centers, physical therapy centers, or rehabilitation centers, or
provides management services of the nature provided by MidSouth pursuant to this
Agreement, within a thirty (30) mile radius from any of the Practice Facilities
(the "Restricted Area"). Provided that this Agreement may allow any Physician
Member to own any ownership interest in the above facilities which was acquired
prior to the execution this Agreement. If this Agreement is terminated by
MidSouth for breach by the Practice, pursuant to 10.4 hereof, neither the
Practice nor its current or future Physician Members shall establish, operate,
or provide physician services at any medical office, clinic, ambulatory surgery
or diagnostic centers, imaging centers, physical therapy centers, rehabilitation
centers or other health care facility providing services substantially similar
to those provided by the Practice within the Restricted Area for a period of
twenty-four (24) months ("Restricted Period") after the termination of the
Agreement.
SECTION 7.3. RESTRICTIVE COVENANTS BY CURRENT PHYSICIAN MEMBERS.
--------------------------------------------------
Contemporaneous with the execution of this Agreement, the Practice shall obtain
and enforce formal agreements from its current Physician Members, pursuant to
which each agrees during the term of their respective employment and for the
Restricted Period after any termination of employment with the Practice, they
will not (i) establish, operate or engage, directly or indirectly, as a
principal owner. Member (other than a holder of fewer than 5% of the outstanding
shares of a publicly-traded company), partner, joint venturer, employee, agent,
equity owner, or in any other capacity whatsoever, in any corporation,
partnership, joint venture, or other business association or entity that
operates ambulatory surgery or diagnostic centers, imaging centers, physical
therapy, or rehabilitation centers providing services similar to those provided
by the Practice within the Restricted Area; or (ii) solicit, induce or attempt
to induce any Practice patient, employee, consultant or other persons associated
or affiliated with MidSouth or any Affiliate of MidSouth to leave the care of a
Physician Employee, to leave the employment of, or to discontinue their
association with the Practice, MidSouth or such affiliate of the Practice or
MidSouth within the Restricted Area. Provided that the employment agreements may
exclude from the restrictive covenant the employment of Physician Members in
facilities that have historically been deemed urgent care facilities on a part-
time basis for nights, weekends and holidays for periods that do not exceed on a
monthly basis the equivalent of ten percent (10%) of their normal working time
for the Practice on a monthly basis and which do not interfere with their
employment by the Practice during the term of the employment agreement and after
the termination of the employment agreement. Provided also, that the employment
agreements may exclude from the restrictive covenant the employment of Physician
Members in facilities that have historically been deemed emergency room
facilities once the Physician Member's employment has been terminated if the
Physician Member has no private practice. The employment agreements shall
provide that MidSouth is an intended third-party beneficiary to such agreements
and that such third-party beneficiary rights may be assigned to any Lender. The
Practice agrees to enforce the restrictive covenants. The cost and expense of
such enforcement shall be a Practice Expense, and all damages and other amounts
recovered thereby shall be included in the Revenues. In the event
26
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that after a request by MidSouth, the Practice does not pursue any remedy that
may be available to it by reason of a breach or Default of a restrictive
covenant, upon the request of MidSouth, the Practice shall assign to MidSouth
such causes of action and/or other rights it has related to such breach or
Default and shall cooperate with and provide reasonable assistance to MidSouth
with respect thereto; in which case, all costs and expenses incurred in
connection therewith shall be borne by MidSouth and shall be excluded as a
Practice Expense, and MidSouth shall be entitled to all damages and other
amounts recovered thereby. Provided that this Agreement may allow any Physician
Member to own any ownership interest in the above facilities which was acquired
prior to the execution this Agreement. If the Practice and/or any Physician
Member violate the covenants set forth in this Section 7.3, then the duration of
the restrictions contained in this Section 7.3 shall be extended an additional
month against the violator for each month during which such violation occurred
but was not discovered by MidSouth, beginning upon the date that MidSouth learns
of the violation and so notifies the Practice and/or the Physician Member in
writing.
SECTION 7.4. RESTRICTIVE COVENANTS BY FUTURE PHYSICIAN MEMBERS. The
-------------------------------------------------
Practice shall obtain and enforce formal agreements from each of its future
Physician Members hired or contracted, pursuant to which each agrees to be bound
by an agreement containing the terms and conditions a contained in Section 7.3
hereof.
SECTION 7.5. PHYSICIAN MEMBERS LIQUIDATED DAMAGES. The restrictive
------------------------------------
covenants described above may provide that the Physician Members (current or
future) may be released from their Restrictive Covenants by paying liquidated
damages in an amount as follows:
(a) if the Practice were the breaching party or the party desiring to be
released from the covenant, the Practice shall be liable to MidSouth for an
amount equal to the estimated fee payable to MidSouth hereunder for one hundred
twenty (120) months following the termination; and
(b) if a Physician Member was the breaching party or the party desiring to
be released from the covenant, then $200,000.00 per breaching party or party
desiring to be released from the covenant must be paid to MidSouth in order to
obtain Physician Member's release from Article 7 of this Agreement.
SECTION 7.6. RIGHTS OF MIDSOUTH. During the term of this Agreement and
------------------
thereafter, MidSouth shall at all times of this Agreement have the right to
enter into additional service agreements with other physicians and practices,
regardless of where such physicians and/or practices are located, providing for
management services and facilities to such physicians and/or practices.
SECTION 7.7. EXCLUDED ACTIVITIES. Physician Members shall be allowed to
-------------------
participate in Excluded Activities and retain Excluded Revenues, at any time so
long as the Excluded Activities do not interfere with any rights,
responsibilities or obligations as contained in this Agreement or any employment
agreement by and between the Practice and the Physician Member.
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SECTION 7.8. ENFORCEMENT. MidSouth, the Practice and the Physician Members
-----------
acknowledge and agree that since a remedy under Applicable Law for any breach or
attempted breach of the provisions of this Article 7 shall be inadequate,
MidSouth shall be entitled to specific performance and injunctive or other
equitable relief in the event of any breach or attempted breach, in addition to
whatever other remedies may exist under Applicable Law or in equity. All parties
hereto also waive any requirement for the securing or posting of any bond in
connection with the obtaining of any injunctive or other equitable relief. If
any provision of Article 7 relating to any applicable Restrictive Period, scope
of activity restricted or the Restricted Area described therein shall be
declared by a court of competent jurisdiction to exceed the maximum time period,
scope of activity restricted or geographical area the court deems reasonable and
enforceable under Applicable Law, the time period, scope of activity restricted
and/or area of restriction held reasonable and enforceable by the court shall
thereafter be the Restrictive Period, scope of activity restricted and/or the
Restricted Area applicable to the restrictive covenant provisions in this
Article 7. The invalidity or non-enforceability of this Article 7 in any respect
shall not affect the validity or enforceability of the remainder of this Article
7 or of any other provisions of this Agreement.
ARTICLE 8. DUTIES OF THE MANAGEMENT TEAM.
-----------------------------
SECTION 8.1. FORMATION AND OPERATION OF THE MANAGEMENT TEAM. The parties
----------------------------------------------
shall establish a Management Team which shall be responsible for developing
management and administrative policies for the overall operation of the
Practice. No party shall have the authority to undertake any actions described
in Section 8.2 below without the authority of the Management Team. The
Management Team shall consist of four (4) members. MidSouth shall designate, in
its sole discretion, two (2) members of the Management Team, one of which shall
be the Management Team Chief Executive; provided, however, in MidSouth's sole
discretion MidSouth may replace the Management Team Chief Executive as one of
its designees in the event MidSouth institutes disciplinary measures against the
Management Team Chief Executive in connection with his employment with
MidSouth. The Practice shall designate, in its sole discretion, two (2)
physician members of the Management Team. The chairman of the Management Team
shall be a designee of the Practice selected by the Practice. Except as may
otherwise be provided, the act of a majority of the members of the Management
Team shall be the act of the Management Team. Attached hereto as Schedule 8.1
are the initial "Policies and Procedures" to be used by the Management Team
until the Management Team amends the Policies and Procedures. The chairman of
the Management Team shall be responsible for organizing the agenda for the
Management Team meetings referred to in this Article 8. In the event that a
deadlock occurs on a matter brought before the Management Team, then the
relative parties, duties and responsibilities with respect to such matter shall
remain status quo.
SECTION 8.2. DUTIES AND RESPONSIBILITIES OF THE MANAGEMENT TEAM. The
--------------------------------------------------
Management Team shall have the following duties and obligations:
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8.2.1. Capital Improvements and Expansion. Any renovation and expansion
----------------------------------
plans and capital equipment expenditures with respect to the Practice shall be
reviewed and approved by the Management Team and shall be based upon economic
feasibility, physician support, productivity and then current market conditions
and the budget. If the Management Team determines that the acquisition of
additional equipment or facilities is appropriate, then MidSouth shall use its
best efforts to arrange for the financing and acquisition of the property.
8.2.2. Annual Budgets. All annual capital and operating budgets prepared by
--------------
MidSouth, as set forth in Section 3.2, shall be subject to the review and
approval of the Management Team.
8.2.3. Exceptions to Inclusion in the Revenue Calculation. The exclusion of
--------------------------------------------------
any revenue from Revenues, whether now or in the future, shall be subject to the
unanimous approval of the Management Team, and the treatment of any expense as
Practice Expense which is not otherwise addressed herein or in any budget shall
be subject to the unanimous approval of the Management Team.
8.2.4. Advertising. All advertising and other marketing of the services
-----------
performed at the Practice Facilities or any hospital or similar facility shall
be subject to the prior review and approval of the Management Team.
8.2.5. Fees. As a part of the annual operating budget, in consultation with
----
the Practice and MidSouth, to the extent allowed by Applicable Law, the
Management Team shall review the fee schedule or capitation arrangement for all
hospital, physician and ancillary services rendered by the Practice. In
addition, the Management Team shall approve the credit collection policies of
the Practice and MidSouth for the Practice's Accounts Receivable.
8.2.6. Provider and Payor Relationships. Decisions regarding the
--------------------------------
establishment or maintenance of relationships with institutional health care
providers and payors shall be made by the Practice in consultation with the
Management Team.
8.2.7. Strategic Planning. The Management Team shall develop long-term
------------------
strategic planning objectives.
8.2.8. Capital Expenditures. The Management Team shall determine the
--------------------
priority of major capital expenditures.
8.2.9. Physician Hiring. The Management Team shall recommend the number and
----------------
type of physicians required for the efficient and effective operation of the
Practice.
8.2.10. Management Team Chief Executive. The retention, and/or selection of
-------------------------------
the Management Team Chief Executive pursuant to Section 3.5 by MidSouth shall be
subject to the reasonable input of the Management Team. If the Practice is
dissatisfied with the services provided by the Management Team Chief Executive,
the Practice shall refer the matter to the Management Team. MidSouth and the
Management Team shall each in good faith determine whether the
29
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performance of the Management Team Chief Executive could be brought to
acceptable levels through counsel and assistance, or whether the Management Team
Chief Executive should be terminated.
8.2.11. Grievance Referrals. The Management Team shall consider and make
-------------------
final decisions regarding grievances pertaining to matters not specifically
addressed in this Agreement as referred to it by the Practice's Board of
Directors.
ARTICLE 9. INSURANCE AND INDEMNITY.
-----------------------
SECTION 9.1. INSURANCE TO BE MAINTAINED BY THE PRACTICE. Throughout the
------------------------------------------
term of this Agreement, subject to the provisions of Section 3.1(m) providing
for malpractice premiums and deductibles to be a Practice Expense, the Practice
shall maintain comprehensive professional liability insurance with limits of not
less than $1,000,000 per claim and with aggregate policy limits of not less than
$3,000,000 per Physician Employee and Physician Extender Employee and a separate
limit for the Practice with the carrier which shall be determined by Practice
upon recommendation by the MidSouth. The Practice shall be responsible for all
liabilities in excess of the limits of the policies, and under no circumstances
shall any excess be deemed a Practice Expense. MidSouth shall have the option,
with Management Team approval, of providing the professional liability insurance
through an alternative program, provided the program meets the requirements of
the Insurance Commissioner of the State. If the Practice's existing professional
liability insurance program is canceled and replaced by a professional liability
insurance program initiated by MidSouth, MidSouth shall pay over to the
Practice any unearned professional liability insurance premiums paid by the
Practice to the extent the Practice's carrier pays the amounts to MidSouth. Any
insurance program for the Practice shall include director and officer liability
insurance for the Practice, and the cost of the coverages shall be a Practice
Expense.
SECTION 9.2. INSURANCE TO BE MAINTAINED BY MIDSOUTH. Throughout the term of
--------------------------------------
this Agreement, MidSouth will use reasonable efforts, unless determined not
necessary by the Management Team, to provide and maintain, as a Practice
Expense, comprehensive general liability and property insurance covering the
Practice premises and operations.
SECTION 9.3. TAIL INSURANCE COVERAGE. Tail insurance coverage shall be
-----------------------
purchased in the following manner:
9.3.1. The Practice will cause each Physician Employee associated with the
Practice to enter into an agreement with the Practice that upon termination of
the physician's relationship with the Practice, for any reason, tail insurance
coverage will be purchased by the individual physician to the extent that it can
not be purchased by the Practice. The provisions may be contained in employment
agreements, restrictive covenant agreements or other agreements entered into by
the Practice and the Physician Employees, and the Practice hereby covenants with
MidSouth to enforce the provisions relating to the tail insurance coverage or to
provide the coverage, which will be a Practice Expense.
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9.3.2. The Practice shall obtain continuing liability insurance under
either a tail policy or an acts policy with the same limits and deductibles as
the comprehensive professional liability insurance at the time of the
termination of this Agreement pursuant to Article 10, which will not be a
Practice Expense.
SECTION 9.4. ADDITIONAL INSURED. The Practice and MidSouth agree to use
------------------
their reasonable best efforts to have each other named as an additional insured
on the other's respective professional liability insurance programs, which will
be a Practice Expense.
SECTION 9.5. INDEMNIFICATION.
----------------
9.5.1. The Practice Indemnification.
----------------------------
(a) The Practice shall indemnify, hold harmless and defend MidSouth, its
officers, directors, Members and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance in the name
of the Practice, caused or asserted to have been caused, directly or indirectly,
by or as a result of the performance of medical services or the performance of
any intentional acts, negligent acts or omissions by the Practice and/or its
Members, agents, employees and/or subcontractors (other than MidSouth or any
other party engaged by MidSouth) during the term hereof, or as a result of a
breach of the representations and warranties contained in Article 12 of this
Agreement or a breach of any covenant in Article 14 of this Agreement.
(b) The Practice shall not be liable to MidSouth for any claims under
Section 9.5.1(a) above until the claims exceed in the aggregate S25,000.00 that
would otherwise be subject to indemnification under said provisions, and then
only for the amount by which the claims exceed $25,000.00.
9.5.2. MidSouth Indemnification. MidSouth shall indemnify, hold harmless
------------------------
and defend the Practice, its officers, Members, directors and employees, from
and against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees), to the extent not covered by
insurance in the name of MidSouth, caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of any intentional
acts, negligent acts or omissions by MidSouth and/or its Members, agents,
employees and/or subcontractors (other than the Practice) during the term of
this Agreement or as a result of a breach of the representations and warranties
contained in Article 13 of this Agreement. In addition, MidSouth shall
indemnify, hold harmless and defend the Practice, its officers, Members,
directors and employees, from and against any and all liability, loss, damage,
claim, causes of action, and expenses (including reasonable attorneys' fees)
caused by any claim against the Practice relating to liabilities of the Practice
assumed by MidSouth as a result of the Exchange which were disclosed by the
Practice in the Exchange Agreement and for which the Practice does not have an
obligation to indemnify MidSouth as provided above.
9.5.3. Indemnification Payment Escrow. In the event that either party makes
------------------------------
a claim for indemnification under either the Exchange Agreement or this
Agreement (the "Indemnified Party"),
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<PAGE>
then the party who must provide indemnity (the "Indemnifying Party"), shall have
the right, to the extent it owes indemnifications, to pay amounts owed to the
Indemnified Party under the Exchange Agreement or this Agreement into an escrow
account (established pursuant to an escrow agreement to be agreed upon by the
parties) to be held by the escrow agent in an interest bearing account until a
determination by either (i) the parties, (ii) a court of proper jurisdiction or
(iii) an agreed upon panel of arbitrators, has been made regarding the
Indemnified Party's right to indemnification. In the event that the Indemnified
Party is entitled to indemnification, then such escrowed funds shall be paid to
the Indemnified Party in partial or complete satisfaction of such
indemnification obligation. Any excess funds remaining in the escrow account
after the payment of the indemnification obligation or any funds held in escrow
account if it is determined that no indemnification obligation is owed shall be
paid to the Indemnifying Party.
ARTICLE 10. TERM AND TERMINATION.
--------------------
SECTION 10.1. TERM OF AGREEMENT. This Agreement shall commence on the date
-----------------
hereof and shall expire on August 31, 2022 unless earlier terminated pursuant to
the provisions hereof (the "Term").
SECTION 10.2. EXTENDED TERM. Unless earlier terminated as provided for in
-------------
this Agreement, the term of this Agreement shall be automatically extended for
an additional term of five (5) years and for a new term thereafter, unless
either party delivers to the other party, not less than one hundred eighty (180)
days prior to the expiration of the preceding term, written notice of the
party's intention not to extend the term of this Agreement.
SECTION 10.3. TERMINATION BY THE PRACTICE. The Practice may terminate this
---------------------------
Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by MidSouth, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state Applicable
Law for the benefit of creditors by MidSouth, except for the filing of a
petition in bankruptcy by or against MidSouth which is dismissed within ninety
(90) days thereafter, the Practice may give notice of the immediate termination
of this Agreement and the Practice and Physician Members will be released from
the restrictive covenants contained in Article 7;
(b) In the event MidSouth shall Default in the performance of any duty or
obligation imposed upon it by this Agreement and the Default continues for a
period of ninety (90) days after written notice thereof has been given to
MidSouth by the Practice (or in the event the Default cannot be cured within the
period and MidSouth is diligently pursuing a cure, the period shall be extended
so long as MidSouth diligently and in good faith continues to cure the Default
until completion), or if MidSouth shall fail to remit the payments due as
provided in this Agreement and the failure to remit continues for a period of
two (2) business days after written notice thereof, the Practice may terminate
this Agreement and the Practice and Physician Members will be released from the
restrictive covenants contained in Article 7.
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(c) In the event that MidSouth has not successfully completed an initial
public offering of MidSouth common stock or MidSouth has not merged with a
publicly traded entity with an initial market price of stock having a total
market value of the Practice's equity interest received at the initial public
offering or merger valued at least equal to $2,325,000 within thirty-six (36)
months from the date of this Agreement, the Practice Members may, at that time,
terminate this Agreement and the Practice and Physician Members will be released
from the restrictive covenants contained in Article 7; and
(d) In the event that MidSouth has not added the equivalent of five (5)
full time pediatricians and made its best efforts to add the equivalent of an
additional ten (10) full time pediatricians for a total equivalent of fifteen
(15) full time pediatricians within twenty-four (24) months from the date of
this Agreement, the Practice may, at that time, terminate this Agreement and
Practice and Physician Members will be released from the restrictive covenants
contained in Article 7.
SECTION 10.4. TERMINATION BY MIDSOUTH. MidSouth may terminate this
-----------------------
Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the Practice, or upon other action
taken or suffered, voluntarily or involuntarily, under any Applicable Law for
the benefit of creditors by the Practice, except for the filing of a petition in
involuntary bankruptcy against the Practice which is dismissed within ninety
(90) days thereafter, MidSouth may give notice of the immediate termination of
this Agreement;
(b) In the event the Practice shall Materially Default in the performance
of any duty or obligation imposed upon it by this Agreement, and the Default
continues for a period of ninety (90) days after written notice thereof has been
given to the Practice by MidSouth (or in the event the Default cannot be cured
within the period, the period shall be extended so long as the Practice
diligently and in good faith continues to cure the Default until completion), or
the Practice fails to remit the payments due as provided in this Agreement and
the failure to remit continues for a period of thirty (30) days after written
notice thereof, MidSouth may terminate this Agreement; or
(c) In the event the Practice's Medicare or Medicaid provider number shall
be terminated or suspended as a result of the action or inaction of the Practice
or a Physician Employee, and such termination or suspension continues for thirty
(30) days after notice of the termination or suspension, MidSouth may give
notice of the immediate termination of this Agreement, unless the Practice, at
that time, is acting in good faith (and shall provide reasonable evidence of the
action being taken) to reverse such termination or suspension. Notwithstanding
any good faith effort on the part of the Practice to reverse such termination or
suspension, if such termination or suspension is not reversed within ninety (90)
days after notice of the termination or suspension of the Medicare or Medicaid
provider number by Medicare or Medicaid, MidSouth shall have the right to
terminate this Agreement immediately.
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SECTION 10.5. ACTIONS AFTER TERMINATION. Upon termination of this
-------------------------
Agreement by either party, the Practice (and/or its Physician Members) shall:
(a) Purchase from MidSouth at book value all intangible assets set forth on
the Opening Balance Sheet, as adjusted through the last day of the month most
recently ended prior to the date of the termination or expiration to reflect
amortization or depreciation of the "service agreement costs" and intangibles in
accordance with GAAP if terminated by MidSouth or upon the expiration of this
Agreement. If the Agreement is terminated by Practice for MidSouth's breach of
the Agreement, all intangible assets shall be repurchased at the fair market
value;
(b) Purchase all improvements, additions or leasehold improvements to
Practice Facilities which have been made by MidSouth and which relate solely to
the performance of its obligations under this Agreement at book value;
(c) Assume all debt and all contracts, payables incurred as Practice
Expenses and leases which are obligations of MidSouth and which relate
principally to the performance of its obligations under this Agreement or the
properties subleased by MidSouth;
(d) Purchase from MidSouth at book value all of the equipment acquired in
the Exchange, including all replacements and additions thereto made by MidSouth
pursuant to the performance of its obligations under this Agreement, and all
other assets, including inventory, Purchased Accounts Receivable and supplies,
tangibles and intangibles, set forth on the Opening Balance Sheet as adjusted
through the last day of the month most recently ended prior to the date of the
termination or expiration in accordance with GAAP to reflect operations of the
Practice (including physician practice acquisitions), depreciation, amortization
and other adjustments of assets shown on the Opening Balance Sheet; and
(e) Prior to any initial public offering of MidSouth's Common Stock or
MidSouth's merger into publicly traded company, endorse in blank and deliver to
MidSouth all shares of common stock and all debt instruments, whether or not
convertible into common stock of MidSouth acquired by Physician Members or
Practice in the merger for a credit of five (5) dollars per share. Subsequent to
any initial public offering of MidSouth's Common Stock or MidSouth's merger into
a publicly traded company, Member Physicians or Practice shall have the option
of endorsing in blank and delivering the amount of publicly traded stock at the
value on the transaction date or in the alternative to pay cash equal to the
value of the publicly traded stock on the transaction date, except in the event
of a termination by the Practice pursuant to Section 10.3 in which case Practice
shall retain any stock received as part of the Exchange.
SECTION 10.6. CLOSING OF REPURCHASE BY THE PRACTICE AND EFFECTIVE DATE OF
-----------------------------------------------------------
TERMINATION. The Practice shall pay cash to repurchase the assets (the
- -----------
"Repurchase Price"); provided, however, prior to an initial public offering of
the common stock of MidSouth, the Practice shall receive a credit against the
Repurchase Price of a sum equal to the price per share of the common stock of
MidSouth received by the Physician Members of the Practice in the Exchange times
the number of shares of common stock of MidSouth that the Physician Members
received in the Exchange.
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Subsequent to an initial public offering, the Repurchase Price shall be all
cash. The amount of the Repurchase Price shall be reduced by the amount of debt
and liabilities of MidSouth assumed by the Practice and shall also be reduced by
any payment MidSouth has failed to make under this Agreement. The Practice and
any physician associated with the Practice shall execute all documents as may be
required to assume the liabilities set forth in Section 10.5, to remove MidSouth
from any liability with respect to the repurchased assets and with respect to
any property leased or subleased by MidSouth, and to carry out the transactions
contemplated herein. The closing date for the repurchase shall be determined by
the Practice, but shall in no event occur later than ninety (90) days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets. On the date of
termination, but only in the event that the termination of the Agreement was the
result of a breach by MidSouth, the Practice and the Members shall be released
from the restrictive covenants provided for in Article 7. MidSouth shall have
the right, in its sole and absolute discretion, to waive the repurchase
requirements of the Practice, in which event, the termination of this Agreement
shall become effective upon the execution and delivery of the waiver. From and
after any termination, each party shall provide the other party with reasonable
access to books and records then owned by it to permit the requesting party to
satisfy reporting and contractual obligations which may be required of it.
Except as otherwise provided herein, the restrictive covenants contained in
Article 7 shall survive the termination of this Agreement.
ARTICLE 11. INTELLECTUAL PROPERTY AND RECORDS.
---------------------------------
SECTION 11.1. PROPRIETARY INFORMATION. The Practice acknowledges that
-----------------------
MidSouth possess significant proprietary and confidential know-how, technology
and business information, including but not limited to, utilization protocols,
practice guidelines and proprietary management software and data ("Proprietary
Information"), which MidSouth has developed and will continue to develop on its
own, in its relationship with vendors, practitioner groups, integrated delivery
systems and other providers. The Practice and MidSouth acknowledge that one of
their mutual objectives is the development of Proprietary Information to be used
in connection with MidSouth's operations or which MidSouth intends to use or
license in its relationship with third parties, including other medical groups,
integrated delivery systems and other providers. In addition, the Practice
acknowledges that as of the Closing Date, by virtue of execution and delivery of
the Exchange Agreement, MidSouth will have acquired all of the Practice's
existing Proprietary Information, excluding patient medical records. Therefore,
the parties agree that MidSouth shall own all new Proprietary Information, as
well as existing Proprietary Information, excluding patient medical records,
regardless of whether the new Proprietary Information is developed by one or
more physicians in the Practice or Affiliates. The Practice agrees to execute
and deliver such documentation as may be requested by MidSouth from time to time
to evidence such ownership. During the term of this Agreement, MidSouth shall
license and provide access to all existing Proprietary Information to the
Practice.
SECTION 11.2. OWNERSHIP OF MIDSOUTH'S BUSINESS RECORDS AND SYSTEMS. All
----------------------------------------------------
business records, information, software and systems of MidSouth relating to the
provision of its services under this Agreement shall remain the property of
MidSouth and may be removed by MidSouth upon
35
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any termination of this Agreement; provided, however, that the Practice shall be
entitled, upon reasonable written request, to access such records and make
copies or extracts thereof to the extent necessary to prosecute or defend
against any tax or other liabilities imposed on the Practice by any Governmental
Authority or other party.
SECTION 11.3. MAINTENANCE AND ACCESS OF RECORDS. Except as otherwise
---------------------------------
provided in this Agreement, the parties shall safeguard all records maintained
by them pursuant to this Agreement for a period of time specified by the
Management Team from the date of the last activity recorded in such records. In
particular, the parties agree, to the extent necessary to permit receipt of
reimbursement for services by the Practice, to make available to the Secretary
of the United States Department of Health and Human Services, the Comptroller
General at the General Accounting Office, or their authorized representatives,
any books, documents and records in their possession relating to the nature and
extent of the costs of services hereunder for a period of four (4) years after
the provision of such services. Each party further agrees that, if it contracts
with any third party to provide services that are valued in excess of $10,000,
it shall require the contracting party to comply with the requirements of the
previous sentence. During the term of this Agreement, and thereafter, the
Practice or its designee shall have reasonable access during normal business
hours to the Practice's and MidSouth's financial and accounting, including, but
not limited to, records of collections, expenses and disbursements as kept by
MidSouth in performing MidSouth's obligations under this Agreement, and the
Practice may copy any or all records at its expense. Nothing in this Section
11.3 constitutes the waiver of any attorney-client privilege, and neither party
shall be required hereunder to give the other party documents if, as a result,
an existing attorney-client privilege would be waived.
SECTION 11.4. PATIENT RECORDS. Upon termination of this Agreement, the
---------------
Practice shall retain all patient medical records maintained by the Practice or
MidSouth in the name of the Practice.
SECTION 11.5. ACCESS TO RECORDS. During the term of this Agreement, and
-----------------
thereafter, the Practice or its designee shall have reasonable access during
normal business hours to the Practice's and MidSouth's financial records,
including, but not limited to, records of collections, expenses and
disbursements as kept by MidSouth in performing MidSouth's obligations under
this Agreement, and the Practice may copy any or all records at its expense.
ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF THE PRACTICE AND
--------------------------------------------------
PHYSICIAN MEMBERS.
-----------------
The Practice and the Physician Members, to the best of their knowledge,
severally and not jointly, with respect to himself for herself only, represent,
warrant, covenant and agree with MidSouth regarding subsections 12.1, 12.2,
12.4, 12.5 and 12.7 and Practice agrees with MidSouth regarding all other
subsections contained in Article 12 that:
SECTION 12.1. VALIDITY. The Practice is a Tennessee professional limited
--------
liability company and is duly qualified to do business as a foreign professional
limited liability company where such qualification is necessary or required. The
Practice has the full power and authority to own the
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Practice property, to carry on the Practice business as presently being
conducted, to enter into this Agreement, and to consummate the transactions
contemplated hereby. Each Physician Member is an adult citizen and resident of
the State of Tennessee or Mississippi. Each Physician Member has the full power
and authority to own his or her property, carry on his or her business as
presently conducted, to enter into this Agreement, and to consummate the
transactions contemplated hereby.
SECTION 12.2. LITIGATION. Except as disclosed pursuant to the Exchange
----------
Agreement, there is no suit, action, proceeding at Applicable Law or in equity,
arbitration, administrative proceeding or other proceeding pending, or
threatened against, or affecting the Practice or any Physician Employee, or to
the best of the Practice's and each Physician Member's knowledge, any provider
or other health care professional associated with or employed by the Practice as
pertains to any claim involving the provision of health care related services,
and there is no basis for any of the foregoing.
SECTION 12.3. PERMITS. The Practice and all health care professionals
-------
associated with or employed by the Practice have all permits and licenses and
other Necessary Authorizations required by all Applicable Law, except where
failure to secure such licenses, permits and other Necessary Authorizations does
not have a Material Adverse Effect; have made all regulatory filings necessary
for the conduct of Practice's business; and are not in violation of any of said
permitting or licensing requirements.
SECTION 12.4. POWER AND AUTHORITY. The Practice has the full authority to
-------------------
execute and deliver this Agreement. The execution and delivery of this
Agreement, the performance by the Practice of its obligations hereunder, and the
transactions contemplated hereby, have been duly authorized and approved by all
necessary actions of the Practice and Members except for the necessary third-
party consents which will be obtained subsequent to the Closing Date. This
Agreement constitutes, and all agreements and other instruments and documents to
be executed and delivered by the Practice pursuant to this Agreement, will
constitute, legal, valid and binding obligations of the Practice, enforceable in
accordance with its terms and conditions except as enforceability may be limited
by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
creditor's rights generally, and is subject to general principles of equity
(regardless of whether any enforceability is considered in a proceeding in
equity or at law).
SECTION 12.5. COMPLIANCE WITH APPLICABLE LAW. To the best of the Practice's
------------------------------
and each Physician Member's knowledge and belief, the Practice and each
Physician Employee has operated in compliance with all Applicable Law and
neither the Practice nor any provider associated with or employed by the
Practice has received payment or any remuneration whatsoever to induce or
encourage the referral of patients or the purchase of goods and/or services as
prohibited under 42 U.S.C. (S)1320a-7b(b) or 42 U.S.C. (S)1395nn, or otherwise
perpetrated any Medicare or Medicaid fraud or abuse, nor has any fraud or abuse
been alleged within the last five (5) years by any Governmental Authority, a
carrier or a Third Party Payor Program.
SECTION 12.6. HEALTH CARE COMPLIANCE. The Practice is presently
----------------------
participating in or otherwise authorized to receive reimbursement from or is a
party to Medicare, Medicaid, and other
37
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Third Party Payor Programs. All necessary certifications and contracts required
for participation in such programs are in full force and effect and have not
been amended or otherwise modified, rescinded, revoked or assigned as of the
date hereof, and no condition exists or to the knowledge of the Practice no
event has occurred which in itself or with the giving of notice or the lapse of
time or both would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any Third Party Payor Program. The Practice is in full
compliance with the Material requirements of all the Third Party Payor Programs
applicable thereto.
SECTION 12.7. FRAUD AND ABUSE. The Practice, the Practice Employees and
---------------
other persons and entities providing professional services for the Practice have
not, to the knowledge of the Practice and each Physician Member engaged in any
activities which are prohibited by or are in violation of the rules,
regulations, policies, Contracts or Applicable Law pertaining to any Third Party
Payor Program, or which are prohibited by rules of professional conduct
("Governmental Rules and Regulations"), including but not limited to the
following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a Material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made
any false statement or representation of a Material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on the Practice's own behalf or on behalf of another,
with intent to fraudulently secure such benefit or payment; or (d) knowingly and
willfully soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind or offering to pay or receive such remuneration (i) in return for referring
an individual to a person for the furnishing of 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 of any good,
facility, service or item for which payment may be made in whole or in part by
Medicare or Medicaid.
SECTION 12.8. PRACTICE COMPLIANCE. The Practice has all licenses necessary
-------------------
to operate the Practice in accordance with the requirements of any Applicable
Law and has all Necessary Authorizations for the use and operation of the
Practice, all of which are in full force and effect. There are no outstanding
notices of deficiencies relating to the Practice issued by any Governmental
Authority or third party payor requiring conformity or compliance with any
Applicable Law or condition for participation of the Governmental Authority or
third party payor, and after reasonable and independent inquiry and due
diligence and investigation, the Practice has neither received notice nor has
any knowledge or reason to believe that the Necessary Authorizations may be
revoked or not renewed in the ordinary course.
SECTION 12.9. RATES AND REIMBURSEMENT POLICIES. The jurisdiction in which
--------------------------------
the Practice is located does not currently impose any restrictions or
limitations on rates which may be charged to private pay patients receiving
services provided by the Practice, except as restricted by the American Medical
Association Code of Ethics or state regulations. The Practice does not have any
rate appeal currently pending before any Governmental Authority or any
administrator of any Third Party Payor Program. The Practice has no knowledge of
any Applicable Law which has been
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enacted, promulgated or issued within the eighteen (18) months preceding the
date of this Agreement or any legal requirement proposed or currently pending in
the jurisdiction in which the Practice is located which could have a Material
Adverse Effect on the Practice or may result in the imposition of additional
Medicaid, Medicare, charity, free care, welfare, or other discounted or
government assisted patients at the Practice or require the Practice to obtain
any necessary authorization which the Practice does not currently possess.
SECTION 12.10. ACCOUNTS RECEIVABLE. To the extent material and to the best
-------------------
of Practice's knowledge and information with respect to the Purchased Accounts
Receivable, as of the date of purchase:
12.10.1. All documents and agreements relating to the Purchased Accounts
Receivable that have been delivered to MidSouth with respect to the Purchased
Accounts Receivable are true and correct; the Practice has billed the applicable
Account Debtor and the Practice has delivered or caused to be delivered to the
Account Debtor all requested supporting claim documents and, if any error has
been made, the Practice will promptly correct the same and, if necessary, rebill
or, if requested by MidSouth, cooperate with MidSouth to rebill the Purchased
Accounts Receivable.
12.10.2. The Purchased Accounts Receivable are exclusively owned by the
Practice and there is no security interest or lien in favor or any third party,
or the recording or filing against the Practice, as debtor, covering or
purporting to cover any interest of any kind in any Purchased Accounts
Receivable, except as has been released by each party holding the adverse
interest in the Purchased Accounts Receivable. Upon payment of the Purchase
Price with respect to the Purchased Accounts Receivable and with respect to
Governmental Receivables, to the extent permissible by Applicable Law, all
right, title and interest of the Practice with respect thereto shall be vested
in MidSouth, free and clear of any lien, security interest, claim or encumbrance
of any kind, and the Practice agrees to defend the same against the claims of
all persons.
12.10.3. The Purchased Accounts Receivable (i) are payable, in an amount
not less than their face amount, as adjusted pursuant to the provisions of
Article 6, by the Account Debtor identified by the Practice as being obligated
to do so, (ii) are based on an actual and bona fide retention of services or
sale of goods to the patient by the Practice in the ordinary course of business,
(iii) are denominated and payable only in legal currency of the United States,
and (iv) are accounts or general intangibles within the meaning of the UCC of
the state in which the Practice has its principal place of business, or are
rights to payment under a policy of insurance or proceeds thereof, and are not
evidenced by any instrument or chattel paper. There are no payors other than the
Account Debtor identified by the Practice as the payor primarily liable on any
Purchased Accounts Receivable.
12.10.4. The Purchased Accounts Receivable are not (i) subject to any
action, suit, proceeding or dispute (pending or threatened), set-off,
counterclaim, defense, abatement, suspension, deferment, deductible, reduction
or termination by the Account Debtors other than routine adjustments and
disallowances made in the ordinary course of business, (ii) past or within sixty
(60) days of, the statutory limit for collection applicable to the Account
Debtor, (iii) subject to an invoice which provides for payment more than forty-
five (45) days from the date of such invoice, (iv) an
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account which arises out of a sale or other transaction by and between the
Practice or an affiliate of Practice, (v) an account in which the Account
Debtor has commenced a voluntary case, or an involuntary proceeding has been
instituted, under the federal bankruptcy Applicable Law, as now constituted or
hereafter amended, or made an assignment for the benefit or creditors, or an
account in which a decree or order for relief has been entered by a court having
jurisdiction in the premises in respect to the Account Debtor, (vi) an account
in which the goods giving rise to the Purchased Accounts Receivable have not
been shipped and delivered to and accepted by the Account Debtor or the services
giving rise to the Purchased Accounts Receivable have not been performed by the
Practice and accepted by the Account Debtor or the Purchased Accounts
Receivables otherwise do not represent a final sale, (vii) is evidenced by an
instrument or chattel paper unless such instrument or chattel paper is
delivered to MidSouth with all appropriate endorsements in favor of MidSouth, or
(viii) other than a complete bona fide transaction which requires no further act
under any circumstances on the part of Practice to make the Purchased Accounts
Receivable payable by the Account Debtor.
12.10.5. The Practice does not have any guaranty of, letter of credit
providing credit support for, or collateral security for, the Purchased Accounts
Receivable, other than any such guaranty, letter of credit or collateral
security as has been assigned to MidSouth, and any such guaranty, letter of
credit or collateral security is not subject to any lien in favor of any other
person.
12.10.6. The goods or services provided and reflected by the Purchased
Accounts Receivable were medically necessary for the patient in the opinion of
the Practice and the patient received such goods or services.
12.10.7. The face amount of the Purchased Accounts Receivable for the
services constituting the basis for the Purchased Accounts Receivable are
consistent with the usual, customary and reasonable fees charged by other
similar medical service providers in the Practice's community for the same or
similar service.
12.10.8. Each Account Debtor with respect to the Purchased Accounts
Receivable purchased by MidSouth (i) is not currently the subject of any
bankruptcy, insolvency or receivership proceeding, nor is it generally unable to
make payments on its obligations when due, (ii) is located in the United States,
and (iii) is one of the following: (w) the individual, or party legally
responsible for the individual, who received the health care services; (x) a
party which in the ordinary course of its business or activities agrees to pay
for healthcare services received by individuals, including, without limitation,
Medicare, Medicaid, governmental bodies, commercial insurance companies and
non-profit insurance companies (such as Blue Cross and Blue Shield entities)
issuing health, personal injury, workers compensation or other types of
insurance; (y) employers or unions which self-insure for employee or member
health insurance, prepaid healthcare organizations, preferred provider
organizations, health maintenance organizations or any other similar person, or
(z) a third party payor of the type described in the definition of Governmental
Receivables.
12.10.9. The sale of the Purchased Accounts Receivable hereunder is made in
good faith and without actual intent to hinder, delay or defraud present or
future creditors of the Practice.
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12.10.10. Except with respect to Governmental Receivables, the insurance
policy, Contract or other instrument obligating an Account Debtor to make
payment with respect to the Purchased Accounts Receivable (i) does not contain
any provision prohibiting the transfer of such payment obligation from the
patient to the Practice, or from the Practice to MidSouth, except as set out in
Schedule 12.10.10, (ii) has been duly authorized by the Practice and to the
knowledge of the Practice has been duly authorized by the Account Debtor and,
together, with the Purchased Accounts Receivable, constitutes the legal, valid
and binding obligation of the Account Debtor in accordance with its terms, (iii)
together with the applicable Purchased Accounts Receivable, does not contravene
in any Material respect any requirement of Applicable Law applicable thereto,
and (iv) was in full force and effect and applicable to the patient at the time
the services constituting the basis for the Purchased Account Receivable were
performed.
The Purchased Accounts Receivable are purchased without recourse, except
for the representations, warranties and covenants made by the Practice and the
Physician Members with respect thereto. None of the foregoing representations
and warranties with respect to the Purchased Accounts Receivable shall be deemed
to constitute a guaranty by the Practice that the Purchased Accounts Receivable
will be collected by MidSouth. The Practice shall not be responsible for any
damages for any breach of a representation or warranty under this Section 12
until MidSouth has suffered a loss on the purchase of Purchased Accounts
Receivable. Damages for such breach shall be limited to the amount of MidSouth's
loss on the purchase of the Purchased Accounts Receivable.
SECTION 12.11. LIMITATION OF LIABILITY OF MEMBERS. Notwithstanding any
----------------------------------
provision herein to the contrary, the maximum liability for damages of any
Member for the inaccuracy of any representation or warranty made by him or her
contained in this Agreement or in the Asset Exchange Agreement shall be limited
to the consideration received by the Member under the Asset Exchange Agreement.
It is the intent of this Section 12.11 that once MidSouth has recovered the
Purchase Price received by a Member from the Member (whether the basis for such
recovery is the inaccuracy of a representation in this Agreement, the inaccuracy
of a representation in the Exchange Agreement, or the breach of the Exchange
Agreement or any combination of the above), MidSouth will have no further rights
or remedies against the Member.
SECTION 12.12. EXHIBITS. All the facts recited in Exhibits annexed hereto
--------
shall be deemed to be representations of fact by the Practice as though recited
in this Article 12.
ARTICLE 13. REPRESENTATIONS AND WARRANTIES OF MIDSOUTH.
------------------------------------------
SECTION 13.1. ORGANIZATION. MidSouth is a corporation duly organized,
------------
validly existing and in good standing under the Applicable Law of the State of
Tennessee. MidSouth has the full power to own its property, to carry on its
business as presently conducted, to enter into this Agreement and to consummate
the transactions contemplated hereby.
SECTION 13.2. AUTHORITY. MidSouth has taken all necessary action to
---------
authorize the execution, delivery and performance of this Agreement, as well as
the consummation of the transactions contemplated hereby. The execution and
delivery of this Agreement does not, and the
41
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consummation of the transactions contemplated hereby will not, violate any
provisions of the charter or bylaws of MidSouth or any indenture, mortgage, deed
of trust, lien, lease, agreement, arrangement, Contract, instrument, license,
order, judgment or decree or result in the acceleration of any obligation
thereunder to which MidSouth is a party or by which it is bound.
SECTION 13.3. ABSENCE OF LITIGATION. No action or proceeding by or before
---------------------
any court or other Governmental Authority has been instituted or is, to the best
of MidSouth's knowledge, threatened with respect to the transactions
contemplated by this Agreement.
SECTION 13.4. TRANSACTIONS WITH AFFILIATES. MidSouth shall not enter into
----------------------------
any transaction or series of transactions, whether or not related to or in the
ordinary course of business, with any Affiliate of the Practice or MidSouth,
other than on terms and conditions substantially as favorable to MidSouth as
would be obtainable by MidSouth at the time in a comparable arm's-length
transaction with a person not an Affiliate.
ARTICLE 14. COVENANTS OF THE PRACTICE AND PHYSICIAN MEMBERS.
-----------------------------------------------
SECTION 14.1. EXCHANGE, CONSOLIDATION AND OTHER ARRANGEMENTS. The Practice
----------------------------------------------
shall not incorporate, merge or consolidate with any other entity or individual
or liquidate or dissolve or windup the Practice's affairs or enter into any
partnership, joint ventures or sale-leaseback transactions or purchase or
otherwise acquire (in one or a series of related transactions) any part of the
property or assets (other than purchases or other acquisitions of inventory,
materials and equipment in the ordinary course of business) of any other person
or entity.
SECTION 14.2. NECESSARY AUTHORIZATIONS/ASSIGNMENT OF LICENSES AND PERMITS.
-----------------------------------------------------------
The Practice and each Physician Employee, and each Physician Extender Employee
shall maintain all licenses, permits, certifications, or other Necessary
Authorizations and shall not assign or transfer any interest in any license,
permit, certificate or other Necessary Authorization granted to it by any
Governmental Authority, nor shall the Practice or any Physician Employee assign,
transfer, or remove or permit any other individual or entity to assign, transfer
or remove any records of the Practice or any Physician Employee, including
without limitation, patient records, medical and clinical records (except for
removal of such patient records required under any Applicable Law).
SECTION 14.3. TRANSACTION WITH AFFILIATES. Neither the Practice nor any
---------------------------
Physician Member shall enter into any transaction or series of transactions,
whether or not related or in the ordinary course of business, with any Affiliate
of the Practice or MidSouth, other than on terms and conditions substantially as
favorable to the Practice or the Physician Member, as would be obtainable by the
Practice or the Physician Member at the time in a comparable arms-length
transaction with a person not an Affiliate.
SECTION 14.4. COMPLIANCE WITH ALL APPLICABLE LAW. The Practice and each
----------------------------------
Physician Member shall use their best efforts to comply with all Applicable Law
and regulations relating to the Practice's practice and the operation of any
facility, including, but not limited to, all Applicable Law
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relating to the acquisition or operation of a health care practice. Furthermore,
neither the Practice nor any Physician Member shall intentionally violate any
Applicable Law.
SECTION 14.5. THIRD PARTY PAYOR PROGRAMS. The Practice shall maintain its
--------------------------
compliance with the requirements of all Third Party Payor Programs in which
Practice will be participating or authorized to participate.
SECTION 14.6. CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. The
--------------------------------------------------
Practice shall not make any change in the character of Practice business or in
the credit and collection policy, which change would, in either case, impair the
collectability of any Purchased Accounts Receivable or any Accounts Receivable
received by MidSouth pursuant to the Exchange or otherwise modify, amend or
extend the terms of any such account other than in the ordinary course of
business.
SECTION 14.7. TREATMENT OF ACCOUNTS RECEIVABLE. The Practice will (i) treat
--------------------------------
transfers to MidSouth of Purchased Accounts Receivable hereunder as a sale for
all purposes, including tax and accounting (and shall accurately reflect such
sale in its financial statements), and will advise all persons who inquire about
the ownership of the Purchased Accounts Receivable that they have been sold to
MidSouth; (ii) not treat any Purchased Accounts Receivable as an asset on the
Practice's books and records; (iii) record in the Practice's books, records and
computer files pertaining thereto that the Purchased Accounts Receivable have
been sold to MidSouth; (iv) pay all taxes, if any, relating to the transfer of
the Purchased Accounts Receivable after the same have been purchased by
MidSouth; (v) not impede or interfere with MidSouth's collection of the
Purchased Accounts Receivable; (vii) not amend. waive or otherwise permit or
agree to any deviation from the terms or conditions of the Purchased Accounts
Receivable; (viii) use all reasonable efforts to obtain all consents from
patients which are required by Applicable Law in order for MidSouth, or any
servicing entity retained by MidSouth, to secure information needed to obtain or
to expedite payment from the respective Account Debtors; and (ix) have billed
the Purchased Accounts Receivable on the same bases and using the same policies
and practices that it has used in the past unless MidSouth has been advised in
writing of a change prior to the purchase of the Purchased Accounts Receivable.
MidSouth or its designated representatives from time to time may verify the
Purchased Accounts Receivable, inspect, check, take copies or extracts from the
Practice's books, records and files, and the Practice will make the same
available to MidSouth or such representatives at any reasonable time for such
purposes.
SECTION 14.8. SECURITY INTEREST. If, contrary to the mutual intent of the
-----------------
Practice and MidSouth, any purchase of Purchased Accounts Receivable is not
characterized as a sale, the Practice shall, effective as of the date hereof, be
deemed to have granted and the Practice does hereby grant to MidSouth a first
priority security interest in and to any and all of the Purchased Accounts
Receivable and the proceeds thereof to secure the repayment of all amounts
advanced to the Practice hereunder with accrued interest thereon, and this
Agreement shall be deemed to be a security agreement. With respect to such grant
of a security interest, MidSouth may at its option exercise from time to time
any and all rights and remedies available to it under the UCC or otherwise. The
Practice agrees that five (5) days shall be reasonable prior notice of the date
of any public or private sale or other disposition of all or part of the
Purchased Accounts Receivable. The Practice represents
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and warrants that the location of the Practice's principal place of business,
and all locations where the Practice maintains records with respect to its
accounts are set forth under its name in Section 15.12 hereof. The Practice
agrees to notify MidSouth in writing thirty (30) days prior to any change in any
such location. The exact name of the Practice is as set forth at the beginning
of this Agreement, and except as set forth on the signature page hereof, the
Practice has not changed its name in the last five (5) years, and during such
period the Practice did not use, nor does the Practice now use, any fictitious
or trade name. The Practice shall notify MidSouth in writing thirty (30) days
prior to any change in any such name.
ARTICLE 15. MISCELLANEOUS.
-------------
SECTION 15.1. ASSIGNMENT. MidSouth shall have the right to assign without
----------
the consent of the Practice all of its rights hereunder to any person, firm or
corporation (i) under common control with MidSouth, (ii) to any lending
institution, for security purposes or as collateral, from which MidSouth obtains
financing, (iii) that is an affiliate of MidSouth, including, but not limited
to, a parent, subsidiary, or brother-sister corporation, or (iv) that merges,
reorganizes, or otherwise consolidates with MidSouth and further agrees that
upon receipt of notice from such assignee, the Practice shall pay to the
assignee or cause to be paid to the assignee all amounts due and payable to
MidSouth pursuant to this Agreement. Without limiting the foregoing, the
Practice acknowledges that, as collateral for certain obligations, MidSouth has
assigned all of its rights hereunder to a Lender as Agent (the "Agent") for
itself and other banks and institutional lenders from time to time (collectively
the "Banks") and has granted the Agent for the benefit of the Banks a lien and
security interest upon all real and personal property owned by MidSouth
("Pledged Assets"). As an inducement for the Banks to extend or continue the
extension of credit to MidSouth, the Practice (i) acknowledges that the
collateral assignment to the Agent covers all rights of MidSouth hereunder,
including, but not limited to, rights arising from warranties and
representations made by the Practice, rights to enforce covenants made by the
Practice, and rights to receive all payments due MidSouth; (ii) agrees to regard
the Agent as the owner of any and all of the assigned rights upon written notice
to the Practice of this election from the Agent; (iii) agrees that neither the
Agent nor any of the Banks has obligation for the performance of the duties of
MidSouth hereunder, and shall not assume any such duty by the exercise of rights
as a secured lender; (iv) agrees to give the Agent written notice of any
material Default hereunder on MidSouth's part at the address provided by the
Agent in writing to Practice, and to allow cure periods as provided in Section
10.3 thereafter for the cure of Default before the Practice terminates this
Agreement; (v) agrees that the rights of the Practice under this Agreement,
including, but not limited to, the right to the use of the Pledged Assets, are
and shall be junior to any security interest that the Agent and the Banks, their
successors or assigns may have in the Pledged Assets at any time; (vi) agrees
that the benefits of the above undertakings in favor of the Agent and Banks
shall further extend to all successors and assigns of the Agent and Banks,
provided that any notices given by the Practice under this Section 15.1 shall be
given to the Agent at the foregoing address unless the Practice has received
written notice of a change thereof; and (vii) agrees that this Section 15.1 may
not be modified, and no provision of this Section 15.1 may be waived, absent the
written approval of the Agent and Banks. Further, if a majority of the Members
of MidSouth entitled to vote on a sale of all of the assets or substantially all
of the assets or common stock of MidSouth authorize the sale or transfer of all
or substantially all of the assets or common
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stock of MidSouth to a third party (the "Acquiring Party"), this Agreement shall
be deemed automatically assigned and transferred to the Acquiring Party without
the necessity of obtaining the consent of the Practice. Except as set forth
above, neither MidSouth nor the Practice shall have the right to assign their
respective rights and obligations hereunder without the written consent of the
other party.
SECTION 15.2. THIS AGREEMENT. This Agreement sets forth the entire
--------------
agreement of the parties with respect to the subject matter hereof and it
supersedes and discharges all prior agreements (written or oral) and
negotiations and all contemporaneous oral agreements concerning the subject
matter. There are no oral conditions precedent to the effectiveness of this
Agreement.
SECTION 15.3. NO PRACTICE OF MEDICINE. The parties acknowledge that
-----------------------
MidSouth is not authorized or qualified to engage in any activity which may be
construed or deemed to constitute the practice of medicine. To the extent any
act or service required of MidSouth in this Agreement should be construed or
deemed by any Governmental Authority or court to constitute the practice of
medicine, the performance of said act or service by MidSouth shall be deemed
waived and unenforceable to the minimum extent required to comply with
Applicable Law.
SECTION 15.4. NON-WAIVER. Neither the failure of nor any delay by any party
----------
to this Agreement to enforce any right hereunder or to demand compliance with
its terms is a waiver of any right hereunder. No action or inaction taken
pursuant to this Agreement on one or more occasions is a waiver of any right
hereunder or constitutes a course of dealing that modifies this Agreement.
SECTION 15.5. WAIVERS. No waiver of any right or remedy under this
-------
Agreement shall be binding on any party unless it is in writing and is signed by
the party to be charged. No waiver of any right or remedy under any term of this
Agreement shall in any event be deemed to apply to any subsequent Default under
the same of any other term contained herein.
SECTION 15.6. AMENDMENTS. No amendment,modification or termination of this
----------
Agreement shall be binding on any party hereto unless it is in writing and is
signed by the party to be charged.
SECTION 15.7. SEVERABILITY. The terms of this Agreement are severable and
------------
the invalidity of all or any part of any term of this Agreement shall not render
invalid the remainder of this Agreement or the remainder of the term. If any
term of this Agreement is so broad as to be unenforceable, the term shall be
interpreted to be only so broad as is enforceable.
SECTION 15.8. SUCCESSORS. The terms of this Agreement shall be binding upon
----------
and inure to the benefit of the parties, their respective successors, assigns,
heirs and beneficiaries.
SECTION 15.9. THIRD PARTIES. Nothing herein expressed or implied is
-------------
intended or shall be construed to give any person other than the parties hereto
any rights or remedies under this Agreement.
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SECTION 15.10. SATURDAYS, SUNDAYS AND HOLIDAYS. Where this Agreement
-------------------------------
authorizes or requires a payment or performance on a Saturday, Sunday or public
holiday, the payment or performance shall be deemed to be timely if made on the
next succeeding business day.
SECTION 15.11. JOINT PREPARATION. This Agreement shall be deemed to have
-----------------
been prepared jointly by the parties hereto. Any ambiguity herein shall not be
interpreted against any party hereto and shall be interpreted as if each of the
parties hereto had prepared this Agreement.
SECTION 15.12. CAPTIONS. The captions and section numbers appearing in this
--------
Agreement are inserted only as a matter of convenience. They do not define,
limit or describe the scope or intent of the provisions of this Agreement.
SECTION 15.13. NOTICES. All notices required or permitted by this Agreement
-------
shall be in writing and shall be deemed to have been given (a) when received if
given in person, (b) on the date of acknowledgment of receipt if sent by telex,
facsimile or other wire transmission, (c) one business day after being sent by
overnight delivery service, or (d) three (3) days after being deposited in the
United States mail, certified or registered mail, postage prepaid, addressed as
follows:
To MidSouth Practice Management, Inc.: 889 Ridge Lake Blvd., Suite 111
Memphis, Tennessee 38120
Attention: Dan Caldwell
With a copy to: Black Bobango & Morgan
A Professional Corporation
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: John A. Bobango, Esq.
To Practice or Members: Memphis Children's Clinic, PLLC
1129 Hale Road
Memphis, Tennessee 38116
With a copy to: Tom Prewitt, Jr.
Armstrong, Allen, Prewitt,
Gentry, Johnston & Holmes
80 Monroe Avenue
Suite 700
Memphis, Tennessee 38103
or to such other address as either party shall notify the other.
SECTION 15.14. COUNTERPARTS. This Agreement may be executed in any number
------------
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing one or more counterparts.
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SECTION 15.15. FURTHER ASSURANCE. Each of the parties hereto agrees to
-----------------
execute any document or documents that may be requested from time to time by the
other party to implement or complete the party's obligations pursuant to this
Agreement.
SECTION 15.16. ATTORNEYS' FEES. If legal action is commenced by either
---------------
party to enforce or defend its rights under this Agreement, the prevailing party
in the action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
SECTION 15.17. TIME IS OF THE ESSENCE. Time is hereby expressly declared to
----------------------
be of the essence in this Agreement.
SECTION 15.18. CONFIDENTIALITY. Except for disclosure to its bankers,
---------------
underwriters or lenders, or as necessary or desirable for conduct of business,
including negotiations with other acquisition candidates, neither party hereto
shall disseminate or release to any third party any information regarding any
provision of this Agreement, or any financial information (past, present or
future) regarding the other that was obtained by the other in the course of the
negotiation of this Agreement or in the course of the performance of this
Agreement, without the other party's written approval; provided, however, the
foregoing shall not apply to information which (i) is generally available to the
public other than as a result of a breach of confidentiality provisions; (ii)
becomes available on a non-confidential basis from a source other than the other
party or its affiliates or agents, which source was not itself bound by a
confidentiality agreement, or (iii) which is required to be disclosed by
Applicable Law, including securities Applicable Law or pursuant to court order.
SECTION 15.19. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS AND COST
------------------------------------------------------------
REDUCTIONS. In the event Applicable Law, now existing or enacted or promulgated
- ----------
after the effective date of this Agreement, are interpreted by judicial
decision, a regulatory agency or legal counsel in a manner so as to indicate
that the structure of this Agreement may be in violation of Applicable Law or
regulations, the Practice and MidSouth shall amend this Agreement as necessary.
To the maximum extent possible, any amendment shall preserve the underlying
economic and financial arrangements between the Practice and MidSouth. In
addition, the parties agree that in the event an opportunity is presented to
reduce the tax costs of either party, the parties will present the matter to the
Management Team, and the parties will cooperate with each other to reduce the
costs to the other party, including considering and negotiating in good faith
amendments to this Agreement.
SECTION 15.20. REMEDIES CUMULATIVE. No remedy set forth in this Agreement
-------------------
or otherwise conferred upon or reserved to any party shall be considered
exclusive of any other remedy available to any party, but the same shall be
distinct, separate and cumulative and may be exercised from time to time as
often as occasion may arise or as may be deemed expedient.
SECTION 15.21. CONSTRUCTION. The parties acknowledge that each party and
------------
its counsel have reviewed, negotiated and revised this Agreement and that the
normal rule of construction to the
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effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
SECTION 15.22. NO OBLIGATION TO THIRD PARTIES. None of the obligations and
------------------------------
duties of MidSouth or the Practice under this Agreement shall in any way or in
any manner be deemed to create any obligation of MidSouth or of the Practice to,
or any rights in, any person or entity not a party to this Agreement, except as
related to assignments pursuant to Section 15.1.
SECTION 15.23. COMPLIANCE WITH FEDERAL APPLICABLE LAW. Notwithstanding
--------------------------------------
anything herein to the contrary, any clinical laboratory or other service shall
be operated in full compliance with Section 6204 of the Omnibus Budget
Reconciliation Act of 1989, as amended.
SECTION 15.24. PATIENT REFERRALS. The parties agree that the benefits to
-----------------
the Practice hereunder do not require, are not payment for, and are not in any
way contingent upon the admission, referral or any other arrangement for the
provision of any item or service offered by MidSouth to any of the Practice's
patients in any facility or laboratory controlled, managed or operated by
MidSouth.
SECTION 15.25. INDEPENDENT CONTRACTORS. It is the intention of the parties
-----------------------
that each shall be independent contractors, and this Agreement shall not
constitute the formation of a partnership, joint venture, an employment or
master-servant relationship.
SECTION 15.26. FORCE MAJEURE. Neither party shall be liable to the other
-------------
for failure to perform hereunder in the event of strikes, lock-outs, calamities,
acts of God, unavailability of supplies or other events over which the party has
no control for so long as the events continue, and for a reasonable period of
time thereafter.
SECTION 15.27. COMMUNICATIONS. The Practice and MidSouth agree that good
--------------
communication between the parties is essential to the successful performance
of this Agreement, and each pledges to communicate fully and clearly with the
other on matters relating to the successful operation of the Practice.
SECTION 15.28. GOVERNING APPLICABLE LAW. The validity, interpretation and
------------------------
performance of this Agreement shall be governed by and construed in accordance
with the Applicable Law of the State of Tennessee. Each of the parties submits
to the jurisdiction of any state or federal court sitting in Memphis,
Tennessee, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect to the action or proceeding may
be heard and determined in any such court. Each party agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other
court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other party with respect
thereto.
[REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK]
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
MIDSOUTH PRACTICE MANAGEMENT, INC.
a Tennessee corporation
By: /s/ Daniel J. Caldwell
--------------------------------
Name: Daniel J. Caldwell
-------------------------------
Title: President
------------------------------
Address: 889 Ridge Lake Blvd.
----------------------------
Suite 111
----------------------------
Memphis, TN 38120
----------------------------
MEMPHIS CHILDREN'S CLINIC, PLLC
a Tennessee member managed professional
limited liability company
By: /s/ Kenneth Robertson
--------------------------------
Name: Kenneth Robertson
-------------------------------
Title: Member
------------------------------
Address: 1129 Hale Rd.
----------------------------
Memphis, TN 38116
----------------------------
By: /s/ Van Snider
--------------------------------
Name: Van Snider
-------------------------------
Title: Member
------------------------------
Address: 1129 Hale Rd.
----------------------------
Memphis, TN 38116
----------------------------
49
<PAGE>
By: /s/ Terry Geshke, M.D.
--------------------------------
Name: Terry Geshke, M.D.
-------------------------------
Title: Member
------------------------------
Address: 7705 Poplar, Suite 230
----------------------------
Germantown, TN 38138
----------------------------
By: /s/ Faranak Motaghian
--------------------------------
Name: Faranak Motaghian
-------------------------------
Title: Member
------------------------------
Address: 1129 Hale Rd.
----------------------------
Memphis, TN 38116
----------------------------
By: /s/ Dorothy H. Butler
--------------------------------
Name: Dorothy H. Butler
-------------------------------
Title: Member
------------------------------
Address: 6615 Kirby Center Cove
----------------------------
Memphis, TN 38115
----------------------------
By: /s/ Elizabeth M. Andrew
--------------------------------
Name: Elizabeth M. Andrew
-------------------------------
Title: Member
------------------------------
Address: 6615 Kirby Center Cove
----------------------------
Memphis, TN 38115
----------------------------
By: /s/ Richard M. Butler, M.D.
--------------------------------
Name: Richard M. Butler, M.D.
-------------------------------
Title: Member
------------------------------
Address: 6615 Kirby Center Cove
----------------------------
Memphis, TN 38115
----------------------------
50
<PAGE>
By: /s/ Robert W. Riikola
--------------------------------
Name: Robert W. Riikola
-------------------------------
Title: Member
------------------------------
Address: 6370 Candlewood Cove
----------------------------
Memphis, TN 38119
----------------------------
By: /s/ Timothy G. Gillespie
--------------------------------
Name: Timothy G. Gillespie
-------------------------------
Title: Member
------------------------------
Address: 6615 Kirby Center Cove
----------------------------
Memphis, TN 38115
----------------------------
By: /s/ Harry V. Phillips, III, M.D.
--------------------------------
Name: Harry V. Phillips, III, M.D.
-------------------------------
Title: Member
------------------------------
Address: 1129 Hale Rd.
----------------------------
Memphis, TN 38116
----------------------------
51
<PAGE>
JOINDER AGREEMENT
The following Physician Members hereby agree to be bound to the Management
Services Agreement by and between MidSouth Practice Management, Inc. and Memphis
Children's Clinic, PLLC dated as of September 17, 1997 solely for the purposes
of being bound by Articles I, Section 6.3, Article 7, and Section 10.5 of the
Agreement and to receive the benefits and rights afforded them under the
Management Services Agreement.
Physician Members:
/s/ Elizabeth M. Andrew, M.D.
-----------------------------------
Elizabeth M. Andrew, M.D.
/s/ Dorothy H. Butler, M.D.
-----------------------------------
Dorothy H. Butler, M.D.
/s/ Richard M. Butler, M.D.
-----------------------------------
Richard M. Butler, M.D.
/s/ Timothy G. Gillespie, M.D.
-----------------------------------
Timothy G. Gillespie, M.D.
/s/ Faranak Montaghian, M.D.
-----------------------------------
Faranak Montaghian, M.D.
/s/ Harry V. Phillips, III, M.D.
-----------------------------------
Harry V. Phillips, III, M.D.
/s/ Kenneth R. Robertson, M.D.
-----------------------------------
Kenneth R. Robertson, M.D.
/s/ Charles Van Snider, M.D.
-----------------------------------
Charles Van Snider, M.D.
/s/ Robert W. Riikola, M.D.
-----------------------------------
Robert W. Riikola, M.D.
/s/ Terry Geshke, M.D.
-----------------------------------
Terry Geshke, M.D.
52
<PAGE>
SCHEDULE 1
LIST OF PHYSICIAN MEMBERS
MEMPHIS CHILDREN'S CLINIC, PLLC
1. Elizabeth M. Andrew, M.D.
2. Dorothy H. Butler, M.D.
3. Richard M. Butler, M.D.
4. Timothy G. Gillespie, M.D.
5. Faranak Motaghian, M.D.
6. Harry V. Phillips, III, M.D.
7. Kenneth R. Robertson, M.D.
8. Charles Van Snider, M.D.
9. Robert W. Riikola, M.D.
10. Terry Geshke, M.D.
53
<PAGE>
SCHEDULE 1.1.14
EXCLUDED EXPENSES
"Excluded Expenses" shall be the sole obligation of the Practice and shall
mean:
(1) Salaries, advances or other distributions made to Physician Employees
or Physician Extender Employees;
(2) Expenses of Physician Employees and Physician Extender Employees to
meet continuing education requirements, including related travel expenses; and
(3) Any indemnification obligation of the Practice.
(4) Any other items specifically designated as Excluded Expenses elsewhere
in this Agreement including but not limited to the following items:
(a) Accounting, legal and other professional fees attributed to the
Practice or to Physician Employees; provided, however, legal and accounting
expenses incurred in the ordinary course of Practice's business and approved by
the Management Team will be the Practice Expenses.
(b) Contribution expenses, cash or non-cash, which include, but are
not limited to costs of sponsoring sports teams, political contributions,
unapproved marketing expenses, and contributions to hospitals and staff.
(c) Automobile expenses including payments, repairs and maintenance,
mileage, depreciation, etc.
(d) Entertainment expenses of any kind.
(e) Benefits including health insurance, life insurance, (except to
the extent allowed under subparagraph h of the definition of Practice Expenses,
etc.) vacation time, sick time, paid leave of absence, contributions to and
administration of physician retirement plans (pension, 401(k), IRA, others),
etc. for Physician Members, Physician Employees and Physician Extender
Employees. Benefits shall not include malpractice insurance.
(f) Employment tax expenses including Federal and State Unemployment
taxes, FICA taxes, Medicare taxes, etc. for Physician Members, Physician
Employees and Physician Extender Employees.
(g) Home office expenses including the acquisition costs,
depreciation, repairs and maintenance, and ongoing operating expenses of:
computers, software, copying machines, fax machines, telephones and telephone
lines, cellular telephones, etc.; and the costs of having an office in one's
home including allocated rent, utility and depreciation expenses.
54
<PAGE>
(h) Meal expenses.
(i) Medical supplies and drugs either used or distributed by a
Physician Employee without billing for such supplies and drugs at standard
rates.
(j) Presentation expenses of any kind including, professional
services, slide production, travel, meals, entertainment, etc.
(k) Personal postage expenses.
(l) Personal laundry expenses.
(m) Personal assistant expenses (including the time staff spends on
personal errands for Physician Employees).
(n) Uninsured damages or claims paid or expenses related thereto from
any Applicable Lawsuit or claim against the Practice, or any Physician Member,
or Physician Employee, including but not limited to malpractice claims or
litigation.
(5) Any expenses or responsibilities of the Practice which are not
expressly designated herein as Practice Expenses.
55
<PAGE>
SCHEDULE 1.1.42
PHYSICIAN EXTENDER EMPLOYEES
The Practice does not have any employees who meet the requirements of this
definition.
56
<PAGE>
SCHEDULE 1.1.47
PRACTICE EXPENSES
"Practice Expenses" shall include:
(a) Salaries, benefits, (including contributions under any MidSouth
employee benefits plan, severance benefits as set by the Management Team and
other direct costs of all employees of MidSouth necessary to carry out the
duties of MidSouth hereunder or otherwise directly attributable to the
performance of management services to the Practice, and the amount shall
specifically include any severance obligations due to employees whose employment
terminates on or after the Closing Date under the Exchange.
(b) Direct costs of all outside consultants retained by MidSouth with the
advance approval of the Management Team to provide services at or in connection
with the Practice.
(c) Obligations of MidSouth or the Practice under leases or subleases for
the Practice Facilities and any personal property used by the Practice.
(d) The expenses and charges incurred for the Practice Facilities,
including without limitation, utilities, telephone charges, etc.
(e) Personal property and intangible taxes assessed against MidSouth's
assets utilized by the Practice from and after the date of the Agreement.
(f) The costs of any goods purchased for resale by or on behalf of the
Practice.
(g) Interest expense or prepayment premiums on indebtedness incurred by
MidSouth to finance or refinance any of its obligations hereunder or services
provided (interest expense will be charged for funds borrowed from outside
sources).
(h) Insurance expenses to the extent provided in Section 3.1(m) and
Article 9.
(i) Other expenses incurred by MidSouth in carrying out its obligations
under this Agreement or incurred by the Practice which are budgeted as Practice
Expenses.
(j) Except as excluded in part (4) of Schedule 1.1.14, the depreciation
expense or amortization expense associated with the assets of MidSouth, whether
acquired as a result of the Exchange or otherwise, and the write-off of any
asset or any portion thereof on the balance sheet of MidSouth.
57
<PAGE>
SCHEDULE 1.1.48
PRACTICE FACILITIES
Facility No. 1: Medical Office Building B
Methodist Hospital Germantown
7705 Poplar Avenue
Suites #120 and #230
Germantown, Tennessee 38138
Facility No. 2: Memphis Children's Clinic Office Building
1129 Hale Road
Memphis, Tennessee 38116
Facility No. 3: Memphis Children's Clinic Office Building
6615 Kirby Center Cove
Memphis, Tennessee 38115
Facility No. 4: Memphis Children's Clinic Office Building
7672 Airways Boulevard
Southaven, Mississippi 38671
58
<PAGE>
SCHEDULE 4.1
PHYSICIAN EMPLOYEES
1. Emmett D. Bell, Jr., M.D.
2. Stacey G. Frohn, M.D.
3. Jerri L. Giger, M.D.
4. Bradley K Jones, M.D.
5. Margaret V. Blanchard, M.D.
6. Scott M. Kloek, M.D.
7. George S. Lovejoy, M.D.
59
<PAGE>
SCHEDULE 8.1
MANAGEMENT TEAM POLICIES AND PROCEDURES
8.1.1. Number, Tenure and Qualification. The Management Team shall consist
--------------------------------
of four (4) members. MidSouth shall designate, in its sole discretion, two (2)
members of the Management Team. The Practice shall designate, in the Practice's
sole discretion, two (2) members of the Management Team. One of MidSouth's
designees shall be the Management Team Chief Executive; provided, however, that
MidSouth may replace the Management Team Chief Executive, in its sole
discretion, as one of its Management Team designees if MidSouth institutes
disciplinary measures against the Management Team Chief Executive arising out of
his employment by MidSouth. The initial Management Team shall be chosen at the
time of the closing of the Exchange. Thereafter, the respective Management Team
members shall be chosen at such time and in such manner as shall be determined
by the respective party making the appointment.
8.1.2. Duties and Responsibilities of the Management Team. The Management
--------------------------------------------------
Team shall have the duties and responsibilities more particularly described in
Article 8 of this Agreement.
8.1.3. Regular Meetings of the Management Team. Regular meetings of the
---------------------------------------
Management Team shall be held on the first Monday of each calendar quarter at
such times and places as the Management Team by resolution may determine and
specify, and if so determined no notice thereof need be given.
8.1.4. Special Meetings. Special meetings of the Management Team may be
----------------
held at any time or place whenever called by written request of at least two (2)
Management Team members, notice thereof being given to each Management Team
member by the Management Team members calling the meeting, or they may be held
at any time without formal notice provided all of the Management Team members
are present or those not present shall at any time waive or have waived notice
thereof.
8.1.5. Notice. Notice of any special meeting shall be given at least ten
------
(10) days previously thereto by written notice delivered in accordance with the
provisions of 15.13 of the Agreement.
8.1.6. Meetings by any Form of Communication. The Management Team shall
-------------------------------------
have the power to permit any and all Management Team members to participate in a
regular or special meeting by, or conduct the meeting through the use of any
means of communication which all Management Team members participating may
simultaneously hear each other during the meeting. A Management Team member
participating in a meeting by this means is deemed to be present in person at
the meeting.
8.1.7. Quorum. All of the members of the Management Team as constituted
------
from time to time shall constitute a quorum for the transaction of business, but
a lesser number may adjourn any meeting and the meeting may be held as adjourned
without further notice. When a quorum is present at any meeting, a majority of
the members present thereat shall decide any question brought before such
meeting, except as otherwise provided by this Agreement or by these policies and
procedures. The fact that a Management Team member has an interest in a matter
to be voted on at the meeting shall not prevent his vote from being counted for
purposes of a quorum.
60
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8.1.8. Vacancies. Any vacancy occurring in the Management Team shall be
---------
filled by the party which chose the vacated Management Team member(s).
8.1.9. Removal. Any Management Team member may be removed without cause by
-------
the party which chose the Management Team member.
8.1.10. Committees. The majority of the Management Team may appoint an
----------
executive committee or such other committees as it may deem advisable, composed
of one (1) or more Management Team members, and may delegate authority to such
committees as is not inconsistent with this Agreement. The members of such
committee shall serve at the pleasure of the Management Team.
8.1.11. Presumption of Assent. A Management Team member who is present at a
---------------------
meeting of the Management Team at which action on any matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the secretaries of the MidSouth and the Practice immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
Management Team who voted in favor of such action.
8.1.12. Informal Action by Management Team Members. Any action required to
------------------------------------------
be taken at a meeting of the Management Team, or any other action which may be
taken at a meeting of the Management Team, may be taken without a meeting if all
Management Team members consent to taking such action without a meeting. If all
Management Team members consent to taking such action without a meeting, the
affirmative vote of a majority of the Management Team members is the act of the
Management Team. The action must be evidenced by one or more written consents
describing the action taken, signed by each Management Team member, indicating
each signing Management Team member's vote or abstention on the action, and
shall be included in the minutes or filed with the Management Team records
reflecting the action taken.
61
<PAGE>
EXHIBIT 10.17
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
MIDSOUTH PRACTICE MANAGEMENT, INC.,
and
BRYANT MEDICAL SERVICES, P. C.
Dated as of November 10, 1997
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
PRELIMINARY STATEMENTS..................................................... 6
ARTICLE 1. INTERPRETATION................................................. 6
Section 1.1. Definitions.............................................. 6
Section 1.2. Effect of Definitions.................................... 12
Section 1.3. This Agreement........................................... 12
Section 1.4. Case and Gender.......................................... 13
ARTICLE 2. RELATIONSHIP OF THE PARTIES.................................... 13
Section 2.1. Independent Relationship................................ 13
Section 2.2. Responsibilities of the Parties......................... 13
Section 2.3. Practice Matters........................................ 13
Section 2.4. Patient Referrals....................................... 13
Section 2.5. Professional Judgment................................... 13
ARTICLE 3. ADMINISTRATIVE AND MANAGEMENT SERVICES
OF MIDSOUTH.................................................... 14
Section 3.1. Management Services and Administration.................. 14
Section 3.2. Budgets and Finances.................................... 17
Section 3.3. Financial Statements and Audits......................... 17
Section 3.4. Inventory and Supplies.................................. 18
Section 3.5. Management Team Chief Executive......................... 18
Section 3.6. Personnel............................................... 18
Section 3.7. Capital Expenditures and Loans.......................... 19
Section 3.8. Compliance with Applicable Law.......................... 19
Section 3.9. Quality Assurance....................................... 19
Section 3.10. Ancillary Services...................................... 19
Section 3.11. New Medical Services and Additional Practice OffIces.... 19
Section 3.12. Manner of Performance................................... 20
ARTICLE 4. OBLIGATIONS OF THE PRACTICE.................................... 20
Section 4.1. Physicians.............................................. 20
Section 4.2. Provision of Medical Services........................... 20
Section 4.3. Professional Standards.................................. 20
Section 4.4. Billing Information..................................... 21
Section 4.5. Medical Practice........................................ 21
Section 4.6. Additional Physicians................................... 21
Section 4.7. Utilization Review; Quality Assurance................... 21
Section 4.8. Non-discrimination; Compliance with Applicable Law...... 21
Section 4.9. Non-discriminatory Patient Selection and Service; Non-
discriminatory Patient Assignment....................... 21
Section 4.10. Standards, Accreditation, Surveys and Inspections....... 22
Section 4.11. Contracts............................................... 22
Section 4.12. Organization and Area of Care........................... 22
Section 4.13. Records and Reports..................................... 22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 4.14. The Practice to Provide Necessary Billing Information.....22
Section 4.15. Continuing Education..................................... 22
SECTION 4.16. Referrals................................................ 22
Section 4.17. Provider Numbers......................................... 23
ARTICLE 5. FACILITIES OF THE PRACTICE...................................... 23
Section 5.1. The Practice Facilities.................................. 23
Section 5.2. Right to Use Property.................................... 23
ARTICLE 6. COMPENSATION.................................................... 23
Section 6.1. Fees..................................................... 23
Section 6.2. Purchase of Accounts Receivable.......................... 24
Section 6.3. Early Termination of Physician Shareholder............... 28
ARTICLE 7. RESTRICTIVE COVENANTS AND ENFORCEMENT........................... 29
Section 7.1. Exclusive Arrangement.................................... 30
Section 7.2. Restrictive Covenants by the Practice.................... 30
Section 7.3. Restrictive Covenants By Current Physician Employees..... 30
Section 7.4. Restrictive Covenants By Future Physician Employees...... 31
Section 7.5. Physician Employee Liquidated Damages.................... 31
Section 7.6. Rights of MidSouth....................................... 31
Section 7.7. Excluded Activities...................................... 31
Section 7.8. Enforcement.............................................. 32
ARTICLE 8. DUTIES OF THE MANAGEMENT TEAM................................... 32
Section 8.1. Formation and Operation of the Management Team........... 32
Section 8.2. Duties and Responsibilities of the Management Team....... 32
ARTICLE 9. INSURANCE AND INDEMNITY......................................... 34
Section 9.1. Insurance to be Maintained by the Practice............... 34
Section 9.2. Insurance to be Maintained by MidSouth................... 34
Section 9.3. Tail Insurance Coverage.................................. 34
Section 9.4. Additional Insured....................................... 35
Section 9.5. Indemnification.......................................... 35
ARTICLE 10. TERM AND TERMINATION........................................... 36
Section 10.1. Term of Agreement........................................ 36
Section 10.2. Extended Term............................................ 36
Section 10.3. Termination by the Practice.............................. 36
Section 10.4. Termination by MidSouth.................................. 37
Section 10.5. Actions after Termination................................ 37
Section 10.6. Closing of Repurchase by the Practice and
Effective Date of Termination............................ 38
ARTICLE 11. INTELLECTUAL PROPERTY AND RECORDS.............................. 39
Section 11.1. Proprietary Information.................................. 39
Section 11.2. Ownership of MidSouth's Business Records and Systems..... 39
Section 11.3. Maintenance and Access of Records........................ 40
Section 11.4. Patient Records.......................................... 40
Section 11.5. Access to Records........................................ 40
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF THE
PRACTICE AND PHYSICIAN SHAREHOLDER..................................................... 40
Section 12.1. Validity........................................................................... 40
Section 12.2. Litigation......................................................................... 41
Section 12.3. Permits............................................................................ 41
Section 12.4. Authority.......................................................................... 41
Section 12.5. Compliance with Applicable Law..................................................... 41
Section 12.6. Health Care Compliance............................................................. 42
Section 12.7. Fraud and Abuse.................................................................... 42
Section 12.8. Practice Compliance................................................................ 42
Section 12.9. Rates and Reimbursement Policies................................................... 42
Section 12.10. Accounts Receivable................................................................ 43
Section 12.11. Full Disclosure.................................................................... 45
Section 12.12. Exhibits........................................................................... 45
ARTICLE 13. REPRESENTATIONS AND WARRANTIES OF MIDSOUTH............................................. 45
Section 13.1. Organization....................................................................... 45
Section 13.2. Authority.......................................................................... 45
Section 13.3. Absence of Litigation.............................................................. 46
Section 13.4. Transactions with Affiliates....................................................... 46
ARTICLE 14. COVENANTS OF THE PRACTICE AN
PHYSICIAN SHAREHOLDER.................................................................. 46
Section 14.1. Merger, Consolidation and Other Arrangements....................................... 46
Section 14.2. Necessary Authorizations/Assignment of
Licenses and Permits .............................................................. 46
Section 14.3. Transaction with Affiliates........................................................ 46
Section 14.4. Compliance with All Applicable Law................................................. 46
Section 14.5. Third Party Payor Programs......................................................... 47
Section 14.6. Change in Business or Credit and Collection Policy................................. 47
Section 14.7. Treatment of Accounts Receivable................................................... 47
Section 14.8. Security Interest.................................................................. 47
ARTICLE 15. MISCELLANEOUS.......................................................................... 48
Section 15.1. Assignment......................................................................... 48
Section 15.2. This Agreement..................................................................... 48
Section 15.3. No Practice of Medicine............................................................ 48
Section 15.4. Non-Waiver......................................................................... 49
Section 15.5. Waivers............................................................................ 49
Section 15.6. Amendments......................................................................... 49
Section 15.7. Severability....................................................................... 49
Section 15.8. Successors......................................................................... 49
Section 15.9. Third Parties...................................................................... 49
Section 15.10. Saturdays. Sundays and Holidays.................................................... 50
Section 15.11. Joint Preparation.................................................................. 50
Section 15.12. Captions........................................................................... 50
Section 15.13. Notices............................................................................ 50
Section 15.14. Counterparts....................................................................... 50
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 15.15. Further Assurances.................................................................. 51
Section 15.16. Attorneys' Fee...................................................................... 51
Section 15.17. Time is of the Essence.............................................................. 51
Section 15.18. Confidentiality..................................................................... 51
Section 15.19. Contract Modifications for Prospective Legal
Events and Cost Reductions.......................................................... 51
Section 15.20. Remedies Cumulative................................................................. 51
Section 15.21. No Obligation to Third Parties...................................................... 51
Section 15.22. Compliance with Federal Applicable Law.............................................. 52
Section 15.23. Patient Referrals................................................................... 52
Section 15.24. Independent Contractors............................................................. 52
Section 15.25. Force Majeure....................................................................... 52
Section 15.26. Communications...................................................................... 52
Section 15.27. Governing Applicable Law............................................................ 52
</TABLE>
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") dated as of November
__, 1997, by and between MIDSOUTH PRACTICE MANAGEMENT, INC., a Tennessee
corporation ("MidSouth"), BRYANT MEDICAL SERVICES, P. C., a Tennessee
professional corporation (the "Practice") and James W. Bryant, M. D. ("Physician
Shareholder") for the limited purposes as set forth herein.
PRELIMINARY STATEMENTS
1. The Practice is a family medical practice in the Memphis, Tennessee area
which provides professional medical care to the general public through the
operation of a family practice clinic.
2. MidSouth is in the business of owning certain assets of and managing
and administering the businesses of medical practices.
3. The Practice desires for MidSouth to provide management and
administrative services for the Practice.
NOW, THEREFORE, in consideration of the foregoing and the promises
contained herein, and ten dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of all of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE 1. INTERPRETATION.
---------------
SECTION 1.1. DEFINITIONS. For the purposes of this Agreement, the following
-------------
definitions shall apply:
1.1.1. "Account Debtor" shall mean an account debtor o-or any other person
obligated in respect of an Account Receivable.
1.1.2. "Accounts" shall mean, with respect to the Practice, all Accounts
Receivable including any and all rights to payment of money or other forms of
consideration of any kind (whether classified under the Uniform Commercial
Code as accounts, chattel paper, general intangibles, or otherwise) for goods
sold or leased or for services rendered by the Practice, including, but not
limited to, accounts receivable, proceeds of any letters of credit naming the
Practice as beneficiary, chattel paper, insurance proceeds, contract rights,
notes, drafts, instruments, documents, acceptances, and all other debts,
obligations and liabilities in whatever form from any other person.
1.1.3. "Accounts Receivable" shall mean, with respect to the Practice, all
Accounts and any and all rights to payment of money or other forms of
consideration of any kind now owned or hereafter acquired (whether
classified under the Uniform Commercial Code as accounts, chattel paper,
<PAGE>
general intangibles or otherwise) for goods sold or leased or arising out of the
delivery of medical, surgical, diagnostic or other professional medical services
rendered by the Practice, including, but not limited to, accounts receivable,
proceeds of any letters of credit naming the Practice as beneficiary, chattel
paper, insurance proceeds, contract rights, notes, drafts, instruments,
documents, acceptances and all other debts, obligations and liabilities in
whatever form from any other Person; provided that, cash, checks and credit card
purchases are not included in the definition of Accounts Receivable.
1.1.4. "Applicable Law" shall mean all provisions of constitutions, laws,
statutes, codes, rules, regulations, ordinances and orders of all Governmental
Authorities and all orders and decrees of all courts, tribunals and arbitrators,
and shall include, without limitation, any Health Care Law applicable to a
person or an entity or its assets, liabilities or business.
1.1.5. "CHAMPUS" shall mean the Civilian Health and Medical Program of the
Uniformed Services.
1.1.6. "Collecting Bank" shall mean the main office of Union Planters
National Bank, located at 6200 Poplar Avenue, Memphis, Tennessee, 38119, or
any other financial institution agreed to by MidSouth for the collection of
Purchased Accounts Receivable.
1.1.7. "Contract" shall mean any material written or oral agreement,
arrangement, authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or undertaking of any
kind or character, or other document to which any person is a party or by which
any person is bound.
1.1.8. "Corporation" shall mean collectively Bryant Family Practice
Clinic, P. A. and Bryant Leasing Co., Inc., Tennessee corporations, which
formerly owned the assets of and conducted the medical practice now conducted by
the Practice.
1.1.9. "Default" shall mean (i) any breach or violation of or default under
this Agreement or any Contract, order, or permit, (ii) any occurrence of any
event that with the passage of time or the giving of notice or both would
constitute a breach or violation of or default under any Contract, order or
permit, or (iii) any occurrence of any event that with or without the passage of
time or the giving of notice would give rise to a right to terminate or revoke,
change the current terms of, or renegotiate, or to accelerate, increase, or
impose any liability under, any Contract, order or permit.
1.1.10. "Disbursement Account" shall mean the bank account maintained by
MidSouth for payment of the Practice Expenses and the Service Fees.
1.1.11. "Effective Time" shall mean that date, as defined in the Merger
Agreement, when the Merger becomes effective with the Secretary of State of the
State of Tennessee.
1.1.12. "Excluded Activities" shall mean: (i) teaching at any educational
institution and attending patients as a part of the Physician Employee's duties
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as are normal and customary for such faculty position; provided, however, such
services must be incident to the academic/teaching aspects of the institution
and not incident to the regular examination of patients for a fee, whether
billed in the name of the institution or the name of the Physician Employee;
(ii) authoring text books, research papers, or newspaper articles, or appearing
on radio or television shows or any other provision of medical advice via broad
mediums; (iii) engaging in research and development the material components of
which do not constitute medical practice management, (iv) serving as medical
director or administrative employee of any organization offering medical care,
but not providing clinical services or which is not in competition with the
Practice; and (v) serving as an expert witness.
1.1.13. "Excluded Expenses" shall be defined pursuant to Schedule 1.1.13.
1.1.14. "Excluded Revenue" shall mean revenue earned by the Physician
Employees or the Practice from Excluded Activities.
1.1.15. "Finance Charge Rate" means a rate of interest equal to the lesser
of (i) eighteen percent (18%) per annum or (ii) the maximum rate of interest
allowed by Applicable Law in effect at the usage.
1.1.16. "GAAP" shall mean generally accepted accounting principles as set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in any other
statements by any other entity or other practices and procedures as may be
approved by a significant segment of the accounting profession. For
purposes of this Agreement, GAAP shall be applied in a manner consistent with
the historical practices used by MidSouth or the Practice, as applicable.
1.1.17. "Governmental Authority" shall mean any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasigovernmental, judicial, public or statutory
instrumentality, authority, board, body, agency, bureau or entity or any
arbitrator with authority to bind a party.
1.1.18. "Governmental Lockbox Account" shall mean the account established
at the Collecting Bank by the Practice into which all proceeds of the Practice's
Governmental Receivables are remitted.
1.1.19. "Governmental Receivables" shall mean the Accounts Receivable of
the Practice which (i) arise in the ordinary course of business of the Practice,
(ii) have as their third party payor the United States of America or any state
or any agency or instrumentality of the United States of America or any state
which makes any payment with respect to Medicare or Medicaid or with respect to
any other program (including CHAMPUS) established by Applicable Law, and (iii)
are required by federal or state law to be paid to the Practice as a healthcare
provider. Governmental Receivables
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shall not, however, refer to amounts payable by private insurers under contract
to provide benefits under the Federal Employee Health Benefit Program.
1.1.20. "Health Care Law" shall mean any Applicable Law regulating the
acquisition, construction, operation, maintenance or management of a health care
practice, facility, provider or payor, including without limitation, 42 U.S.C.
(S) 1395nn and 42 U.S.C. (S) 1320a-7b.
1.1.21. "HMO" shall mean health maintenance organization; an entity that
combines health care services delivery and financing in one prepaid capitated
benefit plan.
1.1.22. "Lender" shall mean any lender of MidSouth that has a security
interest in the Purchased Accounts Receivable from time to time.
1.1.23."Lockbox Agreements" shall mean that certain lockbox operating
procedural agreement for Governmental Receivables to be entered into between the
Collecting Bank, Lender and Practice, in a form acceptable to counsel for
MidSouth as to Governmental Receivables and that certain lockbox operating
procedural agreement for Non-Governmental Receivables to be entered between the
Collecting Bank, Lender and MidSouth.
1.1.24. "Managed Care Payments" shall mean all payments actually recorded
whether on a prepayment or accrual basis for (i) capitation payments to the
Practice or MidSouth from managed care organizations where payment is made
periodically on a per member basis for the partial or total medical care needs
of a patient, co-payments and all HMO incentive bonuses, including hospital
incentive bonuses, and (ii) fees and revenue recorded by or on behalf of the
Practice, whether from the assumption of institutional or professional risk in
managed care risk assumption arrangements or otherwise, including bonus,
incentive and surplus payments from capitated services.
1.1.25. "Management Team" shall mean a committee consisting of four (4)
members established pursuant to and functioning in accordance with the
guidelines set forth in Article 8.
1.1.26. "Management Team Chief Executive" shall mean the MidSouth
employee who shall manage and administer all of the day-to-day business
functions of the Practice subject to the terms of this Agreement.
1.1.27. "Material Adverse Effect" shall mean an event, change or occurrence
which, individually or together with any other event, change or occurrence, has
a material adverse impact on (i) the financial position, business or results of
operations of any party and its subsidiaries, taken as a whole, or (ii) the
ability of such party to perform its obligations under this Agreement or the
transactions contemplated by this Agreement, provided that Material Adverse
Effect shall not be deemed to include the impact of (x) changes in Applicable
Law or interpretations thereof by courts or Governmental Authorities, (y)
changes in GAAP, and (z) the Merger and compliance with the provisions of this
Agreement on the operating performance of the parties or actions taken pursuant
to or required by this Agreement.
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l.1.28. "Medicaid" shall mean any state program pursuant to which health
care providers are paid or reimbursed for care given or goods afforded to
indigent persons and administered pursuant to a plan approved by the Health Care
Financing Administration under Title XIX of the Social Security Act.
1.1.29. "Medicare" shall mean any medical program established under Title
XVIII of the Social Security Act and administered by the Health Care Financing
Administration.
1.1.30. "Merger" shall mean the merger of the Corporation with and into
MidSouth pursuant to the Merger Agreement.
1.1.31. "Merger Agreement" means that certain Merger Agreement document
dated as of November , 1997, by and among MidSouth, the Corporation and
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Physician Shareholder.
1.1.32. "MidSouth" shall mean MidSouth Practice Management, Inc., a
Tennessee corporation.
1.1.33. "MidSouth Expenses" shall be as set forth on Schedule 1.1.33.
1.1.34. "Misdirected Payments" means payments made by an Account Debtor to
a location other than as provided in the Notification Letter or that the
Practice otherwise receives on Purchased Accounts Receivable under the terms of
this Agreement.
1.1.35. "Monthly Adjustments" shall mean adjustments to the estimated
payments that are made pursuant to Section 6.1 or Section 6.2 to reconcile the
estimated payments made pursuant to Section 6.1 or Section 6.2 with the actual
amounts due under Section 6.1 or 6.2. The Monthly Adjustments shall be made on a
monthly basis beginning on the last day of the month immediately following the
month for which the initial calculations was made.
1.1.36. "Necessary Authorizations" shall mean with respect to the Practice,
all certificates of need, authorizations, certificates, consents, approvals,
permits, licenses, notices, accreditations and exemptions, filings and
registrations, and reports required by Applicable Law, which are necessary or
reasonably useful to the lawful ownership and operation of the Practice's
business.
1.1.37. "Non-Governmental Lockbox Account" shall mean the account
established by MidSouth with the Collecting Bank into which all proceeds from
the Purchased Accounts Receivable, under which a third party is the Account
Debtor (other than Governmental Receivables), are remitted.
1.1.38. "Non-Governmental Receivables" shall mean Accounts Receivable which
are not Governmental Receivables.
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1.1.39."Notification Letter" shall mean a written notification, in a form
acceptable to counsel for MidSouth, from the Practice to third party payors
informing such third party payors that all proceeds due under the Practice's
Accounts are to be remitted to the Non-Governmental Lockbox Account or the
Governmental Lockbox Account, as the case may be.
1.1.40. "Physician Employees" shall mean those individuals (A) who are
employees or shareholders of the Practice, on a full-time or part-time basis or
are otherwise under contract with the Practice to provide professional
services to patients of the Practice, (B) whose services are billed or billable
by and in the name of the Practice and (C) who are duly licensed as physicians
to provide professional medical services in the State.
1.1.41. "Physician Extender Employees" shall mean (i) nurse anesthetists,
physician assistants, nurse practitioners, podiatrists, psychologists, and (ii)
any other service provider that generates a professional charge and whose
services are billed or billable by and in the name of the Practice and who is
duly licensed to provide professional medical services in the State.
1.1.42. "Physician Shareholder" shall mean that physician who is a
shareholder of the Practice.
1.1.43. "PPO" shall mean preferred provider organization; a joint venture
by providers to obtain contracts with payors by agreeing to give the payor a
discount in order to participate in the payor's plan.
1.1.44."Practice" shall mean Bryant Medical Service, P. C., a Tennessee
professional corporation.
1.1.45. "Practice Account" shall mean that bank account maintained by the
Practice for payment of Excluded Expenses and receipt and disbursal of the
Purchase Price.
1.1.46. "Practice Expenses" shall be calculated as set forth in Schedule
1.1.46.
1.1.47. "Practice Facilities" shall mean the properties and facilities
owned by the Practice as described in Schedule 1.1.47 and properties and
facilities subsequently acquired by the Practice and managed by MidSouth.
1.1.48. "Practice Net Revenue" shall mean Practice Revenue less Practice
Expenses.
1.1.49. "Practice Revenue" shall mean all fees or Managed Care Payments
actually recorded each month by or on behalf of the Practice as a result of
professional medical services personally furnished to patients by Physician
Employees or other professionals under control of the Practice and other fees or
income generated in their capacity as professionals, whether rendered in an
inpatient or outpatient setting, and any revenue generated from the sale of
goods. Practice Revenue shall not include Excluded Revenue. It is the intent of
the parties that Practice Revenue shall reflect the net realizable value of fees
recorded each month.
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1.1.50. "Purchase Price" shall mean the face amount of the Accounts
Receivable recorded each month, less any non-allowed contractual adjustments and
net of any reserve for uncollectible Accounts Receivable based on the most
recently completed six (6) month historical experience of the Practice or the
predecessor of the Practice, calculated on a rolling basis as the case may be,
as determined by MidSouth. It is the intent of the parties that the Purchase
Price reflect the actual net realizable value of the Purchase Accounts
Receivable.
1.1.51 . "Purchased Accounts Receivable" shall mean all Accounts
Receivable of the Practice purchased by MidSouth pursuant to this Agreement.
1.1.52. "Restricted Area" shall mean a thirty (30) mile radius from any
Practice Facility.
1.1.53. "Service Fee" shall mean the monthly fee equal to ten percent (10%)
of Practice Net Revenue plus the amount of the Practice Expenses paid by
MidSouth; the calculation of the Service Fees shall not include Excluded
Revenue, Excluded Expenses, or MidSouth Expenses.
1.1.54. "Settlement Date" shall mean the day MidSouth pays for the
Purchased Accounts Receivable which shall not be later than the fifteenth (15th)
day of each month following the month in which the Account Receivable is
created.
1.1.55. "State" shall mean the State of Tennessee.
1.1.56. "Technical Employees" shall mean individuals who provide billable
services on behalf of the Practice and are employees of the Practice.
1.1.57."Term" shall mean the period from which this Agreement is commenced
to September 30, 2022, unless terminated earlier pursuant to the terms of this
Agreement.
1.1.58. "Third Party Payor Programs" shall mean Medicare, Medicaid,
CHAMPUS, insurance provided by BlueCross and/or Blue Shield, managed care plans,
and any other private health care insurance programs and employee assistance
programs, as well as; any future similar programs.
1.1.59. "Yearly Adjustments" shall mean final adjustments based on audited
year end financial statements for the Practice which reconcile the estimated
payments made pursuant to Section 6.1 and 6.2 with the actual amounts due under
Section 6.1 and 6.2.
SECTION 1.2. EFFECT OF DEFINITIONS. The definitions set forth in Section
----------------------
1.1 above or referenced herein shall apply equally to the singular, plural,
adjectival, adverbial, and other forms of any of the words and phrases defined
regardless of whether they are capitalized.
SECTION 1.3. THIS AGREEMENT. This Agreement consists of the information set
---------------
forth herein, the schedules attached hereto and the certificates, documents and
other instruments required to be delivered hereunder and any reference to this
Agreement shall refer to all of the constituents. The date first set forth above
shall be deemed to be the date hereof for all purposes.
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Section 1.4. Case and Gender. In this Agreement words in the singular
----------------
number include the plural, and words in the plural number include the singular;
and words of the masculine gender include the feminine and the neuter, and when
the sense so indicates words of the neuter gender may refer to any gender.
ARTICLE 2. RELATIONSHIP OF THE PARTIES.
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SECTION 2.1. INDEPENDENT RELATIONSHIP. The Practice, the Physician
-------------------------
Shareholder and MidSouth intend to act and perform as independent contractors,
and the provisions hereof are not intended to create any partnership, joint
venture, agency or employment relationship between the parties. Notwithstanding
the authority granted to MidSouth herein, MidSouth, the Practice, and the
Physician Shareholder agree that the Practice and the Physician Employees shall
retain all authority to direct the medical, professional, and ethical aspects
of the Practice and the Physician Employees' medical practices. Each party shall
be solely responsible and shall comply with all Applicable Law pertaining to
employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes applicable to that party, including the
payment of any applicable payment for employees; it being understood that
MidSouth shall provide services to the Practice to assist the Practice in
satisfying its obligations described above.
SECTION 2.2. RESPONSIBILITIES OF THE PARTIES. As more specifically set
--------------------------------
forth herein; MidSouth shall manage Practice's offices and facilities and
provide the Practice with offices and facilities, equipment, supplies, certain
support personnel, management, financial and advisory services. As more
specifically set forth herein, the Practice shall be responsible for the
recruitment and hiring of physicians and all issues related to the professional
practice of medicine, medical practice patterns and documentation thereof.
Notwithstanding anything herein to the contrary, no "designated health service,"
as defined in 42 U.S.C. (S)1395nn, including any amendment or successor thereto,
shall be provided by MidSouth under this Agreement. MidSouth shall neither
exercise control over nor interfere with any physician-patient relationship,
which shall be maintained strictly between the physicians of the Practice and
their patients.
SECTION 2.3. PRACTICE MATTERS. Matters involving the internal agreements
-----------------
and finances of the Practice, including the disposition of professional fee
income, tax planning, and investment planning (and expenses relating solely to
these internal business matters) shall remain the sole responsibility of the
Practice.
SECTION 2.4. PATIENT REFERRALS. The parties agree that the benefits to the
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Practice and Physician Shareholder hereunder do not require, are not payment
for, and are not in any way contingent upon the admission, referral or any other
arrangement for the provision of any item or service offered by MidSouth to any
of the Practice's patients.
SECTION 2.5. PROFESSIONAL JUDGMENT. Each of the parties acknowledges and
---------------------
agrees that the terms and conditions of this Agreement pertain to and control
solely the business and financial relationship between and among the parties and
do not pertain to and do not control the professional and clinical
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relationship between and among the Practice, the Physician Employees, the
Practice's employees and the Practice's patients. Nothing in this Agreement
shall be construed to alter or in any way affect the legal, ethical, and
professional relationship between and among the Practice, Physician Employees
and the Practice's patients, nor shall anything contained in this Agreement
abrogate any right, privilege, or obligation arising out of or applicable to the
physician-patient relationship.
ARTICLE 3. ADMINISTRATIVE AND MANAGEMENT SERVICES OF MIDSOUTH.
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SECTION 3.1. MANAGEMENT SERVICES AND ADMINISTRATION.
---------------------------------------
(a) General Authority. The Practice hereby appoints MidSouth and MidSouth
------------------
shall serve as the exclusive manager and administrator of all daily business
functions of the Practice. The Practice agrees that the purpose and intent
of this Agreement is to relieve the Practice and Physician Employees to the
maximum extent possible of the administrative, accounting, and other business
aspects of their practice, with MidSouth assuming responsibility and being given
all necessary authority to perform these functions including, without
limitation, the authority to incur obligations in the name of the Practice to be
paid by Practice as Practice Expenses in accordance with the policies and
procedures adopted by the Management Team. MidSouth shall have the sole
authority to perform the administrative, accounting and business aspects of the
Practice as set forth herein and pursuant to the policies and procedures adopted
by the Management Team. The Practice hereby appoints MidSouth to be its true and
lawful attorney-in-fact to incur all expenses and to perform all functions in
the name and on behalf of the Practice pursuant to the policies and procedures
adopted by the Management Team. MidSouth will have no authority, directly or
indirectly, to perform, and will not perform, any medical function. MidSouth
may, however, advise the Practice to the relationship between the Practice's
performance of medical functions and the overall administrative and business
functioning of the Practice. To the extent that a MidSouth employee assists
Physician Employees in performing medical functions, such employees shall be
subject to the professional direction and supervision of Physician Employees and
in the performance of such medical functions shall not be subject to any
direction or control by, or liability to, MidSouth, except as may be
specifically authorized in writing by MidSouth.
(b)(1) Billing and Collecting. MidSouth shall, on behalf of the Practice,
------------------------
bill patients and Third Party Payor Programs and collect the fees for medical
services rendered by the Practice regardless of when or where such services are
rendered. All billings for Technical Employees' and Physician Employees'
services shall be made in the name of and under the provider number of the
Practice. The Practice hereby appoints MidSouth for the term hereof to be its
true and lawful attorney-in-fact, for the following purposes: (i) to bill
patients in the Practice's name and on its behalf; (ii) to collect Accounts
Receivable resulting from billing in the Practice's name and on its behalf;
(iii) to receive payments and prepayments from Third Party Payor Programs; (iv)
to take possession of and endorse in the name of the Practice (and/or in the
name of an individual physician, the payment intended for purpose of payment of
a bill) any notes, checks, money orders, insurance payments and other
instruments received in payment of Accounts Receivable; and (v) at the direction
of the Management Team to initiate the institution of legal proceedings in the
name of the Practice to collect any Accounts Receivable and monies owed to the
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Practice, to enforce the rights of the Practice as creditors under any Contract
or in connection with the rendering of any service, and to contest adjustments
and denials by governmental agencies (or its fiscal intermediaries) as third
party payors. All adjustments made for uncollectible accounts, professional
courtesies and other activities that do not generate a collectible fee shall be
performed in a reasonable and consistent manner approved by the Management Team.
(b)(2) Bank Accounts. All cash, checks and credit card purchases paid at
--------------
the time of the delivery of medical services by the Practice shall be remitted
to the Practice Account. All payments received by the Practice with respect to
the Purchased Accounts Receivable shall be deposited into the respective
Governmental Lockbox Account or Non-Governmental Lockbox Account. Proceeds
collected in the Governmental Lockbox Account and the Non-Governmental Lockbox
Account shall be automatically swept daily into the Disbursement Account.
MidSouth will transfer monies from the Disbursement Account (and from other
sources, if necessary) to the Practice Account for the payment of the Purchase
Price. On the Settlement Date pursuant to Article VI hereof, MidSouth shall
transfer monies less the Service Fee from the Disbursement Account to the
Practice Account for all cash, checks, and credit card purchases and other
payments received (i. e., prepay capitation fees) prior to the time of delivery
of medical services. The Practice shall establish and maintain a separate
account for the Practice, which is the Practice Account. The Practice Account
shall be controlled solely by the Practice. The parties acknowledge and agree
that in the event that the mix between Accounts Receivable and non-Accounts
Receivable receipts is altered to the point where proceeds from the Accounts
Receivable are not sufficient to pay for the Service Fee, the parties will
establish mutually agreeable terms to allow MidSouth access to the Practice
Account to pay the Service Fee. The Practice shall use the monies in the
Practice Account to pay all the Excluded Expenses. MidSouth will transfer monies
to the Practice Account to remit, on a monthly basis, the Purchase Price for the
Purchased Accounts Receivables. MidSouth will provide to the Practice a full
accounting and reconciliation of the Governmental Lockbox Account and the Non-
Governmental Lockbox Account on a monthly basis, and, upon the reasonable
request of the Practice, MidSouth shall supply to the Practice at all other
times, as the Practice shall deem necessary, an accounting and reconciliation
of the Governmental Lockbox Account and the Non-Governmental Lockbox Account.
(c) Files and Records. MidSouth shall design, supervise and maintain, at
------------------
the premises of the Practice, all files and records relating to the operation of
the Practice, including, but not limited to, accounting, billing, patient
medical records, and collection records. Patient medical records shall remain
the property of the Practice and shall be located at the premises of the
Practice so the medical records are readily accessible for patient care. The
management of all files and records shall comply with the Applicable Law. The
Physician Employees shall have the obligation to oversee the preparation and
maintenance of patient medical records, and to provide any medical information
as shall be necessary and appropriate to the records' clinical function and to
sustain and ensure the availability of Third Party Payor Program reimbursement
for services rendered. MidSouth shall take all steps reasonably necessary to
preserve the confidentiality of patient medical records and other patient
identifying information and use information contained in the records only for
the limited purpose necessary to perform the services set forth herein.
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(d) Miscellaneous Services. MidSouth shall arrange for necessary clerical,
----------------------
accounting, bookkeeping and computer services, printing, postage and copier
services, medical transcribing services and any other ordinary, necessary or
appropriate service for the operation of the Practice, all of which shall be
Practice Expenses.
(e) Marketing. Subject to approval by the Management Team, MidSouth shall
---------
supervise the design and implementation of an appropriate marketing program on
behalf of the Practice, with appropriate emphasis on public awareness of the
availability of the services of the Practice. The costs of any marketing
services shall be a Practice Expense. The marketing program shall be conducted
in compliance with Applicable Law, regulations and applicable canons or
principles of professional ethics governing the Physician Employees or Physician
Extender Employees.
(f) Tax Returns. MidSouth shall provide the data necessary for the Practice
-------------
to prepare its annual federal and state income and general excise tax returns
and upon the request of the Practice shall arrange for the preparation of all
returns. The cost of preparing the data and tax returns shall be a Practice
Expense. MidSouth shall have no responsibility for the payment of the income
taxes and the Practice's income taxes shall not be a Practice Expense.
(g) Recruitment of Physicians. Subject to the provisions of Section 4.6,
---------------------------
MidSouth shall assist the Practice in recruiting additional physicians, carrying
out all administrative functions as may be appropriate, including, but not
limited to, advertising for and identifying potential candidates, checking
credentials, and arranging interviews; provided, however, the Practice shall
interview and make the ultimate decision as to the suitability of any physician
to become associated with the Practice. All physicians recruited by MidSouth and
accepted by the Practice shall be the sole employees of the Practice, to the
extent the physicians are hired as employees. Any expenses incurred in the
recruitment of physicians, including, but not limited to, employment agency
fees, relocation and interviewing expenses shall be budgeted as a Practice
Expense and shall be payable by the Practice.
(h) Managed Care Contracts. MidSouth shall negotiate and administer all
-----------------------
managed care Contracts on behalf of the Practice and shall consult with the
Practice on all professional or clinical matters relating thereto. The Practice,
at its discretion, shall have the right to enter into or reject such contracts
negotiated by MidSouth. Such contracts shall be and will remain the property of
the Practice.
(i) Legal and Accounting Services. Subject to the provisions of Sections
-------------------------------
3.3 and 3.1 (f), MidSouth shall arrange for legal and accounting services
related to operations of the Practice, as approved by the Management Team,
incurred in the ordinary course of business, including the attorneys' fees and
other costs of enforcing any physician employment agreement containing
restrictive covenants and attorneys' fees and other costs and expenses of
litigation, arbitration or other proceedings for malpractice suits against the
Practice and its personnel to the extent the fees, costs and expenses are not
covered by insurance, provided the services shall be approved in advance by the
Management Team Chief Executive. The legal and accounting services expenses
shall be Practice Expenses.
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(j) Maintenance. MidSouth shall supervise the proper cleanliness of the
------------
premises of the Practice Facilities, and maintenance and cleanliness of the
equipment, furniture and furnishings located upon the premises of the Practice,
which shall be a Practice Expense.
(k) Licensing. MidSouth shall pay all professional licensure fees and board
---------
certification fees of Physician Employees and Physician Extender Employees
associated with the Practice, and governmental filings for any and all licenses
and certifications for the Practice, all of which shall be a Practice Expense.
(1) Reports. MidSouth shall supervise the preparation and filing of all
--------
Medicare cost reports and other governmental reports, which shall be a Practice
Expense.
(m) Insurance. MidSouth shall negotiate for the insurance provided for in
----------
Section 9.1. Premiums and deductibles with respect to the insurance policies
shall be a Practice Expense.
SECTION 3.2. BUDGETS AND FINANCES. MidSouth shall prepare annual capital
---------------------
and operating budgets (the "Budgets") reflecting in reasonable detail the
anticipated revenue and expenses, and sources and uses of capital for growth in
the Practice and medical services rendered at the Practice. Said budgets shall
reflect amounts, if any, allocated for capital purchases, improvements,
expansion and any new leasing arrangements. Within sixty (60) days of the date
of this Agreement, MidSouth shall submit a proposed budget to the Management
Team for its approval. In subsequent years, not later than thirty (30) days
prior to the end of the fiscal year, MidSouth shall submit a budget for the
upcoming fiscal year to the Management Team. In the event that the Management
Team does not approve the budget submitted by MidSouth, then the budget for the
"unapproved" year shall be the budget for the most recent agreed year adjusted
on an item-by-item basis by the all cities consumer price index with the items
of the most recent agreed budget as the base year. The budget shall be binding
upon MidSouth and the Practice. MidSouth shall consult with the Practice and the
Management Team in the preparation of all budgets. MidSouth and the Practice
acknowledge and agree that once a budget has been approved, neither MidSouth nor
the Practice shall make capital expenditures or incur capital expenses in excess
of budgeted amounts without the prior approval of the Management Team. In
addition, neither party shall pay operating expenses in excess of the budgeted
amounts without the approval of the Management Team.
SECTION 33. FINANCIAL STATEMENTS AND AUDITS. MidSouth shall prepare annual
--------------------------------
financial statements for the operations of the Practice and, in its sole
discretion, may cause the financial statements to be audited by a certified
public accountant selected by MidSouth. The Practice shall cooperate fully in
such audit. The cost of such audit shall be a Practice Expense. If MidSouth
elects to have the financial statements audited by a certified public accountant
with a big six accounting firm, the resulting audited financial statements shall
be binding on the Practice and MidSouth. If MidSouth elects not to have the
Practice's financial statements audited by a big six accounting firm, the
Practice shall have the option to obtain such an audit, by a certified public
accountant with a mutually acceptable accounting firm. MidSouth shall fully
cooperate in such audit. The cost of such audit shall be a Practice Expense. In
such event, MidSouth and the Practice shall be bound by the resulting audited
financial statements. All parties shall be entitled to copies of any information
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provided to or by the auditors by or to any party. Additionally, MidSouth shall
prepare monthly unaudited financial statements containing a balance sheet and
statements of income from the Practice operations, which shall be delivered to
the Practice within thirty (30) business days after the close of each calendar
month.
SECTION 3.4. INVENTORY AND SUPPLIES. MidSouth shall order and purchase all
---------------------
inventory, supplies, and other ordinary, necessary or appropriate materials
reasonably necessary for the operation of the Practice which are requested by
the Practice and are within the Budget for the applicable fiscal year. Items
ordered hereunder shall be purchased by the Practice, which shall be a Practice
Expense. MidSouth shall not purchase inventory, goods or supplies from any
affiliate of MidSouth without approval of the Management Team after full
disclosure of all terms to the Management Team.
SECTION 3.5. MANAGEMENT TEAM CHIEF EXECUTIVE. Subject to the provisions of
-------------------------------
Section 8.2.10, MidSouth shall hire and appoint the Management Team Chief
Executive who shall serve as an employee of MidSouth and who shall manage and
administer all of the day-to-day business functions of the Practice. MidSouth
shall determine the salary and fringe benefits of the Management Team Chief
Executive which shall be a MidSouth Expense. At the direction, supervision and
control of MidSouth, the Management Team Chief Executive, subject to the terms
of this Agreement, shall implement the policies established by the Management
Team and shall generally perform the duties and have the responsibilities of a
chief executive officer.
SECTION 3.6. PERSONNEL.
---------
3.6.1. Physician Employees and Physician Extender Employees shall be
employees of the Practice, and any and all salaries, benefits, (including
contributions under any employee benefits plan), severance benefits and other
direct or indirect costs of all employees shall be payable by the Practice,
which shall be an Excluded Expense. Except that MidSouth shall advance to the
Practice the amount necessary to compensate the Physician Extender Employees and
the Physician Employees, who are not Physician Shareholder, for the first month
of the term of this Agreement in an amount equal to the regular payroll payments
made to such Physician Extender Employees and Physician Employees, who are not
Physician Shareholder. The sum advanced shall be divided into twelve (12) equal
parts and deducted from Purchase Price paid to Practice each month until the
advance is repaid. The advance shall not be a Practice Expense.
3.6.2. Subject to the provisions of Article 2, all other personnel
necessary to carry out the duties of MidSouth hereunder or reasonably necessary
for the conduct of the Practice shall be employees of MidSouth and shall be
under the supervision of the Management Team Chief Executive or his designee.
MidSouth shall determine the salaries and fringe benefits of all personnel,
within the budget policies and procedures adopted by the Management Team, the
cost of which will be payable by the Practice as a Practice Expense. Personnel
performing patient care services shall be subject to the professional
supervision of the Physician Employees. If the Practice is dissatisfied with the
services of any person, the Practice shall consult with MidSouth. MidSouth shall
in good
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faith determine whether the performance of that employee could be brought to
acceptable levels through counsel and assistance, or whether the employee should
be terminated.
SECTION 3.7. CAPITAL EXPENDITURES AND LOANS. All capital expenditures shall
------------------------------
be approved by the Management Team. MidSouth shall determine whether approved
capital expenditures shall be funded by MidSouth through borrowings, leases,
loans, or other financing methods through independent third-party financial
institutions, or investments by MidSouth for reinvestment.
SECTION 3.8. COMPLIANCE WITH APPLICABLE LAW. MidSouth shall comply with all
------------------------------
Applicable Law, including, but not limited to, federal, state and local laws,
regulations and restrictions in the conduct of its obligations under this
Agreement affecting billing and reimbursement, referrals, patient privacy and
confidentiality, management of hazardous materials and infectious waste.
MidSouth shall implement procedures designed to detect and deter potential
violations of Applicable Law including (i) distributing annually a set of
guidelines for Physician Employees and Physician Extender Employees regarding
proper compliance with all Applicable Law; (ii) establishing a "Compliance
Committee" with representatives from the Management Team and MidSouth; and (iii)
engaging qualified professional advisors to review operations and acquisitions
by MidSouth or its subsidiaries. MidSouth shall comply with Applicable Law
including, without limitation, Health Care Law including, without limitation,
federal, state and local laws and regulations affecting billing and
reimbursement, referrals, patient privacy and confidentiality, and management of
hazardous materials and infections waste. In the event that changes in such laws
occur, resulting in a need for modification of the manner in which MidSouth
operates, MidSouth shall make such appropriate modifications to maintain
compliance with such laws. MidSouth shall discharge its obligations under this
Agreement consistent with reasonable industry standards and practices.
SECTION 3.9. QUALITY ASSURANCE. MidSouth shall assist the Practice in
-----------------
fulfilling its obligations to its patients to maintain a professionally
recognized quality of medical and professional services.
SECTION 3.10. ANCILLARY SERVICES. MidSouth shall operate ancillary services
--------------------
as approved by the Management Team upon the receipt of an opinion from counsel
that the proposed ancillary service does not violate any Applicable Law,
including, but not limited to, 42 U.S.C. (S)1395nn ("Stark I and Stark II").
SECTION 3.11. NEW MEDICAL SERVICES AND ADDITIONAL PRACTICE OFFICES. If the
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Practice desires to have a new ancillary service provided at any of the
Practice's offices or desires to establish a new Practice office, a proposal of
such ancillary service or the establishment of such new office shall be
submitted to the Management Team. Should the Management Team approve the
provision of such new ancillary service or the establishment of such new
Practice office, MidSouth at its option, shall have the exclusive right to: (i)
provide services necessary to support the Practice in the Practice's delivery of
such new ancillary services at the Practice office or new Practice office, as
applicable, and (ii) invest and have ownership in any new ancillary services for
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which facility fees may be generated; provided, however, if the type of
service is an ancillary service that would be improper under any Applicable Law
for MidSouth to offer to the Practice's patients, then MidSouth shall not have
the option to provide such service. Should MidSouth decline to provide the
necessary support service or ownership for the new ancillary service or new
Practice office, the Practice shall be entitled to perform such service at the
Practice's own expense and the revenue therefrom shall not be Practice Revenue
under this Agreement.
SECTION 3.12. MANNER OF PERFORMANCE. MidSouth shall provide (or cause to be
---------------------
provided) to the Practice the services set forth above. MidSouth shall
efficiently manage the Practice and perform its duties hereunder in the manner
as it deems appropriate, exercising reasonable judgment, to meet the daily
requirements of the operations of the Practice in accordance with the provisions
of this Agreement and the general standards approved by the Management Team. The
Practice shall not act in a manner which would prevent MidSouth from efficiently
managing the Practice.
ARTICLE 4. OBLIGATIONS OF THE PRACTICE.
---------------------------
In providing its professional services to patients, the Practice shall have
the following obligations:
SECTION 4.1. PHYSICIANS. The Practice shall notify MidSouth, upon execution
----------
of this Agreement, of the identities of the Physician Employees and their
respective areas of practice. A list of the Physician Employees and their areas
of practice is attached hereto as Schedule 4.1. The Practice shall enter into
physician employment agreements with all Physician Employees. Any new employment
agreements shall be reviewed prior to execution, and MidSouth shall promptly be
provided with copies of the executed employment agreements and any revisions or
amendments thereto. All Physician Employees shall be licensed in all states in
which the Physician Employee practices.
SECTION 4.2. PROVISION OF MEDICAL SERVICES. The Practice shall perform, or
-----------------------------
subcontract to perform as necessary, all medically necessary services for
patients, including managed care patients, in accordance with the terms of
managed care agreements and subject to the utilization review protocols. All
subcontracts shall be reviewed by MidSouth prior to their execution.
SECTION 4.3. PROFESSIONAL STANDARDS. The Practice and its Physician
-----------------------
Employees shall provide the professional services to patients described in
Section 4.2. above in compliance at all times with ethical standards, Applicable
Law and regulations relating to the Practice's professional practice. The
Practice shall also make all reports and inquiries to any national practitioners
data bank and/or any state data bank required by Applicable Law. The Practice
shall use its best efforts to determine that each Physician Employee and
Technical Employee associated with the Practice, who provides medical care to
patients of the Practice, is licensed by the state or states in which he or she
renders professional services. If any disciplinary or medical malpractice action
is initiated against any such individual, the Practice shall immediately provide
MidSouth with copies of any third-party documents served on the Practice or
letters delivered to the Practice (not otherwise privileged). The information
shall be deemed confidential information and shall, notwithstanding
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disclosure, remain subject to all privileges and immunities provided by
Applicable Law. MidSouth shall take all steps reasonably necessary to assure
that their privileges and immunities remain intact. Pursuant to Section 4.9, the
Practice shall carry out a program to monitor the quality of medical care
provided by the Practice.
SECTION 4.4. BILLING INFORMATION. The Practice shall promptly provide
-------------------
MidSouth with all billing information requested by MidSouth to enable MidSouth
to bill and collect the Practice's charges, and the Practice shall procure
consents to assignments and other approvals and documents necessary to enable
MidSouth to obtain payment or reimbursement from third party payors and/or
patients. The Practice shall assist MidSouth in obtaining and maintaining all
provider numbers necessary to obtain payment or reimbursement for the services
provided by the Practice.
SECTION 4.5. MEDICAL PRACTICE. The Practice shall use and occupy the
-----------------
Practice Facilities exclusively for the practice of medicine and shall comply
with all Applicable Law and standards of medical care. It is expressly
acknowledged by the parties that the medical practice or practices conducted at
the Practice Facilities shall be conducted solely by physicians or medical
practitioner associated with the Practice, and no other physician or medical
practitioner shall be permitted to use or occupy the Practice Facilities without
the prior written consent of MidSouth.
SECTION 4.6. ADDITIONAL PHYSICIANS. The Practice shall use its best efforts
---------------------
to provide any additional physicians required by the level of patient activity
anticipated by the MidSouth and communicated to the Practice.
SECTION 4.7. UTILIZATION REVIEW; QUALITY ASSURANCE. The Practice shall
---------------------------------------
contractually bind each Physician Employee and Physician Extender Employee to
cooperate with and participate in applicable programs and systems of quality of
care assessment, grievance procedures, peer review and utilization review.
Information developed in the course of physician quality assurance and peer
review activities shall be maintained by MidSouth as privileged and
confidential, except where its disclosure is consented to by the Practice or is
required by Applicable Law.
SECTION 4.8. NON-DISCRIMINATION; COMPLIANCE WITH APPLICABLE LAW. All
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employment policies, standards and procedures of the Practice shall be in
accordance with non-discrimination provisions of the Applicable Law. In the
event that any government Contract or regulation requires reports or disclosures
of MidSouth and its contractors, the Practice, upon MidSouth's request, shall
make, execute and deliver all reports, disclosures or other written information,
guarantees or assurances as may be reasonably requested by MidSouth to assure
timely compliance.
SECTION 4.9. STANDARDS, ACCREDITATION, SURVEYS AND INSPECTIONS. The
-------------------------------------------------
Practice shall meet all medical practice, licensure and ethical standards, which
are pertinent to its activities or which by Contract it has agreed to abide. The
Practice shall in good faith cooperate with inspections and on-site surveys of
the Practice as may be conducted by governmental agencies, accrediting
organizations or payors. MidSouth shall, to the extent possible, give the
Practice advance notice of the inspections and surveys and schedule the
inspections during reasonable business hours.
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Section 4.10. CONTRACTS. The Practice, the Physician Employees and the
----------
Physician Extender Employees shall abide by the terms of any Managed Care
Agreements entered into by on behalf of and with the consent of the Practice,
including, without limitation, self-insured, PPO, HMO and similar agreements.
Section 4.11. ORGANIZATION AND AREA OF CARE. The Practice shall comply with
------------------------------
policies and procedures pertinent to scheduling, billing, reconciliation of
capitation, and other administrative matters relating to the organization of the
non-professional aspects of the delivery of care as may be established, from
time to time, by MidSouth after consultation with the Practice.
Section 4.12. RECORDS AND REPORTS. The Practice shall assist MidSouth in
--------------------
maintaining and, where required by Applicable Law or legal process, in divulging
records and information concerning its health care services. The Practice shall
give MidSouth full access to all of its medical and financial records for the
Practice Account.
Section 4.13. THE PRACTICE TO PROVIDE NECESSARY BILLING INFORMATION. The
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Practice agrees to provide MidSouth with all billing information for fee-for-
service and managed care patients, including, but not limited to, the name of
the patient, the date of service, the nature and extent of services provided and
any supporting medical information necessary to obtain payment or reimbursement
for services.
Section 4.14. CONTINUING EDUCATION. The Practice shall ensure that
---------------------
all Physician Employees and Physician Extender Employees maintain competence in,
and remain currently well-informed as to recent developments about, their
particular areas of medical practice, interest and specialization. Accordingly,
subject to the Practice at all times providing sufficient physicians to care for
the needs of patients, the Physician Employees and Physician Extender Employees
shall attend seminars, keep current with journals and take other reasonable
steps to remain proficient in their particular specialties. All seminars
necessary to maintain licensure or competence shall be the responsibility of the
Practice and the individual Physician Employees and Physician Extender
Employees. At a minimum, the Practice shall ensure that each Physician Employee
and each Physician Extender Employee participates in such continuing medical
education as is necessary for the Physician Employee and each Physician Extender
Employee to remain licensed.
SECTION 4.15. REFERRALS. The Practice and the Physician Employees shall
----------
make referrals to specialists in a manner consistent with (a) the terms and
conditions of government programs or managed care agreements applicable to the
care of the patient, and (b) any Applicable Law, including, but not limited to,
Stark I and Stark II, as amended.
Section 4.16. PROVIDER NUMBERS. The Practice shall procure and maintain
----------------
medical group provider numbers, including without limitation, Medicare and
Medicaid provider numbers, necessary or appropriate to obtain payment or
reimbursement on the Practice's behalf.
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ARTICLE 5. FACILITIES OF THE PRACTICE.
--------------------------
SECTION 5.1. THE PRACTICE FACILITIES. MidSouth agrees to maintain in good order
------------------------
the properties and facilities owned by the Practice on the date of this
Agreement and/or more fully described in Schedule 1.1.47 attached hereto (the
"Practice Facilities "), and shall pay the lease payments, costs of repairs,
maintenance and improvements, utility (telephone, electric, gas, water)
expenses, normal janitorial services, refuse disposal and all other costs and
expenses reasonably incurred in conducting operations of the Practice during the
term of this Agreement. All of these costs shall be Practice Expenses; however,
the costs of debt service on any real property owned by the Practice shall not
be a Practice Expense. Nothing contained herein is intended to require the
MidSouth to provide the foregoing services if the services are required to be
provided by the landlord under a lease for a specific property. The Management
Team shall make all determinations regarding the condition, use and needs for
the offices, facilities and improvements. The Management Team shall determine
any changes to the office and facility locations of the Practice. MidSouth
shall use its best efforts to create comparable properties and facilities if the
Practice Facilities are damaged by fire or other casualty or taken through
eminent domain.
SECTION 5.2. RIGHT TO USE PROPERTY. MidSouth shall have access to the
-----------------------
Practice Facilities during the term of this Agreement, or, with respect to
property leased by the Practice, during the term of any lease or sublease of the
premises and any additional premises leased, subleased or acquired by the
Practice during the term of this Agreement. The Practice shall not enter into
any new leases or subleases or agree to amend any currently existing lease or
sublease without the express written consent of the Management Team. The right
to have access to the premises shall not constitute a lease or sublease of the
premises, shall not constitute an assignment of any of the Practice's rights
under existing leases, and shall not be construed as an assignment or other
transfer of any rights of the Practice to its owned property or any rights under
any existing leases.
ARTICLE 6. COMPENSATION.
-------------
SECTION 6.1. FEES. MidSouth shall be paid as follows:
-----
(a) The Practice shall pay to MidSouth a Service Fee equal to ten percent
(10%) of Practice Net Revenue plus the amount of Practice Expenses incurred by
MidSouth. Physician Shareholder hereby guarantees that Practice shall pay a
minimum annual Service Fee of Sixty Thousand Dollars ($60,000) for each year up
to and including the fifth (5th) year from the date hereof. The minimum annual
Service Fee guaranteed shall increase to $75,000 if and when Dr. Rebecca Rezaei,
M.D. commences full-time employment by the Practice during the first year of the
Term. The guaranteed minimum annual Service Fee for the first year of the Term
shall be the sum of $60,000 plus $1,250 for each full month during the year in
which Dr. Rezei is employed by the Practice on a full-time basis.
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(b) The amounts to be paid to MidSouth under this Section 6.1 shall be
payable monthly and shall reflect the Service Fee for payments deposited into
the Practice Account, at the time that MidSouth pays the Practice for the
Purchased Accounts Receivable as described in Section 6.2 below. The Practice
shall receive the Purchase Price as defined below, plus other payments (less any
applicable Service Fee) received by MidSouth to the extent such payments are not
reflected as Accounts Receivable of the Practice. The amount of the Service Fee
payable shall be estimated based upon the previous month's operating results of
the Practice. Any amounts due to MidSouth as a result of a Monthly Adjustment to
the Service Fee shall be paid by the Practice on the next succeeding date on
which MidSouth purchases Accounts Receivable from the Practice. The Yearly
Adjustments to the Service Fee and any amount owed shall be calculated and paid
within ninety (90) days following date upon which the Practice receives notice
of the amount of the Yearly Adjustment. The Physician Shareholder acknowledges
and agrees that he is a party, individually, to this Agreement and that if the
Practice fails to pay the Service Fees herein described, MidSouth shall have the
right to collect the Service Fees from the Physician Shareholder. The Management
Team shall establish the relative amount of the Service Fees applicable to each
Physician Shareholder.
SECTION 6.2. PURCHASE OF ACCOUNTS RECEIVABLE AND OTHER PAYMENT
-------------------------------------------------
Section 6.2.1. During the Term of this Agreement, the Practice hereby
agrees to sell and assign to MidSouth and MidSouth agrees to purchase, all of
the Practice's Accounts Receivable each month ("Purchased Accounts Receivable").
Purchased Accounts Receivable shall not include, and MidSouth shall not
purchase, any cash, checks or credit card receivables (not related to previously
Purchased Accounts Receivable) received by the Practice, all of which shall be
deposited into the Practice Account and calculated as part of the Practice Net
Revenues.
Section 6.2.2. The purchase price for the Purchased Accounts Receivable
(the "Purchase Price") will be equal to the face amount of the Accounts
Receivable recorded each month in a final billable form, less (i) any non-
allowed contractual adjustments imposed by Third Party Payor Programs, and (ii)
any reserve for uncollectible Accounts Receivable. The Purchase Price will be
estimated each month to take into account contractual adjustments and
uncollectible Accounts Receivable based on the most recently completed six (6)
month historical experience of the Practice or the predecessor of the Practice,
calculated on a rolling basis, as determined by MidSouth. It is the intent of
the parties that the Purchase Price reflect the actual net realizable value of
the Accounts Receivable.
Section 6.2.3. The Practice will sell all Accounts Receivable to MidSouth
and each purchase will be deemed to be made on the day after which the Accounts
Receivable are created. MidSouth shall pay the estimated Purchase Price for the
Purchased Accounts Receivable no later than the 15th day of each month
following the month in which the Purchased Accounts Receivable are created (the
"Settlement Date"). In the event the Yearly Adjustments to the Purchase Price
indicate that MidSouth has underpaid the Practice for the Purchased Accounts
Receivable, MidSouth shall remit the amount of the underpayment to the Practice
on the next date on which MidSouth purchases Accounts Receivable from the
Practice. In the event the Yearly Adjustments to the Purchase Price indicate
that MidSouth has overpaid for Purchased Accounts Receivable, the Practice shall
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remit to MidSouth the amount of such overage on the next date on which MidSouth
purchases Accounts Receivable from the Practice. MidSouth shall pay the Practice
for all Purchased Accounts Receivable by check, wire transfer or intrabank
transfer to the Practice Account. The purchase of Accounts Receivable shall be
evidenced by the Practice sending MidSouth (i) a copy of each invoice with
respect to each third-party payor on the Purchased Accounts Receivable; and (ii)
any other information or documentation (including all required Uniform
Commercial Code ("UCC") releases or financing statements) MidSouth may
reasonably need to identify the Purchased Accounts Receivable and obtain payment
from the Account Debtors; provided that the failure to send any documentation
shall not affect the obligation of the Practice to sell the Purchased Accounts
Receivable or MidSouth to purchase the Purchased Accounts Receivable. As
consideration for the acquisition of the Purchased Accounts Receivable by
MidSouth pursuant to this Section 6.2, MidSouth promises to pay and shall be
obligated to pay the Purchase Price for the Purchased Accounts Receivable at the
time and in the manner provided above. To the extent permissible by Applicable
Law, the Practice will be deemed to have sold to MidSouth all of the Practice's
right, title and interest in the Purchased Accounts Receivable and in any
proceeds thereof, and MidSouth will be the sole and absolute owner thereof and
will own all of the Practice's rights and remedies represented by the Purchased
Accounts Receivable (including, without limitation, rights to payment from the
respective Account Debtors on the Purchased Accounts Receivable), and MidSouth
will have obtained all of the Practice's rights under all guarantees,
assignments and securities with respect to all of the Purchased Accounts
Receivable.
Section 6.2.4. Upon expiration or termination of this Agreement for any
reason; (i) all Accounts Receivable purchased by MidSouth shall remain the
property of MidSouth; and (ii) all Accounts Receivable purchased and not paid
for at the termination or expiration of this Agreement shall be paid for by the
15th day of the following month for all Purchased Accounts Receivable as of the
date of the expiration or termination date, less the amount of any Service Fees
earned by MidSouth at the termination or expiration pursuant to Section 6.1 of
this Agreement.
Section 6.2.5. In connection with the initial purchase of Accounts
Receivable by MidSouth and pursuant to this Agreement, the Practice will execute
all financing statements or amendments under the UCC (naming MidSouth as secured
party and Lender as assignee) as MidSouth may reasonably request with respect to
any Purchased Accounts Receivable.
Section 6.2.6. The Practice agrees to cooperate with MidSouth in the
collection of the Purchased Accounts Receivable transferred pursuant to Section
6.2. At the option of and upon the request of MidSouth, the Practice shall
execute any and all documentation necessary for the transfer of amounts
constituting Purchased Accounts Receivables and/or the establishment of the
Lockbox Agreement as follows:
(A) COLLECTION OF GOVERNMENTAL RECEIVABLES. With respect to payments on
--------------------------------------
Governmental Receivables, at the request and option of MidSouth, the Practice
agrees that the following procedures shall apply:
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(i) The Practice shall enter into a Lockbox Agreement applicable to
Governmental Receivables in a form acceptable to counsel for MidSouth and in a
form reasonably acceptable to the Practice which shall establish a Governmental
Lockbox Account. The Governmental Lockbox Account shall be an account in the
name of the Practice. All payments with respect to the Practice's Governmental
Receivables are to be made directly to the Governmental Lockbox Account. In the
event MidSouth exercises this option, the Practice shall instruct each Account
Debtor with respect to the Practice's Governmental Receivables to remit all such
payments directly to such Governmental Lockbox Account pursuant to a
Notification Letter. In addition, the Practice shall attach written instructions
to each invoice representing such Governmental Receivables generated subsequent
to the date of this Agreement which will instruct such third-party payor or
Account Debtor that payment under such invoice is to be paid to the Governmental
Lockbox Account. So long as this Agreement has not been terminated pursuant to
Section 10.3 or so long as any Purchased Accounts Receivable remain outstanding,
the Practice agrees that it shall not deposit any funds other than payments on
Governmental Receivables into, nor make any withdrawals from, the Governmental
Lockbox Account without the prior written consent of MidSouth. The Practice
further agrees that it shall not during the term of this Agreement terminate,
modify or amend in any manner the Lockbox Agreement applicable to the
Governmental Lockbox Account.
(ii) In accordance with the Lockbox Agreement pertaining to Governmental
Receivables, the Practice shall instruct the Collecting Bank to transfer
automatically on a daily basis all amounts deposited in Governmental Lockbox
Account constituting good funds to the Disbursement Account in accordance with
Section 3.1(b)(2). The Practice shall have no right or interest in the
Disbursement Account. The Practice shall not, so long as any Purchased Accounts
Receivable remains outstanding, change or cancel such automatic transfer order
at any time, or, without the prior written consent of MidSouth, change either
the identity of Governmental Lockbox Account or the instructions to each Account
Debtor on the related Governmental Receivable regarding making payments to such
account. Any such action shall be considered a breach of this Agreement for
which MidSouth shall be entitled to all remedies at Applicable Law and in
equity, including obtaining an injunction.
(iii) The Practice will cooperate with MidSouth and its agents in the
identification of sums deposited into Governmental Lockbox Account, which
cooperation shall continue until all Purchased Accounts Receivable sold
hereunder have been collected.
(iv) The Practice agrees to pay, on demand, a finance charge equal to the
Finance Charge Rate, on any payment on a Governmental Receivable received by the
Practice that is not deposited in Governmental Lockbox Account within two (2)
business days after receipt by the Practice.
(B) COLLECTION OF NON-GOVERNMENTAL RECEIVABLES. With respect to
-------------------------------------------
payments on Non-Governmental Receivables, at the request and option of MidSouth,
the Practice agrees that the following procedures shall apply:
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(i) Prior to the acquisition of the Purchased Accounts Receivable,
MidSouth, the Collecting Bank and Lender (if requested by Lender) shall enter
into the Lockbox Agreement applicable to Non-Governmental Receivables in a form
acceptable to counsel for MidSouth and MidSouth shall establish the Non-
Governmental Lockbox Account. All payments with respect to the Non-Governmental
Receivables are to be made directly to the Non-Governmental Lockbox Account. If
MidSouth exercises its option herein, the Practice shall instruct each Account
Debtor with respect to the Practice's Non-Governmental Receivables to remit all
payments directly to the Non-Governmental Lockbox Account pursuant to a
Notification Letter. In addition, the Practice shall attach written instructions
to each invoice representing a Non-Governmental Receivable generated subsequent
to the date of this Agreement instructing such third-party payor or Account
Debtor that payment under the invoice is to be paid to the Non-Governmental
Lockbox Account.
(ii) In accordance with the Lockbox Agreement, Practice shall instruct the
Collecting Bank to transfer automatically on a daily basis all amounts deposited
in the Non-Governmental Lockbox Account constituting good funds to the
Disbursement Account in accordance with Section 3.1(b)(2). The Practice shall
not, so long as any Purchased Accounts Receivable remains outstanding, and in
any event, during the term of this Agreement, at any time, or, without the prior
written consent of MidSouth, change the instructions to each Account Debtor on
the related Non-Governmental Receivable regarding making payments to the Lockbox
Account. Any action shall be considered a breach of this Agreement for which
MidSouth shall be entitled to all remedies under Applicable Law and in equity,
including obtaining an injunction.
(iii) The Practice will cooperate with MidSouth and its agents in the
identification of sums deposited into the Non-Governmental Lockbox Account,
which cooperation shall continue until all Purchased Accounts Receivable sold
hereunder have been collected.
(iv) The Practice agrees to pay, on demand, a finance charge equal to the
Finance Charge Rate, on any Non-Governmental Receivable received by the Practice
that is not deposited in the Non-Governmental Lockbox Account within two (2)
business days after receipt by the Practice.
(C) PROCEDURES WITHOUT LOCKBOX. It is MidSouth's intention to utilize the
----------------------------
Governmental Lockbox Account and Non-Governmental Lockbox Account procedure as
provided in Section 6.2.6(a) and (b) unless circumstances change which would
make the Governmental Lockbox Account and Non-Governmental Lockbox Account
procedures inappropriate. The procedures under this subsection (c) for the
collection of Accounts Receivable without a lockbox will not be instituted
without approval of the Management Team. The Practice and MidSouth shall
instruct the Collecting Bank to transfer automatically all amounts constituting
good funds in the account or accounts of the Practice established for the
collection of Governmental Receivables and Non-Governmental Receivables to the
bank account established with the Lender pursuant to a standing order in a form
acceptable to MidSouth's legal counsel (the "Bank Account"). In the event
MidSouth exercises this option, the Practice shall instruct each Account Debtor
with respect to the Purchased Accounts Receivable to remit all payments directly
to the Collecting Bank account or accounts pursuant to a Notification Letter. In
addition, the Practice shall attach written instructions to each invoice
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representing the Purchased Account Receivable generated subsequent to the date
of this Agreement instructing such third-party payor or Account Debtor that
payment under the invoice is to be paid to the Collecting Bank account or
accounts. The Practice shall not, so long as any Purchased Accounts Receivable
remain outstanding, change or cancel such standing order at any time, or,
without the prior written consent of MidSouth, change the instructions to each
Account Debtor on each Governmental Receivable and Non-Governmental Receivable
to make its payments to such account. Any such action shall be considered a
breach of this Agreement for which MidSouth shall be entitled to all remedies
under Applicable Law and in equity, including obtaining an injunction.
(D) MISDIRECTED PAYMENTS. (i) If after the date of this Agreement, an
--------------------
Account Debtor shall make a payment on the Purchased Accounts Receivable to a
location other than is provided in the Notification Letter or the Practice
otherwise receives payments on Purchased Accounts Receivable under the terms of
this Agreement ("Misdirected Payments"), the Practice (at its own cost and
expense) shall promptly take all necessary steps to effect collection of the
Misdirected Payment from any other party claiming an interest therein or having
possession thereof and (A) hold the Misdirected Payment in trust for MidSouth,
(B) segregate the Misdirected Payment, (C) use its best efforts not to commingle
the Misdirected Payment with the Practice's own funds or other assets, and (D)
deliver the Misdirected Payment no later than two (2) business days from the day
of receipt to the Collecting Bank account or accounts, as applicable.
(ii) The Practice agrees to pay, on demand, the Finance Charge Rate on any
Misdirected Payment received by the Practice that is not deposited in the
appropriate account within two (2) business days after receipt by the Practice.
(e) All Purchased Accounts Receivable of the Practice pursuant to this
Section 6.2 hereof will, as the Purchased Accounts Receivable are purchased, be
treated as Practice Revenues for accounting and financial purposes.
SECTION 6.3. EARLY TERMINATION OF PHYSICIAN SHAREHOLDER. The Physician
------------------------------------------
Shareholder hereby acknowledges that the terms and conditions of this Agreement
are based upon numerous factors, including the Physician Shareholder continuing
to practice medicine in the future. In connection therewith, the Physician
Shareholder agrees as follows:
(A) RETIREMENT. If at any time during the Term hereof, the Physician
----------
Shareholder desires to retire, or assume full-time teaching responsibilities,
the Physician Shareholder shall notify MidSouth in writing at least twelve (12)
months prior to the date of such retirement or start of teaching position;
provided, however, that if such retiring physician elects to, and has located a
replacement physician suitable to the Practice, MidSouth shall waive the
remaining months of said twelve (12) month notice period, and such retirement
shall be effective upon the earlier of twelve (12) months from the date of
notice or commencement of the replacement physician's employment. Upon such
retirement or start of the teaching position, the Physician Shareholder shall
have no further obligations under this Agreement; provided, however, the
restrictive covenants provided for under Article Section 7 shall remain in full
force and effect. In fulfilling any such full-time teaching
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responsibilities, the Physician Shareholder will be permitted to attend patients
in a manner normal and customary for such faculty position; provided, however,
such services must be incident to the academic/teaching aspects of the
institution, and not incident to the regular examination of patients for a fee
whether billed in the name of the institution or the name of the attending
physician. It is not the intent of the parties to permit a retired physician to
conduct a medical practice through an academic institution.
(B) PHYSICIAN SHAREHOLDER CHANGE IN PRACTICE/GROUP AFFILIATION. In the
----------------------------------------------------------
event that a Physician Shareholder leaves the employment of or terminates his or
her affiliation with the Practice, the terminating Physician Shareholder may
join or establish another group/practice which has or will enter into a service
agreement with MidSouth, subject to any other existing agreements between
Physician Shareholder and Practice. Upon entering into such new service
agreement with MidSouth, the terminating Physician Shareholder shall, except as
limited by separate employment agreements between the Practice and the Physician
Shareholder, be released from any obligation under this Agreement. MidSouth
shall have the right to enter into a new service agreement without satisfying
the requirements of Article 7 hereof. In the event the (i) Practice
consents to MidSouth entering into a new service agreement; (ii) service
agreement will not adversely affect the operations and earnings of MidSouth; and
(iii) new group/practice can satisfy the representations and warranties set
forth in Article 12 hereof, then MidSouth will not unreasonably withhold or
refrain from entering into a new service agreement with the terminating
Physician Shareholder's new group/practice. Except as set forth herein, in the
event the Physician Shareholder affiliates with a new group/practice that is not
a party to a service agreement with MidSouth, then MidSouth, will terminate this
Agreement solely with respect to the terminating Physician Shareholder;
provided, however, that the provisions of Article 7 hereof shall apply. In the
event that MidSouth does not enter into a new service agreement, then MidSouth
shall terminate this Agreement with respect to the Physician Shareholder, and
the terminating Physician Shareholder shall be obligated as set forth in Article
7 hereof.
(c) DEATH OR DISABILITY. In the event that a Physician Shareholder dies or
--------------------
becomes disabled, then the Physician Shareholder shall have no continuing
obligations under this Agreement; provided, however, in the event of disability,
the restrictive covenants described in Article 7 hereof shall remain in full
force and effect.
ARTICLE 7. RESTRICTIVE COVENANTS AND ENFORCEMENT.
-------------------------------------
MidSouth and the Practice recognize that the benefits each is to receive
under this Agreement shall be realized only if the Practice operates an active
medical practice to which the physicians associated with the Practice devote
their full time and attention to the extent of their arrangement with the
Practice. Accordingly, MidSouth and the Practice desire to set forth the
following reasonable restrictions and agreements regarding competition by the
physicians during the term of this Agreement and after the termination of this
Agreement.
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SECTION 7.1. EXCLUSIVE ARRANGEMENT. During the term of this Agreement,
---------------------
MidSouth shall be the Practice's and the Physician Shareholder' sole provider
of the management services described in this Agreement and neither the Practice,
the Physician Shareholder nor any of the Practice's or the Physician
Shareholder' employees shall provide similar management services. During the
term of this Agreement, the Practice and the Physician Shareholder agree that
neither the Practice nor Physician Shareholder will enter into any similar
agreement with any physician practice management company or entity.
SECTION 7.2. RESTRICTIVE COVENANTS BY THE PRACTICE. The Practice agrees
-------------------------------------
that, during the term hereof, neither the Practice nor its Physician Shareholder
will engage, directly or indirectly, as a principal owner, shareholder (other
than a holder of fewer than 5% of the outstanding shares of a publicly-traded
company), partner, joint venturer, employee, agent, equity owner, or in any
other capacity whatsoever, in any corporation, partnership, joint venture, or
other business association or entity that operates ambulatory surgery or
diagnostic centers, imaging centers, physical therapy centers, or rehabilitation
centers, or provides management services of the nature provided by MidSouth
pursuant to this Agreement, within a thirty (30) mile radius from any of the
Practice Facilities (the "Restricted Area"). Provided that this Agreement may
allow any Physician Shareholder to own any ownership interest in the above
facilities which was acquired prior to the execution of this Agreement. If this
Agreement is terminated by MidSouth for breach by the Practice, pursuant to
l0.4 hereof, neither the Practice nor its current or future Physician
Shareholders shall establish, operate, or provide physician services at any
medical office, clinic, ambulatory surgery or diagnostic centers, imaging
centers, physical therapy centers, rehabilitation centers or other health care
facility providing services substantially similar to those provided by the
Practice within the Restricted Area for a period of twenty-four (24) months
("Restricted Period") after the termination of the Agreement.
SECTION 7.3. RESTRICTIVE COVENANTS BY CURRENT PHYSICIAN SHAREHOLDER.
------------------------------------------------------
Physician Shareholder agrees that during the term of his employment and for the
Restricted Period after any termination of employment with the Practice, he will
not (i) establish, operate or engage, directly or indirectly, as a principal
owner, shareholder (other than a holder of fewer than 5% of the outstanding
shares of a publicly-traded company), partner, joint venturer, employee, agent,
equity owner, or in any other capacity whatsoever, in any corporation,
partnership, joint venture, or other business association or entity that
operates ambulatory surgery or diagnostic centers, imaging centers, physical
therapy, or rehabilitation centers providing services similar to those provided
by the Practice within the Restricted Area; or (ii) solicit, induce or attempt
to induce any Practice patient, employee, consultant or other persons associated
or affiliated with MidSouth or any Affiliate of MidSouth to leave the care of a
Physician Employee, to leave the employment of, or to discontinue their
association with the Practice, MidSouth or such affiliate of the Practice or
MidSouth within the Restricted Area. Provided that the employment agreements may
exclude from the restrictive covenant the employment of Physician Shareholder in
facilities that have historically been deemed emergency room facilities once the
Physician Shareholder's employment has been terminated if the Physician
Shareholder has no private practice. The Practice agrees to enforce the
restrictive covenants. The cost and expense of such enforcement shall be a
Practice Expense, and all damages and other amounts recovered thereby shall be
considered Practice Revenue. In the event that after
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a request by MidSouth, the Practice does not pursue any remedy that may be
available to it by reason of a breach or Default of a restrictive covenant, upon
the request of MidSouth, the Practice shall assign to MidSouth such causes of
action and/or other rights it has related to such breach or Default and shall
cooperate with and provide reasonable assistance to MidSouth with respect
thereto; in which case, all costs and expenses incurred in connection therewith
shall be MidSouth Expenses, and MidSouth shall be entitled to all damages and
other amounts recovered thereby. If the Practice and/or Physician Shareholder
violate the covenants set forth in this Section 7.3, then the duration of the
restrictions contained in this Section 7.3 shall be extended an additional month
against the violator for each month during which such violation occurred but was
not discovered by MidSouth, beginning upon the date that MidSouth learns of the
violation and so notifies the Practice and/or the Physician Shareholder in
writing.
SECTION 7.4. RESTRICTIVE COVENANTS BY FUTURE PHYSICIAN SHAREHOLDERS. The
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Practice shall obtain and enforce formal agreements from each of its future
Physician Shareholders hired or contracted, pursuant to which each agrees to be
bound by an agreement containing the terms and conditions as contained in
Section 7.3 hereof. The agreements shall provide that MidSouth is an intended
third-party beneficiary to such agreements and that such third-party beneficiary
rights may be assigned to any Lender.
SECTION 7.5. PHYSICIAN SHAREHOLDERS LIQUIDATED DAMAGES. The restrictive
-----------------------------------------
covenants described above may provide that any Physician Shareholders (current
or future) may be released from his or her Restrictive Covenants by paying
liquidated damages in an amount as follows:
(a) if the Practice were the breaching party or the party desiring to be
released from the covenant, the Practice shall be liable to MidSouth for an
amount equal to the estimated fee payable to MidSouth hereunder for one hundred
twenty (120) months following the termination; and
(b) if a Physician Shareholder was the breaching party or the party
desiring to be released from the covenant, then $200,000.00 per breaching party
or party desiring to be released from the covenant must be paid to MidSouth in
order to obtain Physician Shareholder's release from Article 7 of this
Agreement.
SECTION 7.6. RIGHTS OF MIDSOUTH. During the term of this Agreement and
------------------
thereafter, MidSouth shall at all times of this Agreement have the right to
enter into additional service agreements with other physicians and practices,
regardless of where such physicians and/or practices are located, providing for
management services and facilities to such physicians and/or practices.
SECTION 7.7. EXCLUDED ACTIVITIES. Physician Employees shall be allowed to
-------------------
participate in Excluded Activities and retain Excluded Revenues, at any time so
long as the Excluded Activities do not interfere with any rights,
responsibilities or obligations as contained in this Agreement or any employment
agreement by and between the Practice and the Physician Employee.
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SECTION 7.8. ENFORCEMENT. MidSouth, the Practice and the Physician
-----------
Shareholder acknowledge and agree that since a remedy under Applicable Law for
any breach or attempted breach of the provisions of this Article 7 shall be
inadequate, MidSouth shall be entitled to specific performance and injunctive or
other equitable relief in the event of any breach or attempted breach, in
addition to whatever other remedies may exist under Applicable Law or in equity.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any injunctive or other equitable
relief. If any provision of Article 7 relating to any applicable Restrictive
Period, scope of activity restricted or the Restricted Area described therein
shall be declared by a court of competent jurisdiction to exceed the maximum
time period, scope of activity restricted or geographical area the court deems
reasonable and enforceable under Applicable Law, the time period, scope of
activity restricted and/or area of restriction held reasonable and enforceable
by the court shall thereafter be the Restrictive Period, scope of activity
restricted and/or the Restricted Area applicable to the restrictive covenant
provisions in this Article 7. The invalidity or non-enforceability of this
Article 7 in any respect shall not affect the validity or enforceability of the
remainder of this Article 7 or of any other provisions of this Agreement.
ARTICLE 8. DUTIES OF THE MANAGEMENT TEAM.
------------------------------
SECTION 8.1. FORMATION AND OPERATION OF THE MANAGEMENT TEAM. The parties
----------------------------------------------
shall establish a Management Team which shall be responsible for developing
management and administrative policies for the overall operation of the
Practice. No party shall have the authority to undertake any actions described
in Section 8.2 below without the authority of the Management Team. The
Management Team shall consist of four (4) members. MidSouth shall designate, in
its sole discretion, two (2) members of the Management Team, one of which shall
be the Management Team Chief Executive; provided, however, in MidSouth's sole
discretion, MidSouth may replace the Management Team Chief Executive as one of
its designees in the event MidSouth institutes disciplinary measures against the
Management Team Chief Executive in connection with his employment with MidSouth.
The Practice shall designate, in its sole discretion, two (2) physician members
of the Management Team. The chairman of the Management Team shall be a designee
of the Practice selected by the Practice. Except as may otherwise be provided
herein, the act of a majority of the members of the Management Team shall be the
act of the Management Team. Attached hereto as Schedule 8.1 are the initial
"Policies and Procedures" to be used by the Management Team until the Management
Team amends the Policies and Procedures. The chairman of the Management Team
shall be responsible for organizing the agenda for the Management Team meetings
referred to in this Article 8. In the event that a deadlock occurs on a matter
brought before the Management Team, then the relative parties, duties and
responsibilities with respect to such matter shall remain status quo.
SECTION 8.2. DUTIES AND RESPONSIBILITIES OF THE MANAGEMENT TEAM. The
--------------------------------------------------
Management Team shall have the following duties and obligations:
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8.2.1. Capital Improvements and Expansion. Any renovation and expansion
----------------------------------
plans and capital equipment expenditures with respect to the Practice shall be
reviewed and approved by the Management Team and shall be based upon economic
feasibility, physician support, productivity and then current market conditions
and the budget. If the Management Team determines that the acquisition of
additional equipment or facilities is appropriate, then MidSouth shall use its
best efforts to arrange for the financing and acquisition of the property.
8.2.2. Annual Budgets. All annual capital and operating budgets prepared by
----------------
MidSouth, as set forth in Section 3.2, shall be subject to the review and
approval of the Management Team.
8.2.3. Exceptions to Inclusion in the Revenue Calculation. The exclusion of
--------------------------------------------------
any revenue from Practice Revenue, whether now or in the future, shall be
subject to the unanimous approval of the Management Team, and the treatment of
any expense as Practice Expense which is not otherwise addressed herein or in
any budget shall be subject to the unanimous approval of the Management Team.
8.2.4. Advertising. All advertising and other marketing of the services
-----------
performed at the Practice Facilities or any hospital or similar facility shall
be subject to the prior review and approval of the Management Team.
8.2.5. Fees. As a part of the annual operating budget, in consultation with
------
the Practice and MidSouth, to the extent allowed by Applicable Law, the
Management Team shall review the fee schedule or capitation arrangement for all
hospital, physician and ancillary services rendered by the Practice. In
addition, the Management Team shall approve the credit collection policies of
the Practice and MidSouth for the Practice's Accounts Receivable.
8.2.6. Provider and Payor Relationships. Decisions regarding the
----------------------------------
establishment or maintenance of relationships with institutional health care
providers and payors shall be made by the Practice in consultation with the
Management Team.
8.2.7. Strategic Planning. The Management Team shall develop long-term
--------------------
strategic planning objectives.
8.2.8. Capital Expenditures. The Management Team shall determine the
----------------------
priority of major capital expenditures.
8.2.9. Physician Hiring. The Management Team shall recommend the number and
----------------
type of physicians required for the efficient and effective operation of the
Practice.
8.2.10. Management Team Chief Executive. The retention, and/or selection of
-------------------------------
the Management Team Chief Executive pursuant to Section 3.5 by MidSouth shall be
subject to the reasonable input of the Management Team. If the Practice is
dissatisfied with the services provided by the Management Team Chief Executive,
the Practice shall refer the matter to the Management Team. MidSouth and the
Management Team shall each in good faith determine whether the
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performance of the Management Team Chief Executive could be brought to
acceptable levels through counsel and assistance, or whether the Management Team
Chief Executive should be terminated.
8.2.11. Grievance Referrals. The Management Team shall consider and make
-------------------
final decisions regarding grievances pertaining to matters not specifically
addressed in this Agreement as referred to it by the Practice's Board of
Directors.
ARTICLE 9. INSURANCE AND INDEMNITY.
-----------------------
SECTION 9.1. INSURANCE TO BE MAINTAINED BY THE PRACTICE. Throughout the
------------------------------------------
term of this Agreement, subject to the provisions of Section 3.1(m) providing
for malpractice premiums and deductibles to be a Practice Expense, the Practice
shall maintain comprehensive professional liability insurance with limits of not
less than $1,000,000 per claim and with aggregate policy limits of not less than
$3,000,000 per Physician Employee and Physician Extender Employee and a separate
limit for the Practice with the carrier which shall be determined by Practice
upon recommendation by MidSouth. The Practice shall be responsible for all
liabilities in excess of the limits of the policies, and under no circumstances
shall any excess be deemed a Practice Expense. MidSouth shall have the option,
with Management Team approval, of providing the professional liability insurance
through an alternative program, provided the program meets the requirements of
the Insurance Commissioner of the State. If the Practice's existing professional
liability insurance program is canceled and replaced by a professional liability
insurance program initiated by MidSouth, MidSouth shall pay over to the Practice
any unearned professional liability insurance premiums paid by the Practice to
the extent the Practice's carrier pays the amounts to MidSouth. Any insurance
program for the Practice shall include director and officer liability insurance
for the Practice, and the cost of the coverages shall be a Practice Expense.
SECTION 9.2. INSURANCE TO BE MAINTAINED BY MIDSOUTH. Throughout the term of
--------------------------------------
this Agreement, MidSouth shall provide and maintain, as a Practice Expense,
comprehensive general liability and property insurance covering the Practice
premises and operations in the amount of $1 million, and professional liability
insurance coverage in the amount of not less than $1 million/$3 million per
Physician Employee.
SECTION 9.3. TAIL INSURANCE COVERAGE. Tail insurance coverage shall be
-----------------------
purchased in the following manner:
9.3.1. The Practice will cause each Physician Employee associated with the
Practice to enter into an agreement with the Practice that upon termination of
the physician's relationship with the Practice, for any reason, the individual
physician will either maintain continuous and uninterrupted professional
liability insurance coverage in the same amounts required by his or her
employment agreement with Practice for a term of not less than three (3) years,
or will purchase equivalent insurance coverage. The provisions may be contained
in employment agreements, restrictive covenant agreements or other agreements
entered into by the Practice and the Physician Employees, and the Practice
hereby covenants with MidSouth to enforce the provisions relating to
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the continuing or tail insurance coverage or to provide the coverage, which will
be a Practice Expense.
9.3.2. The Practice shall obtain continuing liability insurance under
either a tail policy or an acts policy with the same limits and deductibles as
the comprehensive professional liability insurance at the time of the
termination of this Agreement pursuant to Article 10, which will not be a
Practice Expense.
SECTION 9.4. ADDITIONAL INSURED. The Practice and MidSouth agree to use
------------------
their reasonable best efforts to have each other named as an additional insured
on the other's respective professional liability insurance programs, which will
be a Practice Expense.
SECTION 9.5. INDEMNIFICATION.
---------------
9.5.1. The Practice Indemnification.
----------------------------
(a) The Practice shall indemnify, hold harmless and defend MidSouth, its
officers, directors, shareholders and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), to the extent not covered by insurance in the name
of the Practice, caused or asserted to have been caused, directly or indirectly,
by or as a result of the performance of medical services or the performance of
any intentional acts, negligent acts or omissions by the Practice and/or its
Shareholder, agents, employees and/or subcontractors (other than MidSouth or any
other party engaged by MidSouth) during the term hereof, or as a result of a
breach of the representations and warranties contained in Article 12 of this
Agreement or a breach of any covenant in Article 14 of this Agreement.
(b) The Practice shall not be liable to MidSouth for any claims under
Section 9.5.1(a) above until the claims exceed in the aggregate $25,000.00 that
would otherwise be subject to indemnification under said provisions, and then
only for the amount by which the claims exceed $25,000.00.
9.5.2. MidSouth Indemnification. MidSouth shall indemnify, hold harmless
------------------------
and defend the Practice, its officers, Shareholder, directors and employees,
from and against any and all liability, loss, damage, claim, causes of action,
and expenses (including reasonable attorneys' fees), to the extent not covered
by insurance in the name of MidSouth, caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of any intentional
acts, negligent acts or omissions by MidSouth and/or its shareholders, agents,
employees and/or subcontractors (other than the Practice) during the term of
this Agreement or as a result of a breach of the representations and warranties
contained in Article 13 of this Agreement. In addition, MidSouth shall
indemnify, hold harmless and defend the Practice, its officers, Shareholder,
directors and employees, from and against any and all liability, loss, damage,
claim, causes of action, and expenses (including reasonable attorneys' fees)
caused by any claim against the Practice relating to liabilities of the Practice
assumed by MidSouth as a result of the Merger which were disclosed by the
Practice in the
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Merger Agreement and for which the Practice does not have an obligation to
indemnify MidSouth as provided above.
9.5.3. Indemnification Payment Escrow. In the event that either party makes
------------------------------
a claim for indemnification under either the Merger Agreement or this Agreement
(the "Indemnified Party"), then the party who must provide indemnity (the
"Indemnifying Party"), shall have the right, to the extent it owes
indemnifications, to pay amounts owed to the Indemnified Party under the Merger
Agreement or this Agreement into an escrow account (established pursuant to an
escrow agreement to be agreed upon by the parties) to be held by the escrow
agent in an interest bearing account until a determination by either (i) the
parties, (ii) a court of proper jurisdiction or (iii) an agreed upon panel of
arbitrators, has been made regarding the Indemnified Party's right to
indemnification. In the event that the Indemnified Party is entitled to
indemnification, then such escrowed funds shall be paid to the Indemnified Party
in partial or complete satisfaction of such indemnification obligation. Any
excess funds remaining in the escrow account after the payment of the
indemnification obligation or any funds held in escrow account if it is
determined that no indemnification obligation is owed shall be paid to the
Indemnifying Party.
ARTICLE 10. TERM AND TERMINATION.
--------------------
SECTION 10.1. TERM OF AGREEMENT. This Agreement shall commence on the date
-----------------
hereof and shall expire on September 30, 2022 unless earlier terminated pursuant
to the provisions hereof (the "Term").
SECTION 10.2. EXTENDED TERM. Unless earlier terminated as provided for in
-------------
this Agreement, the term of this Agreement shall be automatically extended for
an additional term of five (5) years and for a new term thereafter, unless
either party delivers to the other party, not less than one hundred eight (180)
days prior to the expiration of the preceding term, written notice of the
party's intention not to extend the term of this Agreement.
SECTION 10.3. TERMINATION BY THE PRACTICE. The Practice may terminate this
---------------------------
Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by MidSouth, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state Applicable
Law for the benefit of creditors by MidSouth, except for the filing of a
petition in bankruptcy by or against MidSouth which is dismissed within ninety
(90) days thereafter, the Practice may give notice of the immediate termination
of this Agreement; or
(b) In the event MidSouth shall Default in the performance of any duty or
obligation imposed upon it by this Agreement and the Default continues for a
period of ninety (90) days after written notice thereof has been given to
MidSouth by the Practice (or in the event the Default cannot be cured within the
period and MidSouth is diligently pursuing a cure, the period shall be extended
so long as MidSouth diligently and in good faith continues to cure the Default
until completion), or if MidSouth shall fail to remit the payments due as
provided in this Agreement and the failure to
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remit continues for a period of two (2) business days after written notice
thereof, the Practice may terminate this Agreement; or
(c) In the event that MidSouth shall intentionally or in bad faith violate
Applicable Law resulting in a direct, continuing material adverse effect on the
operations, earnings and cash flow of the Practice; or
(d) In the event that MidSouth has not successfully completed an initial
public offering of MidSouth common stock or MidSouth has not merged with a
publicly traded entity with an initial market price of stock or if the market
price of the merged stock is not greater than five (5) dollars per share, within
thirty-six (36) months from the date of this Agreement, the Physician
Shareholder may, at that time, terminate this Agreement and be released from the
restrictive covenants contained in Article 7.
SECTION 10.4. TERMINATION BY MIDSOUTH. MidSouth may terminate this
-----------------------
Agreement as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the Practice, or upon other action
taken or suffered, voluntarily or involuntarily, under any Applicable Law for
the benefit of creditors by the Practice, except for the filing of a petition in
involuntary bankruptcy against the Practice which is dismissed within ninety
(90) days thereafter, MidSouth may give notice of the immediate termination of
this Agreement; or
(b) In the event the Practice shall Materially Default in the performance
of any duty or obligation imposed upon it by this Agreement, and the Default
continues for a period of ninety (90) days after written notice thereof has been
given to the Practice by MidSouth (or in the event the Default cannot be cured
within the period, the period shall be extended so long as the Practice
diligently and in good faith continues to cure the Default until completion), or
the Practice fails to remit the payments due as provided in this Agreement and
the failure to remit continues for a period of thirty (30) days after written
notice thereof, MidSouth may terminate this Agreement; or
(c) In the event the Practice's Medicare or Medicaid provider number shall
be terminated or suspended as a result of the action or inaction of the Practice
or a Physician Employee, and such termination or suspension continues for thirty
(30) days after notice of the termination or suspension, MidSouth may give
notice of the immediate termination of this Agreement, unless the Practice, at
that time, is acting in good faith (and shall provide reasonable evidence of the
action being taken) to reverse such termination or suspension. Notwithstanding
any good faith effort on the part of the Practice to reverse such termination or
suspension, if such termination or suspension is not reversed within ninety (90)
days after notice of the termination or suspension of the Medicare or Medicaid
provider number by Medicare or Medicaid, MidSouth shall have the right to
terminate this Agreement immediately.
SECTION 10.5. ACTIONS AFTER TERMINATION. Upon termination of this Agreement
-------------------------
by either party or upon expiration of this Agreement, the Practice (and/or its
Physician Shareholder) shall:
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(a) If this Agreement is terminated by MidSouth pursuant to Section 10.4 or
upon the expiration of the Term of this Agreement, purchase from MidSouth at
book value all intangible assets acquired in the Merger, as adjusted through the
last day of the month most recently ended prior to the date of the termination
or expiration to reflect amortization or depreciation of the "service agreement
costs" and intangibles in accordance with GAAP. If the Agreement is terminated
by Practice for MidSouth's breach pursuant to Section 10.3, all intangible
assets shall be repurchased at the fair market value;
(b) Purchase all improvements, additions or leasehold improvements to
Practice Facilities which have been made by MidSouth and which relate solely to
the performance of its obligations under this Agreement at book value;
(c) Assume all debt and all contracts, payables incurred as Practice
Expenses and leases which are obligations of MidSouth and which relate
principally to the performance of its obligations under this Agreement or the
properties subleased by MidSouth; and
(d) Purchase from MidSouth at book value all of the equipment acquired in
the Merger, including all replacements and additions thereto made by MidSouth
pursuant to the performance of its obligations under this Agreement, and all
other assets, including inventory, Purchased Accounts Receivable and supplies,
tangibles and intangibles, set forth on the Opening Balance Sheet, as adjusted
through the last day of the month most recently ended prior to the date of the
termination or expiration in accordance with GAAP to reflect operations of the
Practice (including physician practice acquisitions), depreciation, amortization
and other adjustments of assets acquired in the Merger.
SECTION 10.6. CLOSING OF REPURCHASE BY THE PRACTICE AND EFFECTIVE DATE OF
-----------------------------------------------------------
TERMINATION. Except as provided in this Section 10.6, the Practice shall pay
- ------------
cash to repurchase the practice assets as provided in Section 10.5 (the
"Repurchase Price"). The Repurchase Price shall be reduced by the amount of debt
and liabilities of MidSouth assumed by the Practice and shall also be reduced by
any payment MidSouth has failed to make under this Agreement. The Practice and
any physician associated with the Practice shall execute all documents as may be
required to assume the liabilities set forth in Section 10.5, to remove MidSouth
from any liability with respect to the repurchased assets and with respect to
any property leased or subleased by MidSouth, and to consummate the transactions
contemplated by Section 10.5. The closing date for the purchase shall be
determined by the Practice, but shall in no event occur later than ninety (90)
days from the date of the notice of termination. The termination or expiration
of this Agreement shall become effective upon the closing of the sale of the
assets. On the date of termination or expiration, but only in the event the
termination or expiration of the Agreement was the result of the expiration of
the Term of this Agreement or a termination pursuant to Section 10.3, the
Practice shall be released from the restrictive covenants provided from in
Article 7. From and after any termination or expiration, each party shall
provide the other party with reasonable access to books and records then owned
by it to permit the requesting party to satisfy reporting and contractual
obligations which may be required of it. Except as otherwise provided herein,
the restrictive covenants contained in Article 7 shall survive the expiration or
earlier termination of this Agreement. MidSouth shall give the Practice
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credit toward the Repurchase Price for the fair market value of any of
MidSouth's Common Stock or the stock of any successor (whose stock is exchanged
for MidSouth Common Stock) tendered to MidSouth in exchange for such assets. As
used in this Section 10.6, the term "fair market value" with respect to a single
share of MidSouth Common Stock shall mean; (i) in the event this Agreement is
terminated for any reason prior to an initial public offering of MidSouth's
Common Stock or MidSouth's merger into a publicly traded company, five dollars
($5.00) per share (as adjusted by any conversion ratio applicable in a merger of
MidSouth into a non-public company); (ii) in the event MidSouth terminates this
Agreement pursuant to the terms of Section 10.4 subsequent to an initial public
offering of MidSouth's Common Stock or MidSouth's merger into a publicly traded
company, five dollars per share ($5.00) (as adjusted by any conversion ratio
applicable in a merger of MidSouth into a non-public company); or (iii) in the
event the Practice terminates this Agreement pursuant to the terms of Section
10.3 or the Term of this Agreement expires subsequent to an initial public
offering of MidSouth's Common Stock or MidSouth's merger into a publicly traded
company, the closing "asking price" for a single share of MidSouth's Common
Stock as of the date on which the repurchase is consummated, as reported on a
securities exchange or quoted on a national quotation system upon which the
MidSouth Common Stock is traded or quoted.
ARTICLE 11. INTELLECTUAL PROPERTY AND RECORDS.
----------------------------------
SECTION 11.1. PROPRIETARY INFORMATION. The Practice acknowledges that
------------------------
MidSouth possess significant proprietary and confidential know-how, technology
and business information, including but not limited to, utilization protocols,
practice guidelines and proprietary management software and data ("Proprietary
Information"), which MidSouth has developed and will continue to develop on its
own, in its relationship with vendors, practitioner groups, integrated delivery
systems and other providers. The Practice and MidSouth acknowledge that one of
their mutual objectives is the development of Proprietary Information to be used
in connection with MidSouth's operations or which MidSouth intends to use or
license in its relationship with third parties, including other medical groups,
integrated delivery systems and other providers. In addition, the Practice
acknowledges that as of the Closing Date, by virtue of execution and delivery of
the Merger Agreement, MidSouth will have acquired all of the Practice's existing
Proprietary Information, excluding patient medical records. Therefore, the
parties agree that MidSouth shall own all new Proprietary Information, as well
as existing Proprietary Information, excluding patient medical records,
regardless of whether the new Proprietary Information is developed by one or
more physicians in the Practice or Affiliates. The Practice agrees to execute
and deliver such documentation as may be requested by MidSouth from time to time
to evidence such ownership. During the term of this Agreement, MidSouth shall
license and provide access to all existing Proprietary Information to the
Practice.
SECTION 11.2. OWNERSHIP OF MIDSOUTH'S BUSINESS RECORDS AND SYSTEMS. All
----------------------------------------------------
business records, information, software and systems of MidSouth relating to the
provision of its services under this Agreement shall remain the property of
MidSouth and may be removed by MidSouth upon any termination of this Agreement;
provided, however, that the Practice shall be entitled, upon reasonable written
request, to access such records and make copies or extracts thereof to the
extent
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necessary to prosecute or defend against any tax or other liabilities
imposed on the Practice by any Governmental Authority or other party.
SECTION 11.3. MAINTENANCE AND ACCESS OF RECORDS. Except as otherwise
----------------------------------
provided in this Agreement, the parties shall safeguard all records maintained
by them pursuant to this Agreement for a period of time specified by the
Management Team from the date of the last activity recorded in such records. In
particular, the parties agree, to the extent necessary to permit receipt of
reimbursement for services by the Practice, to make available to the Secretary
of the United States Department of Health and Human Services, the Comptroller
General, the General Accounting Office, or their authorized representatives or
analogous state officials, any books, documents and records in their possession
relating to the nature and extent of the costs of services hereunder for a
period of five (5) years after the provision of such services. Each party
further agrees that, if it contracts with any third party to provide services
that are valued in excess of $10,000, it shall require the contracting party to
comply with the requirements of the previous sentence. During the term of this
Agreement, and thereafter, the Practice or its designee shall have reasonable
access during normal business hours to the Practice's and MidSouth's financial
and accounting, including, but not limited to, records of collections, expenses
and disbursements as kept by MidSouth in performing MidSouth's obligations under
this Agreement, and the Practice may copy any or all records at its expense.
Nothing in this Section 11.3 constitutes the waiver of any attorney-client
privilege, and neither party shall be required hereunder to give the other party
documents if, as a result, an existing attorney-client privilege would be
waived.
SECTION 11.4. PATIENT RECORDS. Upon termination of this Agreement, the
-----------------
Practice shall retain all patient medical records maintained by the Practice or
MidSouth in the name of the Practice.
SECTION 11.5. ACCESS TO RECORDS. During the term of this Agreement, and
-------------------
thereafter, the Practice or its designee shall have reasonable access during
normal business hours to the Practice's and MidSouth's financial records,
including, but not limited to, records of collections, expenses and
disbursements as kept by MidSouth in performing MidSouth's obligations under
this Agreement, and the Practice may copy any or all records at its expense.
ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF THE PRACTICE AND
--------------------------------------------------
PHYSICIAN SHAREHOLDER.
----------------------
The Practice and the Physician Shareholder jointly and severally represent,
warrant, covenant and agree with MidSouth regarding subsection 12.1, 12.2, 12.4,
12.5 and 12.7 and Practice agrees with MidSouth regarding all other subsections
contained in Article 12 that:
SECTION 12.1. VALIDITY. The Practice is a professional corporation and is
--------
duly qualified to do business as a foreign professional corporation where such
qualification is necessary or required. The Practice has the full power and
authority to own the Practice property, to carry on the Practice business as
presently being conducted, to enter into this Agreement, and to consummate the
transactions contemplated hereby. Each Physician Shareholder is an adult citizen
and resident of the State of Tennessee. Each Physician Shareholder has the full
power and authority to own his or her
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property, carry on his or her business as presently conducted, to enter into
this Agreement, and to consummate the transactions contemplated hereby.
SECTION 12.2. LITIGATION. Except as disclosed pursuant to the Merger
----------
Agreement, there is no suit, action, proceeding at Applicable Law or in equity,
arbitration, administrative proceeding or other proceeding pending, or
threatened against, or affecting the Practice or any Physician Employee, or to
the best of the Practice's and each Physician Shareholder's knowledge, any
provider or other health care professional associated with or employed by the
Practice as pertains to any claim involving the provision of health care related
services, and there is no basis for any of the foregoing.
SECTION 12.3. PERMITS. The Practice and all health care professionals
-------
associated with or employed by the Practice have all permits and licenses and
other Necessary Authorizations required by all Applicable Law, except where
failure to secure such licenses, permits and other Necessary Authorizations does
not have a Material Adverse Effect; have made all regulatory filings necessary
for the conduct of Practice's business; and are not in violation of any of said
permitting or licensing requirements.
SECTION 12.4. AUTHORITY. The execution of this Agreement and the
---------
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action, and this Agreement is a valid and binding Agreement of
the Practice and each Physician Shareholder; enforceable in accordance with its
terms. The Practice and each Physician Shareholder have obtained all third-party
consents necessary to enter into and consummate the transaction contemplated by
this Agreement. Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor compliance by the
Practice or any Physician Shareholder with any of the provisions hereof, will:
(a) violate or conflict with, or result in a breach of any provision of, or
constitute a Default (or any event which, with notice or lapse of time or both,
would constitute a Default) under any license, agreement or other instrument or
obligation to which either the Practice or any Physician Shareholder is a party;
(b) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to either the Practice or any Physician Shareholder.
SECTION 12.5. COMPLIANCE WITH APPLICABLE LAW. To the best of the Practice's
------------------------------
and each Physician Shareholder's knowledge and belief, the Practice and each
Physician Employee has operated in compliance with all Applicable Law and
neither the Practice nor any provider associated with or employed by the
Practice has received payment or any remuneration whatsoever to induce or
encourage the referral of patients or the purchase of goods and/or services as
prohibited under 42 U.S.C. (S)1320a-7b(b) or 42 U.S.C.(S) 1395nn, or otherwise
perpetrated any Medicare or Medicaid fraud or abuse, nor has any fraud or abuse
been alleged within the last five (5) years by any Governmental Authority, a
carrier or a third party payor.
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SECTION 12.6. HEALTH CARE COMPLIANCE. The Practice is presently
----------------------
participating in or otherwise authorized to receive reimbursement from or is a
party to Medicare, Medicaid, and other Third Party Payor Programs. All necessary
certifications and contracts required for participation in such programs are in
full force and effect and have not been amended or otherwise modified,
rescinded, revoked or assigned as of the date hereof, and no condition exists or
to the knowledge of the Practice no event has occurred which in itself or with
the giving of notice or the lapse of time or both would result in the
suspension, revocation, impairment, forfeiture or non-renewal of any Third Party
Payor Program. The Practice is in full compliance with the Material requirements
of all the Third Party Payor Programs applicable thereto.
SECTION 12.7. FRAUD AND ABUSE. The Practice, the Practice Employees and
---------------
other persons and entities providing professional services for the Practice have
not, to the knowledge of the Practice and each Physician Shareholder, after due
inquiry, engaged in any activities which are prohibited by or are in violation
of the rules, regulations, policies, Contracts or Applicable Law pertaining to
any Third Party Payor Program, or which are prohibited by rules of professional
conduct ("Governmental Rules and Regulations"), including but not limited to the
following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a Material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a Material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on the Practice's own behalf or on behalf of another,
with intent to fraudulently secure such benefit or payment; or (d) knowingly and
willfully soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind or offering to pay or receive such remuneration (i) in return for referring
an individual to a person for the furnishing of 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 of any good,
facility, service or item for which payment may be made in whole or in part by
Medicare or Medicaid.
SECTION 12.8. PRACTICE COMPLIANCE. The Practice has all licenses necessary
-------------------
to operate the Practice in accordance with the requirements of any Applicable
Law and has all Necessary Authorizations for the use and operation of the
Practice, all of which are in full force and effect. There are no outstanding
notices of deficiencies relating to the Practice issued by any Governmental
Authority or third party payor requiring conformity or compliance with any
Applicable Law or condition for participation of the Governmental Authority or
third party payor, and after reasonable and independent inquiry and due
diligence and investigation, the Practice has neither received notice nor has
any knowledge or reason to believe that the Necessary Authorizations may be
revoked or not renewed in the ordinary course.
SECTION 12.9. RATES AND REIMBURSEMENT POLICIES. The jurisdiction in which
--------------------------------
the Practice is located does not currently impose any restrictions or
limitations on rates which may be charged to private pay patients receiving
services provided by the Practice. The Practice does not have any rate appeal
currently pending before any Governmental Authority or any administrator of any
Third
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Party Payor Program. The Practice has no knowledge of any Applicable Law which
has been enacted, promulgated or issued within the eighteen (18) months
preceding the date of this Agreement or any legal requirement proposed or
currently pending in the jurisdiction in which the Practice is located which
could have a Material Adverse Effect on the Practice or may result in the
imposition of additional Medicaid, Medicare, charity, free care, welfare, or
other discounted or government assisted patients at the Practice or require the
Practice to obtain any necessary authorization which the Practice does not
currently possess.
SECTION 12.10. ACCOUNTS RECEIVABLE. To the best of Practice's knowledge and
-------------------
information with respect to the Purchased Accounts Receivable, as of the date of
purchase:
12.10.1. All documents and agreements relating to the Purchased Accounts
Receivable that have been delivered to MidSouth with respect to the Purchased
Accounts Receivable are true and correct; the Practice has billed the applicable
Account Debtor and the Practice has delivered or caused to be delivered to the
Account Debtor all requested supporting claim documents and, if any error has
been made, the Practice will promptly correct the same and, if necessary, rebill
or, if requested by MidSouth, cooperate with MidSouth to rebill the Purchased
Accounts Receivable.
12.10.2. The Purchased Accounts Receivable are exclusively owned by the
Practice and there is no security interest or lien in favor or any third party,
or the recording or filing against the Practice, as debtor, covering or
purporting to cover any interest of any kind in any Purchased Accounts
Receivable, except as has been released by each party holding the adverse
interest in the Purchased Accounts Receivable. Upon payment of the Purchase
Price with respect to the Purchased Accounts Receivable and with respect to
Governmental Receivables, to the extent permissible by Applicable Law, all
right, title and interest of the Practice with respect thereto shall be vested
in MidSouth, free and clear of any lien, security interest, claim or encumbrance
of any kind, and the Practice agrees to defend the same against the claims of
all persons.
12.10.3. The Purchased Accounts Receivable (i) are payable, in an amount
not less than their face amount, as adjusted pursuant to the provisions of
Article 6, by the Account Debtor identified by the Practice as being obligated
to do so, (ii) are based on an actual and bona fide retention of services or
sale of goods to the patient by the Practice in the ordinary course of business,
(iii) are denominated and payable only in legal currency of the United States,
and (iv) are accounts or general intangibles within the meaning of the UCC of
the state in which the Practice has its principal place of business, or are
rights to payment under a policy of insurance or proceeds thereof, and are not
evidenced by any instrument or chattel paper. There are no payors other than the
Account Debtor identified by the Practice as the payor primarily liable on any
Purchased Accounts Receivable.
12.10.4. The Purchased Accounts Receivable are not (i) subject to any
action, suit, proceeding or dispute (pending or threatened), set-off,
counterclaim, defense, abatement, suspension, deferment, deductible, reduction
or termination by the Account Debtors other than routine adjustments and
disallowances made in the ordinary course of business, (ii) past or within sixty
(60) days of, the statutory limit for collection applicable to the Account
Debtor, (iii) subject to an invoice which provides for payment more than forty-
five (45) days from the date of such invoice, (iv) an
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account which arises out of a sale or other transaction by and between the
Practice or an affiliate of Practice, (v) an account in which the Account Debtor
has commenced a voluntary case, or an involuntary proceeding has been
instituted, under the federal bankruptcy Applicable Law, as now constituted or
hereafter amended, or made an assignment for the benefit or creditors, or an
account in which a decree or order for relief has been entered by a court having
jurisdiction in the premises in respect to the Account Debtor, (vi) an account
in which the goods giving rise to the Purchased Accounts Receivable have not
been shipped and delivered to and accepted by the Account Debtor or the services
giving rise to the Purchased Accounts Receivable have not been performed by the
Practice and accepted by the Account Debtor or the Purchased Accounts
Receivables otherwise do not represent a final sale, (vii) is evidenced by an
instrument or chattel paper unless such instrument or chattel paper is delivered
to MidSouth with all appropriate endorsements in favor of MidSouth, or (viii)
other than a complete bona fide transaction which requires no further act under
any circumstances on the part of Practice to make the Purchased Accounts
Receivable payable by the Account Debtor.
12.10.5. The Practice does not have any guaranty of, letter of credit
providing credit support for, or collateral security for, the Purchased Accounts
Receivable, other than any such guaranty, letter of credit or collateral
security as has been assigned to MidSouth, and any such guaranty, letter of
credit or collateral security is not subject to any lien in favor of any other
person.
12.10.6. The goods or services provided and reflected by the Purchased
Accounts Receivable were medically necessary for the patient in the opinion of
the Practice and the patient received such goods or services.
12.10.7. The face amount of the Purchased Accounts Receivable for the
services constituting the basis for the Purchased Accounts Receivable are
consistent with the usual, customary and reasonable fees charged by other
similar medical service providers in the Practice's community for the same or
similar service.
12.10.8. Each Account Debtor with respect to the Purchased Accounts
Receivable purchased by MidSouth (i) is not currently the subject of any
bankruptcy, insolvency or receivership proceeding, nor is it generally unable to
make payments on its obligations when due, (ii) is located in the United States,
and (iii) is one of the following: (w) the individual, or party legally
responsible for the individual, who received the health care services; (x) a
party which in the ordinary course of its business or activities agrees to pay
for healthcare services received by individuals, including, without limitation,
Medicare, Medicaid, governmental bodies, commercial insurance companies and non-
profit insurance companies (such as Blue Cross and Blue Shield entities) issuing
health, personal injury, workers compensation or other types of insurance; (y)
employers or unions which self-insure for employee or member health insurance,
prepaid healthcare organizations, preferred provider organizations, health
maintenance organizations or any other similar person, or (z) a third party
payor of the type described in the definition of Governmental Receivables.
12.10.9. The proceeds of the sale of the Purchased Accounts Receivable
purchased by MidSouth pursuant to Article 6 will be used for the business and
commercial purposes of the
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Practice. The sale of the Purchased Accounts Receivable hereunder is made in
good faith and without actual intent to hinder, delay or defraud present or
future creditors of the Practice.
12.10.10. Except with respect to Governmental Receivables, the insurance
policy, Contract or other instrument obligating an Account Debtor to make
payment with respect to the Purchased Accounts Receivable (i) does not contain
any provision prohibiting the transfer of such payment obligation from the
patient to the Practice, or from the Practice to MidSouth, (ii) has been duly
authorized by the Practice and to the knowledge of the Practice has been duly
authorized by the Account Debtor and, together, with the Purchased Accounts
Receivable, constitutes the legal, valid and binding obligation of the Account
Debtor in accordance with its terms, (iii) together with the applicable
Purchased Accounts Receivable, does not contravene in any Material respect any
requirement of Applicable Law applicable thereto, and (iv) was in full force and
effect and applicable to the patient at the time the services constituting the
basis for the Purchased Account Receivable were performed.
The Purchased Accounts Receivable are purchased without recourse, except
for the representations, warranties and covenants made by the Practice and the
Physician Shareholder with respect thereto. None of the foregoing
representations and warranties with respect to the Purchased Accounts Receivable
shall be deemed to constitute a guaranty by the Practice that the Purchased
Accounts Receivable will be collected by MidSouth. The Practice shall not be
responsible for any damages for any breach of a representation or warranty under
this Section 12 until MidSouth has suffered a loss on the purchase of Purchased
Accounts Receivable. Damages for such breach shall be limited to the amount of
MidSouth's loss on the purchase of the Purchased Accounts Receivable.
SECTION 12.11. FULL DISCLOSURE. When considered in the context of all
----------------
information contained herein, to the knowledge of the Practice no representation
or warranty made by the Practice in this Agreement 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 contained herein or therein not
misleading.
SECTION 12.12. EXHIBITS AND SCHEDULES. All the facts recited in Exhibits
------------------------
and Schedules annexed hereto shall be deemed to be representations of fact by
the Practice as though recited in this Article 12.
ARTICLE 13. REPRESENTATIONS AND WARRANTIES OF MIDSOUTH.
-------------------------------------------
SECTION 13.1. ORGANIZATION. MidSouth is a corporation duly organized,
-------------
validly existing and in good standing under the Applicable Law of the State of
Tennessee. MidSouth has the full power to own its property, to carry on its
business as presently conducted, to enter into this Agreement and to consummate
the transactions contemplated hereby.
SECTION 13.2. AUTHORITY. MidSouth has taken all necessary action to
----------
authorize the execution, delivery and performance of this Agreement, as well as
the consummation of the transactions contemplated hereby. The execution and
delivery of this Agreement does not, and the
40
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consummation of the transactions contemplated hereby will not, violate any
provisions of the charter or bylaws of MidSouth or any indenture, mortgage, deed
of trust, lien, lease, agreement, arrangement, Contract, instrument, license,
order, judgment or decree or result in the acceleration of any obligation
thereunder to which MidSouth is a party or by which it is bound.
SECTION 13.3. ABSENCE OF LITIGATION. No action or proceeding by or before
---------------------
any court or other Governmental Authority has been instituted or is, to the best
of MidSouth's knowledge, threatened with respect to the transactions
contemplated by this Agreement.
SECTION 13.4. TRANSACTIONS WITH AFFILIATES. MidSouth shall not enter into
----------------------------
any transaction or series of transactions, whether or not related to or in the
ordinary course of business, with any Affiliate of the Practice or MidSouth,
other than on terms and conditions substantially as favorable to MidSouth as
would be obtainable by MidSouth at the time in a comparable arm's-length
transaction with a person not an Affiliate.
ARTICLE 14. COVENANTS OF THE PRACTICE AND PHYSICIAN SHAREHOLDER.
---------------------------------------------------
SECTION 14.1. MERGER, CONSOLIDATION AND OTHER AMENDMENTS. The Practice
------------------------------------------
shall not incorporate, merge or consolidate with any other entity or individual
or liquidate or dissolve or wind-up the Practice's affairs or enter into any
partnership, joint ventures or sale-leaseback transactions or purchase or
otherwise acquire (in one or a series of related transactions) any part of the
property or assets (other than purchases or other acquisitions of inventory,
materials and equipment in the ordinary course of business) of any other person
or entity.
SECTION 14.2. NECESSARY AUTHORIZATIONS/ASSIGNMENT OF LICENSES AND PERMITS.
-----------------------------------------------------------
The Practice and each Physician Employee, and each Physician Extender Employee
shall maintain all licenses, permits, certifications, or other Necessary
Authorizations and shall not assign or transfer any interest in any license,
permit, certificate or other Necessary Authorization granted to it by any
Governmental Authority, nor shall the Practice or any Physician Employee assign,
transfer, or remove or permit any other individual or entity to assign, transfer
or remove any records of the Practice or any Physician Employee, including
without limitation, patient records, medical and clinical records (except for
removal of such patient records required under any Applicable Law).
SECTION 14.3. TRANSACTION WITH AFFILIATES. Neither the Practice nor any
---------------------------
Physician Shareholder shall enter into any transaction or series of
transactions, whether or not related or in the ordinary course of business, with
any Affiliate of the Practice or MidSouth, other than on terms and conditions
substantially as favorable to the Practice or the Physician Shareholder, as
would be obtainable by the Practice or the Physician Shareholder at the time in
a comparable arms-length transaction with a person not an Affiliate.
SECTION 14.4. COMPLIANCE WITH ALL APPLICABLE LAW. The Practice and each
----------------------------------
Physician Shareholder shall use their best efforts to comply with all Applicable
41
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Law and regulations relating to the Practice's practice and the operation of any
facility, including, but not limited to, all Applicable Law relating to the
acquisition or operation of a health care practice. Furthermore, neither the
Practice nor any Physician Shareholder shall intentionally violate any
Applicable Law.
SECTION 14.5. THIRD PARTY PAYOR PROGRAMS. The Practice shall maintain its
--------------------------
compliance with the requirements of all Third Party Payor Programs in which
Practice will be participating or authorized to participate.
SECTION 14.6. CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. The
--------------------------------------------------
Practice shall not make any change in the character of Practice business or in
the credit and collection policy, which change would, in either case, impair the
collectability of any Purchased Accounts Receivable or any Accounts Receivable
received by MidSouth pursuant to the Merger or otherwise modify, amend or extend
the terms of any such account other than in the ordinary course of business.
SECTION 14.7. TREATMENT OF ACCOUNTS RECEIVABLE. The Practice will (i) treat
--------------------------------
transfers to MidSouth of Purchased Accounts Receivable hereunder as a sale for
all purposes, including tax and accounting (and shall accurately reflect such
sale in its financial statements), and will advise all persons who inquire about
the ownership of the Purchased Accounts Receivable that they have been sold to
MidSouth; (ii) not treat any Purchased Accounts Receivable as an asset on the
Practice's books and records; (iii) record in the Practice's books, records and
computer files pertaining thereto that the Purchased Accounts Receivable have
been sold to MidSouth; (iv) pay all taxes, if any; relating to the transfer of
the Purchased Accounts Receivable after the same have been purchased by
MidSouth; (v) not impede or interfere with MidSouth's collection of the
Purchased Accounts Receivable; (vii) not amend, waive or otherwise permit or
agree to any deviation from the terms or conditions of the Purchased Accounts
Receivable; (viii) use all reasonable efforts to obtain all consents from
patients which are required by Applicable Law in order for MidSouth, or any
servicing entity retained by MidSouth, to secure information needed to obtain or
to expedite payment from the respective Account Debtors; and (ix) have billed
the Purchased Accounts Receivable on the same basis and using the same policies
and practices that it has used in the past unless MidSouth has been advised in
writing of a change prior to the purchase of the Purchased Accounts Receivable.
MidSouth or its designated representatives from time to time may verify the
Purchased Accounts Receivable, inspect, check, take copies or extracts from the
Practice's books, records and files, and the Practice will make the same
available to MidSouth or such representatives at any reasonable time for such
purposes.
SECTION 14.8. SECURITY INTEREST. If, contrary to the mutual intent of the
-----------------
Practice and MidSouth, any purchase of Purchased Accounts Receivable is not
characterized as a sale, the Practice shall, effective as of the date hereof, be
deemed to have granted and the Practice does hereby grant to MidSouth a first
priority security interest in and to any and all of the Purchased Accounts
Receivable and the proceeds thereafter secure the repayment of all amounts
advanced to the Practice hereunder with accrued interest thereon, and this
Agreement shall be deemed to be a security agreement. With respect to such grant
of a security interest, MidSouth may at its option exercise from time to time
any and all rights and remedies available to it under the UCC or otherwise. The
Practice agrees that five (5) days shall be reasonable prior notice of the date
of any public or private sale or other disposition of all or part of the
Purchased Accounts Receivable. The Practice represents
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and warrants that the location of the Practice's principal place of business,
and all locations where the Practice maintains records with respect to its
accounts are set forth under its name in Section 15.12 hereof. The Practice
agrees to notify MidSouth in writing thirty (30) days prior to any change in any
such location. The exact name of the Practice is as set forth at the beginning
of this Agreement, and except as set forth on the signature page hereof, the
Practice has not changed its name in the last five (5) years, and during such
period the Practice did not use, nor does the Practice now use, any fictitious
or trade name. The Practice shall notify MidSouth in writing thirty (30) days
prior to any change in any such name. The Practice may change its name to
"Bryant Family Practice Clinic, P. A."
ARTICLE 15. MISCELLANEOUS.
-------------
SECTION 15.1. ASSIGNMENT. MidSouth shall have the right to assign without
----------
the consent of the Practice all of its rights hereunder to any person, firm or
corporation (i) under common control with MidSouth, (ii) to any lending
institution, for security purposes or as collateral, from which MidSouth obtains
financing, or (iii) that is an affiliate of MidSouth, including, but not limited
to, a parent, subsidiary, or brother-sister corporation, and MidSouth shall have
the right to assign with the consent of the Practice (which shall not be
unreasonably withheld) all rights hereunder to any firm, person or corporation
that merges, reorganizes, or otherwise consolidates with MidSouth and further
agrees that upon receipt of notice from such assignee, the Practice shall pay to
the assignee or cause to be paid to the assignee all amounts due and payable to
MidSouth pursuant to this Agreement. Without limiting the foregoing, the
Practice acknowledges that, as collateral for certain obligations, MidSouth has
assigned all of its rights hereunder to a Lender as agent (the "Agent") for
itself and other banks and institutional lenders from time to time (collectively
the "Banks") and has granted the Agent for the benefit of the Banks a lien and
security interest upon all real and personal property owned by MidSouth
("Pledged Assets"). As an inducement for the Banks to extend or continue the
extension of credit to MidSouth, the Practice (i) acknowledges that the
collateral assignment to the Agent covers all rights of MidSouth hereunder,
including, but not limited to, rights arising from warranties and
representations made by the Practice, rights to enforce covenants made by the
Practice, and rights to receive all payments due MidSouth; (ii) agrees to regard
the Agent as the owner of any and all of the assigned rights upon written notice
to the Practice of this election from the Agent; (iii) agrees that neither the
Agent nor any of the Banks has obligation for the performance of the duties of
MidSouth hereunder, and shall not assume any such duty by the exercise of rights
as a secured lender; (iv) agrees to give the Agent written notice of any
Material Default hereunder on MidSouth's part at the address provided in writing
to Practice by the Agent and to allow cure periods as provided in Section 10.3
thereafter for the cure of Default before the Practice terminates this
Agreement; (v) agrees that the rights of the Practice under this Agreement,
including, but not limited to, the right to the use of the Pledged Assets, are
and shall be junior to any security interest that the Agent and the Banks, their
successors or assigns may have in the Pledged Assets at any time; (vi) agrees
that the benefits of the above undertakings in favor of the Agent and Banks
shall further extend to all successors and assigns of the Agent and Banks,
provided that any notices given by the Practice under this Section 15.1 shall be
given to the Agent at the foregoing address unless the Practice has received
written notice of a change thereof; and (vii) agrees that this Section 15.1 may
not be modified, and no provision of this Section 15.1 may be waived, absent the
written approval
43
<PAGE>
of the Agent and Banks. Further, if a majority of the shareholders of MidSouth
entitled to vote on a sale of all of the assets or substantially all of the
assets or common stock of MidSouth authorize the sale or transfer of all or
substantially all of the assets or common stock of MidSouth to a third party
(the "Acquiring Party"), this Agreement shall be deemed automatically assigned
and transferred to the Acquiring Party without the necessity of obtaining the
consent of the Practice. Except as set forth above, neither MidSouth nor the
Practice shall have the right to assign their respective rights and obligations
hereunder without the written consent of the other party.
SECTION 15.2. THIS AGREEMENT. This Agreement sets forth the entire
--------------
agreement of the parties with respect to the subject matter hereof and it
supersedes and discharges all prior agreements (written or oral) and
negotiations and all contemporaneous oral agreements concerning the subject
matter. There are no oral conditions precedent to the effectiveness of this
Agreement.
SECTION 15.3. NO PRACTICE OF MEDICINE. The parties acknowledge that
-----------------------
MidSouth is not authorized or qualified to engage in any activity which may be
construed or deemed to constitute the practice of medicine. To the extent any
act or service required of MidSouth in this Agreement should be construed or
deemed by any Governmental Authority or court to constitute the practice of
medicine, the performance of said act or service by MidSouth shall be deemed
waived and unenforceable to the minimum extent required to comply with
Applicable Law.
SECTION 15.4. NON-WAIVER. Neither the failure of nor any delay by any party
----------
to this Agreement to enforce any right hereunder or to demand compliance with
its terms is a waiver of any right hereunder. No action or inaction taken
pursuant to this Agreement on one or more occasions is a waiver of any right
hereunder or constitutes a course of dealing that modifies this Agreement.
SECTION 15.5. WAIVERS. No waiver of any right or remedy under this
-------
Agreement shall be binding on any party, unless it is in writing and is signed
by the party to be charged. No waiver of any right or remedy under any term of
this Agreement shall in any event be deemed to apply to any subsequent Default
under the same of any other term contained herein.
SECTION 15.6. AMENDMENTS. No amendment, modification or termination of this
----------
Agreement shall be binding on any party hereto unless it is in writing and is
signed by the party to be charged.
SECTION 15.7. SEVERABILITY. The terms of this Agreement are severable and
------------
the invalidity of all or any part of any term of this Agreement shall not render
invalid the remainder of this Agreement or the remainder of the term. If any
term of this Agreement is so broad as to be unenforceable, the term shall be
interpreted to be only so broad as is enforceable.
SECTION 15.8. SUCCESSORS. The terms of this Agreement shall be binding upon
----------
and inure to the benefit of the parties, their respective successors, assigns,
heirs and beneficiaries.
SECTION 15.9. THIRD PARTIES. Nothing herein expressed or implied is
-------------
intended or shall be construed to give any person other than the parties hereto
any rights or remedies under this Agreement.
44
<PAGE>
Section 15.10. SATURDAYS, SUNDAYS AND HOLIDAYS. Where this Agreement
-------------------------------
authorizes or requires a payment or performance on a Saturday, Sunday or public
holiday, the payment or performance shall be deemed to be timely if made on the
next succeeding business day.
SECTION 15.11. JOINT PREPARATION. This Agreement shall be deemed to have
-----------------
been prepared jointly by the parties hereto. Any ambiguity herein shall not be
interpreted against any party hereto and shall be interpreted as if each of the
parties hereto had prepared this Agreement.
SECTION 15.12. CAPTIONS. The captions and section numbers appearing in this
--------
Agreement are inserted only as a matter of convenience. They do not define,
limit or describe the scope or intent of the provisions of this Agreement.
SECTION 15.13. NOTICES. All notices required or permitted by this Agreement
-------
shall be in writing and shall be deemed to have been given (a) when received if
given in person, (b) on the date of acknowledgment of receipt if sent by telex,
facsimile or other wire transmission, (c) one business day after being sent by
overnight delivery service, or (d) three (3) days after being deposited in the
United States mail, certified or registered mail, postage prepaid, addressed as
follows:
To MidSouth Practice Management, Inc.: 889 Ridge Lake Blvd., Suite 111
Memphis, Tennessee 38120
Attention: Dan Caldwell
With a copy to: Black Bobango & Morgan
A Professional Corporation
530 Oak Court Drive, Suite 345
Memphis, Tennessee 38117
Attention: John A. Bobango, Esq.
To Practice: 5220 Park Avenue, #100
Memphis, Tennessee 38119
Attention: James W. Bryant, M.D.
With a copy to: The Bogatin Law Firm, P. C.
860 Ridge Lake Boulevard, #360
Memphis, Tennessee 38120
Attention: Matthew P. Cavitch, Esq.
or to such other address as either party shall notify the other.
SECTION 15.14. COUNTERPARTS. This Agreement may be executed in any number
------------
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing one or more counterparts.
45
<PAGE>
SECTION 15.15. FURTHER ASSURANCES. Each of the parties hereto agrees to
------------------
execute any document or documents that may be requested from time to time by the
other party to implement or complete the party's obligations pursuant to this
Agreement.
SECTION 15.16. ATTORNEYS' FEES. If legal action is commenced by either
---------------
party to enforce or defend its rights under this Agreement, the prevailing party
in the action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
SECTION 15.17. TIME IS OF THE ESSENCE. Time is hereby expressly declared to
----------------------
be of the essence in this Agreement.
SECTION 15.18. CONFIDENTIALITY. Except for disclosure to its bankers,
---------------
underwriters or lenders, or as necessary or desirable for conduct of business,
including negotiations with other acquisition candidates, neither party hereto
shall disseminate or release to any third party any information regarding any
provision of this Agreement, or any financial information (past, present or
future) regarding the other that was obtained by the other in the course of the
negotiation of this Agreement or in the course of the performance of this
Agreement, without the other party's written approval; provided, however, the
foregoing shall not apply to information which (i) is generally available to the
public other than as a result of a breach of confidentiality provisions; (ii)
becomes available on a non-confidential basis from a source other than the other
party or its affiliates or agents, which source was not itself bound by a
confidentiality agreement, or (iii) which is required to be disclosed by
Applicable Law, including securities Applicable Law or pursuant to court order.
SECTION 15.19. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS AND COST
------------------------------------------------------------
REDUCTIONS. In the event Applicable Law, now existing or enacted or promulgated
- ----------
after the effective date of this Agreement, is interpreted by judicial decision,
a regulatory agency, or the mutual agreement of legal counsel for both parties
in a manner so as to indicate that the structure of this Agreement may be in
violation of Applicable Law or regulations, the Practice and MidSouth shall
amend this Agreement as necessary. To the maximum extent possible, any amendment
shall preserve the underlying economic and financial arrangements between the
Practice and MidSouth. In addition, the parties agree that in the event an
opportunity is presented to reduce the tax costs of either party, the parties
will present the matter to the Management Team, and the parties will cooperate
with each other to reduce the costs to the other party, including considering
and negotiating in good faith amendments to this Agreement.
SECTION 15.20. REMEDIES CUMULATIVE. No remedy set forth in this Agreement
-------------------
or otherwise conferred upon or reserved to any party shall be considered
exclusive of any other remedy available to any party, but the same shall be
distinct, separate and cumulative and may be exercised from time to time as
often as occasion may arise or as may be deemed expedient.
SECTION 15.21. NO OBLIGATION TO THIRD PARTIES. None of the obligations and
------------------------------
duties of MidSouth or the Practice under this Agreement shall in any way or in
any manner be deemed to create any obligation of MidSouth or of the Practice to,
or any rights in, any person or entity not a
46
<PAGE>
party to this Agreement, except as related to assignments pursuant to
Section 15.1.
SECTION 15.22. COMPLIANCE WITH FEDERAL APPLICABLE LAW. Notwithstanding
--------------------------------------
anything herein to the contrary, any clinical laboratory or other service shall
be operated in full compliance with Section 6204 of the Omnibus Budget
Reconciliation Act of 1989, as amended.
SECTION 15.23. PATIENT REFERRALS. The parties agree that the benefits to
-----------------
the Practice hereunder do not require, are not payment for, and are not in any
way contingent upon the admission, referral or any other arrangement for the
provision of any item or service offered by MidSouth to any of the Practice's
patients in any facility or laboratory controlled, managed or operated by
MidSouth.
SECTION 15.24. INDEPENDENT CONTRACTORS. It is the intention of the parties
-----------------------
that each shall be independent contractors, and this Agreement shall not
constitute the formation of a partnership, joint venture, an employment or
master-servant relationship.
SECTION 15.25. FORCE MAJEURE. Neither party shall be liable to the other
-------------
for failure to perform hereunder in the event of strikes, lock-outs, calamities,
acts of God, unavailability of supplies or other events over which the party has
no control for so long as the events continue, and for a reasonable period of
time thereafter.
SECTION 15.26. COMMUNICATIONS. The Practice and MidSouth agree that good
--------------
communication between the parties is essential to the successful performance
of this Agreement, and each pledges to communicate fully and clearly with the
other on matters relating to the successful operation of the Practice.
SECTION 15.27. GOVERNING APPLICABLE LAW. The validity, interpretation and
------------------------
performance of this Agreement shall be governed by and construed in accordance
with the Applicable Law of the State of Tennessee. Each of the parties submits
to the jurisdiction of any state or federal court sitting in Memphis, Tennessee,
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect to the action or proceeding may be heard and
determined in any such court. Each party agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto.
[REMAINDER OF THE PAGE IS INTENTIONALLY LEFT BLANK]
47
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
MIDSOUTH PRACTICE MANAGEMENT, INC.
a Tennessee Corporation
By: /s/ Daniel J. Caldwell
-------------------------------
Name: DANIEL J. CALDWELL
------------------------------
Title: PRESIDENT
------------------------------
Address:
----------------------------
----------------------------
----------------------------
BRYANT MEDICAL SERVICES, P. C.
a Tennessee Professional Corporation
By: /s/ James W. Bryant
Name:
------------------------------
Title:
------------------------------
Address:
----------------------------
----------------------------
48
<PAGE>
JOINDER AGREEMENT
The following Physician Shareholder hereby agrees to be bound to the Management
Services Agreement by and between MidSouth Practice Management, Inc. and Bryant
Medical Services, P. C. dated as of , 1997 solely for the
----------------
purposes of being bound by Articles I, Section 6.1, Section 6.3, Article 7, and
Section 10.5 of this Agreement.
Physician Shareholder:
/s/ James W. Bryant
------------------------------------
James W. Bryant, M. D.
49
<PAGE>
SCHEDULE 8.1
MANAGEMENT TEAM POLICIES AND PROCEDURES
8.1.1. Number, Tenure and Qualification. The Management Team shall consist
--------------------------------
of four (4) members. MidSouth shall designate, in its sole discretion, two (2)
members of the Management Team. The Practice shall designate, in the Practice's
sole discretion, two (2) members of the Management Team. One of MidSouth's
designees shall be the Management Team Chief Executive; provided, however, that
MidSouth may replace the Management Team Chief Executive, in its sole
discretion, as one of its Management Team designees if MidSouth institutes
disciplinary measures against the Management Team Chief Executive arising out of
his employment by MidSouth. The initial Management Team shall be chosen at the
time of the closing of the Merger. Thereafter, the respective Management Team
members shall be chosen at such time and in such manner as shall be determined
by the respective party making the appointment.
8.1.2. Duties and Responsibilities of the Management Team. The Management
--------------------------------------------------
Team shall have the duties and responsibilities more particularly described in
Article 8 of this Agreement.
8.1.3. Regular Meetings of the Management Team. Regular meetings of the
---------------------------------------
Management Team shall be held on the first Monday of each calendar quarter at
such times and places as the Management Team by resolution may determine and
specify, and if so determined no notice thereof need be given.
8.1.4. Special Meetings. Special meetings of the Management Team may be
----------------
held at any time or place whenever called by written request of at least two (2)
Management Team members, notice thereof being given to each Management Team
member by the Management Team members calling the meeting, or they may be held
at any time without formal notice provided all of the Management Team members
are present or those not present shall at any time waive or have waived notice
thereof.
8.1.5. Notice. Notice of any special meeting shall be given at least ten
------
(10) days previously thereto by written notice delivered in accordance with the
provisions of 15.13 of the Agreement.
8.1.6. Meetings by any Form of Communication. The Management Team shall
-------------------------------------
have the power to permit any and all Management Team members to participate in a
regular or special meeting by, or conduct the meeting through the use of any
means of communication which all Management Team members participating may
simultaneously hear each other during the meeting. A Management Team member
participating in a meeting by this means is deemed to be present in person at
the meeting.
8.1.7. Quorum. All of the members of the Management Team as constituted
------
from time to time shall constitute a quorum for the transaction of business, but
a lesser number may adjourn any meeting and the meeting may be held as adjourned
without further notice. When a quorum is present at any meeting, a majority of
the members present thereat shall decide any question brought before such
meeting, except as otherwise provided by this Agreement or by these policies and
procedures.
50
<PAGE>
The fact that a Management Team member has an interest in a matter to be voted
on at the meeting shall not prevent his vote from being counted for purposes of
a quorum.
8.1.8. Vacancies. Any vacancy occurring in the Management Team shall be
---------
filled by the party which chose the vacated Management Team member(s).
8.1.9. Removal. Any Management Team member may be removed without cause by
-------
the party which chose the Management Team member.
8.1.10. Committees. The majority of the Management Team may appoint an
----------
executive committee or such other committees as it may deem advisable, composed
of one (1) or more Management Team members, and may delegate authority to such
committees as is not inconsistent with this Agreement. The members of such
committee shall serve at the pleasure of the Management Team.
8.1.11. Presumption of Assent. A Management Team member who is present at a
---------------------
meeting of the Management Team at which action on any matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the secretaries of the MidSouth and the Practice immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
Management Team who voted in favor of such action.
8.1.12. Informal Action by Management Team Members. Any action required to
------------------------------------------
be taken at a meeting of the Management Team, or any other action which may be
taken at a meeting of the Management Team, may be taken without a meeting if all
Management Team members consent to taking such action without a meeting. If all
Management Team members consent to taking such action without a meeting, the
affirmative vote of a majority of the Management Team members is the act of the
Management Team. The action must be evidenced by one or more written consents
describing the action taken, signed by each Management Team member, indicating
each signing Management Team member's vote or abstention on the action, and
shall be included in the minutes or filed with the Management Team records
reflecting the action taken.
51
<PAGE>
SCHEDULE 1.1.46
PRACTICE EXPENSES
"Practice Expenses" shall include:
(a) Salaries, benefits, (including contributions under any MidSouth
employee benefits plan, severance benefits as set by the Management Team and
other direct costs of all employees of the Practice (other than Physician
Employees and Physician Extender Employees) and MidSouth working at the Practice
Facilities.
(b) Direct costs of all outside consultants, without mark-up, retained by
MidSouth with the advance approval of the Management Team to provide services at
or in connection with the Practice.
(c) Obligations of MidSouth or the Practice under leases or subleases for
the Practice Facilities and any personal property used by the Practice.
(d) The expenses and charges incurred for the Practice Facilities,
including without limitation, utilities, telephone charges, etc.
(e) Personal property and intangible taxes assessed against MidSouth's
assets utilized by the Practice from and after the date of the Agreement.
(f) The costs of any goods purchased for resale by or on behalf of the
Practice.
(g) Interest expense on indebtedness incurred by MidSouth to (i) satisfy
the obligations of the Practice if any, assumed under the Merger Agreement, (ii)
establish any new ancillary services on behalf on the Practice; or (iii)
purchase equipment on behalf of the Practice.
(h) Insurance expenses to the extent provided in Section 3.1(m) and
Article 9.
(i) Other expenses incurred by MidSouth in carrying out its obligations
under this Agreement or incurred by the Practice which are budgeted as Practice
Expenses.
(j) The depreciation as determined (as properly calculated for federal
income tax purposes), for any equipment or depreciable property owned by
MidSouth and used at the Practice Facilities by the Practice to be billed to the
Practice on a monthly basis and paid to MidSouth at the same time MidSouth pays
for the Practice's Accounts Receivable pursuant to Section 6.2; and
(k) Any marketing or presentation expense of any kind, including slide
production, travel, meals, entertainment or similar expenses incurred at the
direction of the Management Team.
52
<PAGE>
SCHEDULE 1.1.13
EXCLUDED EXPENSES
"Excluded Expenses" shall be the sole obligation of the Practice and shall
mean pursuant to GAAP applied on a consistent basis:
(1) Salaries, advances or other distributions made to Physician Employees
or Physician Extender Employees;
(2) Expenses of Physician Employees and Physician Extender Employees to
meet continuing education requirements, including related travel expenses; and
(3) Any indemnification obligation of the Practice.
(4) Any other items specifically designated as Excluded Expenses elsewhere
in this Agreement including but not limited to the following items:
(a) Accounting, legal and other professional fees attributed to the
Practice or to Physician Employees; provided, however, legal and accounting
expenses incurred in the ordinary course of Practice's business and approved by
the Management Team will be the Practice Expenses.
(b) Contribution expenses, cash or non-cash, which include, but are
not limited to costs of sponsoring sports teams, political contributions,
unapproved marketing expenses, and contributions to hospitals and staff.
(c) Automobile expenses including payments, repairs and maintenance,
mileage, depreciation, etc.
(d) Except as provided in Schedule 1.1.46(k), entertainment expenses
of any kind.
(e) Benefits including health insurance, life insurance, (except to
the extent allowed under subparagraph h of the definition of Practice Expenses,
etc.) vacation time, sick time, paid leave of absence, contributions to and
administration of physician retirement plans (pension, 401(k), IRA, others),
etc. for Physician Shareholder, Physician Employees and Physician Extender
Employees. Benefits shall not include malpractice insurance.
(f) Employment tax expenses including Federal and State Unemployment
taxes, FICA taxes, Medicare taxes, etc. for Physician Shareholder, Physician
Employees and Physician Extender Employees.
53
<PAGE>
(g) Home office expenses including the acquisition costs,
depreciation, repairs and maintenance, and ongoing operating expenses of:
computers, software, copying machines, fax machines, telephones and telephone
lines, cellular telephones, etc.; and the costs of having an office in one's
home including allocated rent, utility and depreciation expenses.
(h) Meal expenses.
(i) Medical supplies and drugs either used or distributed by a
Physician Employee without billing for such supplies and drugs at standard
rates.
(j) Except as provided in Schedule 1.1.46(k), presentation expenses
of any kind including, professional services, slide production, travel, meals,
entertainment, etc.
(k) Personal postage expenses.
(1) Personal laundry expenses.
(m) Personal assistant expenses (including the time staff spends on
personal errands for Physician Employees).
(n) Uninsured damages or claims paid or expenses related thereto from
any Applicable Lawsuit or claim against the Practice, or any Physician
Shareholder, or Physician Employee, including but not limited to malpractice
claims or litigation.
(5) Any expenses or responsibilities of the Practice which are not
expressly designated herein as Practice Expenses.
54
<PAGE>
SCHEDULE 1.1.47
PRACTICE FACILITIES
5220 PARK AVENUE, #100
MEMPHIS, TENNESSEE 38119
55
<PAGE>
SCHEDULE 1.1.33
MIDSOUTH EXPENSES
"MidSouth Expenses" shall mean:
(a) Any corporate overhead charges of MidSouth and other items incurred by
MidSouth that are not incurred specifically for the purpose of
providing services to the Practice or are not directly attributable to
the Practice, as reasonably determined by MidSouth, including, without
limitation, salaries and benefits of the executive officers of
MidSouth, except as otherwise provided in the definition of Practice
Expenses;
(b) Any amortization of any intangible asset resulting from the Merger;
(c) Any depreciation attributable to increases in the book value of
tangible depreciable assets resulting from the Merger;
(d) Any legal and/or accounting expenses incurred by MidSouth in
connection with the merger; and
(e) All taxes of MidSouth, including but not limited to, state and federal
income taxes and franchise taxes, but excluding state and federal
employee taxes related solely to MidSouth employees who provide
services directly to the Practice at the Practice Facilities, property
taxes on assets used by the Practice and other taxes specifically
included in Practice Expenses.
56
<PAGE>
SCHEDULE 4.1
LIST OF PHYSICIAN EMPLOYEES
James W. Bryant, M.D.
William F. Craven, M.D.
Carrie Louise Dowling, M.D.
Janice B. Schweitzer, M.D.
Robert P. Oliver, M.D. (who provides services as an independent contractor)
57
<PAGE>
EXHIBIT 10.26
GENERAL UNDERTAKINGS AGREEMENT
This Agreement ("Agreement"), dated as of October , 1996, is entered
--
into by and among Physician Health Corporation, a Delaware corporation ("PHC"),
PHC St Louis Acquisition Subsidiary I, Inc., a Georgia corporation
("Subsidiary"), Metropolitan Plastic and Reconstructive Surgery, Ltd., a
Missouri corporation ("MPRS") and J. Michael Ribaudo, M.D.,an individual
resident of the State of Missouri ("Ribaudo").
PHC and the Subsidiary are hereinafter collectively referred to as PHC
entities. MPRS and Ribaudo are hereinafter collectively referred to as the
Ribaudo entities.
WHEREAS, Ribaudo is sole shareholder of MPRS;
WHEREAS, the parties to this Agreement, simultaneously with execution of
this Agreement have entered into that certain Asset Purchase Agreement
("Purchase Agreement") pursuant to which MPRS shall become a subsidiary of PHC
and certain additional agreements with respect to the provision of services by
and among the parties hereto have been entered into by including but not limited
to that certain Practice Management Agreement, of even date herewith, and other
documents;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
out in the Purchase Agreement, and the Agreements delivered pursuant to it, One
Dollar ($1.00), and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Ribaudo: ISO Shares At Closing. PHC agrees that upon closing it shall
------------------------------
grant to Ribaudo stock options to purchase 300,000 shares of PHC common stock
which options shall vest over four (4) years and which options shall be issued
in accordance with the terms and conditions of the PHC Incentive Stock Option
Plan; provided that such vesting shall be accelerated to 100% vesting at such
time as PHC completes a single sale of securities resulting in a change in
control in PHC. The strike price of such options shall be $4.00 per share.
2. Ribaudo: ISO Shares Upon Meeting Earnings Target. PHC agrees to grant
------------------------------------------------
Ribaudo stock options immediately to purchase 150,000 shares of PHC common
stock, which shall begin to vest (the "Vesting Start Date") upon achievement of
$1.5 Million in projected annual practice management revenue from the Missouri
and central and southern Illinois markets by PHC for the period commencing on
the date hereof and ending on June 1, 1997. Such stock options shall be issued
in accordance with the terms and conditions of the PHC Stock Option Plan. Of
such options, 25,000 vest on the Vesting Start Date, and 31,250 shall vest on
each of the next four anniversaries of the Vesting Start Date; provided, that if
the Vesting Start Date conditions are met, all such stock options shall fully
vest at such time as PHC completes an initial public offering of its stock or
upon a single sale of securities resulting in a change in control of PHC. The
strike price for such options shall be $4.00 per share. Should Ribaudo not
exercise such options until immediately
<PAGE>
prior to the initial public offering or a change in control of PHC, PHC will pay
Ribaudo $600,000 at such time (and Ribaudo shall retain the right to also
exercise such options).
3. Ribaudo: Additional Stock Purchase At Closing. At closing, PHC agrees
---------------------------------------------
to sell and Ribaudo agrees to purchase an additional 100,000 shares of PHC
common stock at a purchase price of $4.00 per share for an aggregate purchase
price of $400,000.00 paid in cash. Such purchase and sale shall be achieved in
compliance with and subject to obtaining appropriate state and federal
securities laws exemptions, along with all other stock transactions contemplated
in the Purchase Agreement and this Agreement.
4. Ribaudo: Standard Compensation. PHC agrees to employ Ribaudo, on an at-
------------------------------
will basis, with standard compensation from the date of Closing of the Asset
Purchase Agreement and calculated at an annual rate of $100,000.00. Such amount
shall be adjusted from time to time as deemed appropriate by the Board of
Directors of PHC. In addition, PHC agrees that if Ribaudo continues to be
employed by the Company after the completion of an initial public offering of
the shares of PHC, then Ribaudo's compensation shall be increased to an annual
rate of $250,000.00.
5. Ribaudo: Additional Compensation. PHC agrees to provide Ribaudo with a
--------------------------------
quarterly draw in the amount of $87,500, to be paid in monthly installments, one
month in arrears, commencing with the closing of Subsidiary's purchase of MPRS's
assets, until PHC has completed an initial public offering of its common stock
("Quarterly Draw"). At the end of each applicable quarter, the then-outstanding
Quarterly Draw shall be compared with new earnings from new physician practices
acquired by PHC (other than Ribaudo's practice) for which Ribaudo had a
substantial role (as determined in good faith by PHC) so that Ribaudo receives
credit as specified below for the specified percent of the annualized earnings
amounts used by PHC in determining the purchase price for such new practices
acquired in such quarter, provided that Ribaudo's Earned Quarterly Draw shall
not exceed $87,500:
a. (2.5%) (Annualized new practice management earnings acquired from
practices in transactions during the applicable quarter for which
Ribaudo was the procuring party for the transaction), plus
b. For the first 12-month period only, (0.5%) (Annualized new practice
management earnings acquired from practices in transactions during the
applicable quarter for which Ribaudo had a substantial role but was not
the procuring party for the transaction) = Earned Quarterly Draw.
Should the Earned Quarterly Draw, calculated according to the formula set out
above, be less than the Quarterly Draw actually received by Ribaudo, PHC shall
offset such deficiency first against all
<PAGE>
payments owed to Ribaudo by PHC under that certain $500,000 promissory note
issued by PHC to Ribaudo in connection with the sale of his practice to PHC, and
second, against all other amounts owed or due to Ribaudo from PHC until such
deficit is satisfied. Once the actual Quarterly Draw received by Ribaudo for
such quarter has been offset to the extent provided above, Ribaudo shall receive
an Earned Quarterly Draw for the next quarter in the same amount of $87,500 and
subject to the same quarterly reconciliation. Notwithstanding anything to the
contrary, the Earned Quarterly Draw can only he drawn upon by Ribaudo in each
month to the extent necessary to allow Ribaudo to receive, together with all
revenue received by Ribaudo from his medical practice, $29,166.66. Upon any
public offering of PHC common stock, Ribaudo's additional compensation hereunder
shall cease, and Ribaudo's Earned Quarterly Draw for any partial quarter up to
that date shall be determined and compared with the actual Earned Quarterly Draw
taken during such partial quarter by Ribaudo and any deficiency in the amount of
the Earned Quarterly Draw may be offset by PHC against any amounts owed or due
to Ribaudo from PHC.
6. Ribaudo: Board Seat. PHC agrees that shortly after closing it
-------------------
shall cause Ribaudo to be named as a member of the Board of Directors of PHC.
Ribaudo shall serve in such capacity in accordance with the Articles of
Incorporation and Bylaws of PHC.
7. Ribaudo: Profit Representation. Ribaudo hereby represents and
-------------------------------
covenants to PHC that MPRS shall have a profit for the twelve (12) month period
commencing with the closing of Subsidiary's purchase of MPRS's assets, before
payment of the Practice Management Fee otherwise agreed between the parties, in
excess of $100,000.00. To the extent that such profit is not achieved, PHC may
offset any deficiency against any payment or other compensation owed or due to
Ribaudo by PHC.
8. [Reserved.]
9. MPRS: Adjustment for Tax Effect. PHC shall loan MPRS such funds
--------------------------------
as necessary to manage the taxable effect incurred in connection with the
Purchase Agreement (as compared to a merger transaction) taking into account the
time value of money and the increase in basis of MPRS as calculated by Arthur
Andersen or other accountants suitable to the parties ("Tax Loan"). Such Tax
Loan shall be secured by common stock received in connection with the Purchase
Agreement, paid at the time of any public offering of PHC stock.
10. Block: ISO Shares. Provided that Peggy Block becomes a full-
------------------
time employee of PHC, PHC agrees to grant Peggy Block stock options to purchase
75,000 shares of PHC common stock, which shall begin to vest (the "Vesting Start
Date") upon achievement of $1.5 Million in projected annual practice management
revenue from the Missouri and central and southern Illinois markets by PHC for
the period commencing on the date hereof and ending on June 1, 1997. Such stock
options shall be issued in accordance with the terms and conditions of the PHC
Stock Option Plan. Of such options, 12,500 shall vest on the Vesting Start
Date, and 15,625 shall vest on each of the next four anniversaries of the
Vesting Start Date; provided, that if the Vesting Start Date
<PAGE>
conditions are met, all such stock options shall fully vest at such time as PHC
completes an initial public offering of its stock or upon a single sale of
securities resulting in a change in control of PHC. The strike price for such
options shall be $4.00 per share. Peggy Block shall be permitted to work, on her
own time, not more than five (5) hours per month in supervising the financial
aspects of the personal business interest of Ribaudo and MPRS without being
considered other than a full-time employee of PHC.
11. Block: Additional Performance Shares. Provided that Peggy Block
-------------------------------------
becomes a full-time employee of PHC, PHC agrees to grant Peggy Block an
additional 25,000 shares under its Incentive Stock Option Plan provided that PHC
achieves $1.5 million of projected annual practice management revenue from the
Missouri-central and southern Illinois markets in the twelve (12) month period
commencing with the Closing of Subsidiary's purchase of MPRS's assets, in
accordance with the terms and conditions of PHC Incentive Stock Option Plan.
The strike price for such shares shall be $4.00 per share.
12. Block: Title and Compensation. PHC agrees to employ Peggy
------------------------------
Block, on an at-will basis, under title of "Vice President of Operations" or
similar title at Closing. Such title shall be adjusted at the discretion of the
President and the Board of Directors of PHC from time to time. PHC agrees to
provide her with standard compensation of $75,000 per year, payable in equal
monthly installments.
13. "B" Stock. MPRS agrees to negotiate with PHC prior to the
---------
closing of Subsidiary's purchase or MPRS's shares for the substitution of a "B"
common stock as the share consideration under the Purchase Agreement; provided
(i) such "B" common stock shall convert fully into "A" common stock as of the
earlier of the date of PHC's initial public offering or the date of PHC's
otherwise accessing the public securities market; and (ii) such "B" common stock
shall reduce the tax effects of the transactions contemplated in the Asset
Purchase Agreement and all related agreements, or otherwise provide a direct
benefit to both parties.
14. The obligations of both parties under this Agreement shall not be
enforceable until this Agreement has been approved by the Board of Directors of
PHC.
15. Ribaudo (for himself and on behalf of Peggy Block) and PHC agree that if
the Board of Directors of PHC, based upon the advice of legal counsel and/or
investment bankers engaged for the purpose of assisting in a public offering or
extraordinary private placement of PHC stock, determines in good faith that any
one or more terms of this Agreement will or could have a significant adverse
affect on PHC's ability to complete a registration of its shares or otherwise to
complete such proposed public offering or private placement in the manner and on
the terms proposed by such counsel or bankers, then Ribaudo and Block will
negotiate in good faith with PHC with the purpose of amending this Agreement and
any other applicable agreements entered into in connection herewith to the
extent necessary to eliminate such adverse affect, so long as any such
<PAGE>
amendments do not materially reduce the total economic benefits to Ribaudo and
Block provided under this Agreement.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures
effective as of the date first written above.
PHYSICIAN HEALTH CORPORATION
By:
------------------------------------
Title:
---------------------------------
PHC-St. LOUIS ACQUISITION
SUBSIDIARY I, INC.
By:
------------------------------------
Title:
---------------------------------
METROPOLITAN PLASTIC AND
RECONSTRUCTIVE SURGERY, LTD.
By:
------------------------------------
Title:
---------------------------------
J. MICHAEL RIBAUDO , M.D.
, both individually and
------------------
as sole shareholder of MPRS
<PAGE>
EXHIBIT 10.27
AMENDMENT TO GENERAL
UNDERTAKINGS AGREEMENT
----------------------
The Amendment to General Undertakings Agreement ("this Agreement"), dated
as of November 11, 1997, is made and entered into by and between Physician
Health Corporation, a Delaware corporation ("PHC"), PHC St. Louis Acquisition
Subsidiary I, Inc., a Georgia corporation ("Subsidiary"), Metropolitan Plastic
and Reconstructive Surgery, Ltd., a Missouri corporation ("MPRS") and J. Michael
Ribaudo, M.D., ("Ribaudo").
WHEREAS, the parties to this Agreement entered into that certain General
Undertakings Agreement in October 1996 (the "General Undertakings Agreement");
and
WHEREAS, the parties to this Agreement desire to amend the General
Undertakings Agreement as reflected in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree to amend the General Undertakings Agreement as set forth below.
1. Reference is made to paragraphs 2, 10 and 11 of the General Undertakings
Agreement and the performance targets therein relating to vesting of certain
options. The parties acknowledge that the period within which the specified
performance targets were to have been met was, by oral agreement prior to June
1, 1997, extended to December 31, 1997. This amendment sets forth a further
revised vesting schedule for certain stock options granted to J. Michael
Ribaudo, M.D. and Peggy Block which is intended not to be a "modification" of
such options as defined in Internal Revenue Code Section 424(h)(3).
2. Reference is made to paragraph 2 of the General Undertakings Agreement.
The parties agree that of the options to purchase 150,000 shares of PHC common
stock granted to Ribaudo pursuant to paragraph 2 of the General Undertakings
Agreement, options to purchase 100,000 shares of PHC common stock are fully
vested as of the date of this Agreement, options to purchase 25,000 shares of
PHC common stock will vest on December 31,1998 and options to purchase the
remaining 25,000 shares of PHC common stock will vest on December 31, 1999. The
parties acknowledge that the $600,000 payment referenced in paragraph 2 has been
earned by Ribaudo and will be paid by PHC.
3. Reference is made to paragraphs 10 and 11 of the General Undertakings
Agreement. The parties agree that of the options to purchase 100,000 shares of
PHC common stock granted to Peggy Block pursuant to paragraphs 10 and 11 of the
General Undertakings Agreement, options to purchase 40,000 shares of PHC common
stock are fully vested as of the date of this Agreement, options to purchase
20,000 shares of PHC common stock will vest on December 31, 1998, options to
purchase 20,000 shares of PHC common stock will vest on December 31, 1999 and
options to purchase the remaining 20,000 shares of PHC common stock will vest on
December 31, 2000.
<PAGE>
4. Except as modified hereby the General Undertakings Agreement remains
unchanged.
Executed this 11th day of November, 1997.
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
----------------------------------------
Sarah C. Garvin, Chief Executive Officer
PHC ST. LOUIS ACQUISITION
SUBSIDIARY I, INC.
By: /s/ Sarah C. Garvin
----------------------------------------
Sarah C. Garvin, President
METROPOLITAN PLASTIC AND
RECONSTRUCTIVE SURGERY, LTD.
By: /s/ J. Michael Ribaudo
----------------------------------------
J. Michael Ribaudo, M.D., President
/s/ J. Michael Ribaudo
----------------------------------------
J. Michael Ribaudo, M.D.
Acknowledged and agreed to:
/s/ Peggy Block
----------------------------------------
Peggy Block
<PAGE>
EXHIBIT 10.38
ESCROW AGREEMENT
----------------
This Agreement, dated as of June 16, 1997, is among Physician Health
Corporation, a Delaware corporation (the "Company"), Weston Presidio Capital II,
-------
L.P. (in its capacity only as escrow agent hereunder, and not as an Investor,
the "Escrow Agent"), and each of the investors set forth on the signatures pages
------------
below (Weston Presidio Capital II, L.P. and each of the other investors being
hereinafter referred to as the "Investors"). Reference is made to the Securities
---------
Purchase Agreement (the " Purchase Agreement") dated as of the date hereof,
-------------------
between the Company and the Investors. Terms defined in the Purchase Agreement
and not otherwise defined herein shall have the meanings set forth in the
Purchase Agreement.
Recitals: The Company and the Investors have entered into the Purchase
----------
Agreement pursuant to which, among other things, the Investors have agreed to
purchase Investor Securities, on the terms and subject to conditions set forth
in the Purchase Agreement (a) at the Third Closing on the condition that
certificates for such Investor Securities be held in the Securities Escrow
created hereby and (b) at the Second Closing, the proceeds of which, and
certificates therefor, shall be held in the Purchase Price Escrow and Securities
Escrow, respectively, created hereby.
In consideration of good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1. Establishment of the Securities Escrow. Pursuant to Section 2.3 of the
----------------------------------------
Purchase Agreement, the Company herewith delivers to the Escrow Agent
certificates evidencing the respective Investor Securities set forth in Exhibit
1 of the Purchase Agreement for the Third Closing (the "Securities Escrow").
-----------------
Such Investor Securities shall be held in the Securities Escrow and distributed
by the Escrow Agent in accordance with the terms and conditions hereinafter set
forth.
2. Second Closing Escrow. Pursuant to Section 2.4 of the Purchase Agreement,
-----------------------
on the date of the Second Closing under the Purchase Agreement, (a) the Company
shall deliver to the Escrow Agent for deposit in the Securities Escrow
certificates evidencing the respective Investor Securities set forth in Exhibit
1 of the Purchase Agreement for the Second Closing, and (b) the Investors shall
deposit the purchase price therefor into an interest-bearing restricted account
with the Company's principal depository bank (the "Purchase Price Escrow"),
---------------------
from which withdrawal of funds shall be subject to the presentation of a written
request signed by both a general partner of the Escrow Agent and
<PAGE>
an executive officer of the Company. The Investor Securities shall be held and
distributed by the Escrow Agent (and funds held in the Purchase Price Escrow
shall be simultaneously released) in accordance with the terms and conditions
hereinafter set forth. Investor Securities contained in the Securities Escrow
and cash and other investments contained in the Purchase Price Escrow are
referred to collectively as the "Escrow Assets".
-------------
3. Disposition of Escrow Assets. Escrow Assets will be held in escrow by the
----------------------------
Escrow Agent until authorized for release and delivery as follows:
3.1. Disposition of Escrow Assets in respect of the Second Closing. Pursuant
-------------------------------------------------------------
to Section 2.4 of the Purchase Agreement, immediately upon the (a) receipt of a
notice requesting the delivery of all or a portion of the Investor Securities in
the Securities Escrow to the Investors signed by holders (the "Required
--------
Holders") at the time (excluding the Company or any of its Subsidiaries) of at
- -------
least two-thirds of the voting power of all classes and types of Investor
Securities (calculated to give pro forma effect to the conversion of all
Preferred Stock and the exercise of all Warrants); and (b) the execution by an
executive officer of the Company and a general partner of the Escrow Agent of a
written request for the delivery of all or a portion of funds held in the
Purchase Price Escrow to the Company, Investor Securities shall be so delivered
to Investors and funds from the Purchase Price Escrow shall be so released to
the Company in accordance with such notice and request.
3.2. Disposition of Investor Securities in the Securities Escrow in respect of
-------------------------------------------------------------------------
the Third Closing. Pursuant to Section 2.5 of the Purchase Agreement, upon
- -----------------
receipt of confirmation of payment to the Company of the purchase price for the
Investor Securities set forth in Exhibit 1 of the Purchase Agreement for the
Third Closing, the Escrow Agent shall release the Investor Securities purchased
thereby to the respective Investors purchasing them.
3.3. Court Order. Upon receipt of a final and nonappealable order of a court
-----------
of competent jurisdiction with respect to release to a specified of all or any
portion of the Investor Securities in the Securities Escrow, the Escrow Agent
shall deliver the amount of the Investor Securities in the Securities Escrow
specified in such award or order to the party as directed in such award or
order. Upon receipt of a final and nonappealable order of a court of competent
jurisdiction with respect to the payment to a specified party of all or any
portion of the funds held in the Purchase Price Escrow, an executive officer of
the Company and a general partner of the Escrow Agent shall authorize in writing
the release of the amount of funds in the Purchase Price Escrow as specified in
such award or order to the party as directed in such award or order.
-2-
<PAGE>
3.4. Closing out of Securities Escrow and Purchase Price Escrow. Except to the
----------------------------------------------------------
extent the Escrow Agent has received written notice of a claim for dispositions
from the Securities Escrow or Purchase Price Escrow, (a) on April 14, 1998, the
Escrow Agent shall deliver to the Company any remaining Investor Securities in
the Securities Escrow in respect of the Third Closing, in accordance with
Section 2.5 of the Purchase Agreement; and (b) on April 30, 1998, the Escrow
Agent shall deliver to the Company any remaining Investor Securities in the
Securities Escrow in respect of the Second Closing and shall release any funds
remaining in the Purchase Price Escrow, in accordance with Section 2.4 of the
Purchase Agreement.
3.5. Limited Obligation. Unless otherwise provided herein, the Escrow Agent
------------------
(in such capacity) is not to be concerned with the Purchase Agreement or any
other agreement that may affect the Investor Securities in the Securities
Escrow.
3.6. Reliance on Notices. The Escrow Agent shall be protected in acting upon
-------------------
any notice, request, waiver, consent, receipt or other document reasonably
believed by the Escrow Agent to be signed by the proper party or parties.
3.7. Standard of Conduct. The Escrow Agent shall not be liable for any error
-------------------
or judgment or for any act done or step taken or omitted by it in good faith or~
for any mistake of fact or law, or for anything that it may do or refrain from
doing in connection herewith, except its own gross negligence or willful
misconduct, and the Escrow Agent shall have no duties to anyone except those
signing this Agreement.
3.8. Legal Counsel. The Escrow Agent may consult legal counsel in the event of
-------------
any dispute or question as to the construction of this Agreement, or the Escrow
Agent's duties hereunder, and the Escrow Agent shall incur no liability and
shall be fully protected in acting in accordance with the opinion and
instructions of counsel.
3.9. Disputes. In the event of any disagreement between the parties or any of
--------
them and/or any other person, resulting in adverse claims and demands being made
in connection with or for the Escrow Assets, the Escrow Agent shall refuse to
comply with any such claim or demand so long as such disagreement shall
continue, and in so doing the Escrow Agent shall not be or become liable for
damages or interest to the parties or any of them or to any person named herein
for its failure or refusal to comply with such conflicting or adverse demands.
The Escrow Agent shall continue so to refrain and refuse so to act until all
differences shall have been resolved by agreement and the Escrow Agent shall
have been notified thereof in writing signed by the Investors and the Company.
In the event of such disagreement,
-3-
<PAGE>
the Escrow Agent in its discretion may commence litigation (or, if the Escrow
Agent determines it to be required by the circumstances, file a suit in
interpleader) for the purpose of having the respective rights of the claimants
adjudicated and may deposit with the court all documents and property held
hereunder.
3.10. Indemnification. The Escrow Agent hereby is jointly and severally
---------------
indemnified by the Investors and the Company from all losses, costs and expenses
that may be incurred by it as a result of its involvement in any arbitration or
litigation arising from the performance of its duties hereunder, provided that
such arbitration or litigation shall not result from any action taken or omitted
by the Escrow Agent for which it shall have been adjudged to have failed to
comply with the standards of conduct in Section 4.3. The Investors (on a joint
and several basis), on one hand, and the Company, on the other hand, shall each
be liable for one-half of any amount paid to the Escrow Agent as indemnification
under this Section 3.10. Without limitation to the aforesaid joint and several
liability of the Investors, the liability of the Investors shall be pro rata in
accordance with their respective ownership of Investor Securities (calculated to
give pro forma effect to the conversion of all Preferred Stock and the exercise
of all Warrants). Such indemnification shall survive termination of this
Agreement until extinguished by any applicable statute of limitations.
3.11. No Ownership Interest. The Escrow Agent does not have any interest in
---------------------
the Escrow Assets hereunder but is serving as escrow holder only and having only
possession thereof. This paragraph shall survive notwithstanding any termination
of this Agreement or the resignation of the Escrow Agent.
3.12. Resignation. The Escrow Agent (and any successor Escrow Agent) may at
-----------
any time resign by delivering the Investor Securities in the Securities Escrow
to any successor Escrow Agent jointly designated by the other parties hereto in
writing or to any court of competent jurisdiction, whereupon the Escrow Agent
shall be discharged from any further obligations arising in connection with this
Agreement. The resignation of the Escrow Agent will take effect on the earlier
of (a) the appointment of a successor (including an order by a court of
competent jurisdiction) or (b) the day that is 30 days after the date of
delivery of its written notice of resignation to the other parties hereto. If at
that time the Escrow Agent has not received a designation of a successor Escrow
Agent, the Escrow Agent's sole responsibility after that time shall be to
safekeep the Escrow Assets until receipt of a designation of successor Escrow
Agent, or a joint written instruction as to disposition of the Escrow Assets by
the other parties hereto, or a final order of a court of competent jurisdiction
mandating disposition of Escrow Assets. If no successor
-4-
<PAGE>
escrow agent is appointed at the end of such 30 day period, the Escrow Agent
may apply to a court of competent jurisdiction for such appointment.
3.13. Acceptance of Duties: Payment of Costs. The Escrow Agent hereby accepts
--------------------------------------
its appointment and agrees to act as escrow agent under the terms and conditions
of this Agreement and acknowledges receipt of the Investor Securities in respect
of the Third Closing. The Company agrees to reimburse the Escrow Agent for all
reasonable administrative charges, out-of-pocket expenses, disbursements and
advances incurred or made by the Escrow Agent in performance of its duties
hereunder (including reasonable fees, and out-of-pocket expenses and
disbursements, of its counsel), not to exceed $2,000, unless there is a dispute
between the parties arising from the Escrow Agent's performance of its duties or
this Agreement.
3.14. No Offset. The Escrow Agent shall have no right to offset against any
---------
Escrow Assets for any debts, claims or other obligations owing to it by the
Company, the Investors or any other person. The Escrow Agent shall have no lien
against the Escrow Assets.
3.15. General Action. The Escrow Agent may execute any of its powers or
--------------
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys. Nothing in this Agreement shall be deemed
to impose upon the Escrow Agent any duty to qualify to do business or to act as
fiduciary or otherwise in any jurisdiction other than The Commonwealth of
Massachusetts. The Escrow Agent shall not be responsible for and shall not be
under a duty to examine into or opine upon the validity, binding effect,
execution or sufficiency of this Agreement or of any agreement amendatory or
supplemental hereto.
4. Notices. All claims, notices, objections and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given (a) when
personally delivered, (b) when received by facsimile or by overnight courier
service, (c) on the earlier of (i) actual receipt by the addressee or (ii) the
fifth business day after mailing by first class certified or registered mail,
return receipt requested. Notices must be sent to the parties at the following
addresses or as the Investors, the Company or the Escrow Agent shall furnish to
each of the other parties in writing.
If to the Investors, to:
Weston Presidio Capital II, L.P.
One Federal Street, 21st Floor
Boston, MA 02110
-5-
<PAGE>
Telecopier: (617) 988-2515
Attention: Michael Cronin
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier: (617) 951-7050
Attention: Thomas B. Draper
If to the Company, to:
Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Telecopier: (770) 673-1970
Attention: Thomas Rodgers/Sarah Garvin
with a copy to:
Jackson & Walker
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Telecopier: (214) 953-5822
Attention: James S. Ryan, III
If to the Escrow Agent, to:
Weston Presidio Capital II, L.P.
One Federal Street, 21st Floor
Boston, MA 02110
Telecopier: (617) 988-2515
Attention: Michael Cronin
with a copy to:
-6-
<PAGE>
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier: (617) 951-7050
Attention: Thomas B. Draper
5. Binding Effect; Successors. This Agreement shall be binding upon and inure
--------------------------
to the benefit of the parties hereto and their respective heirs, executors,
successors and assigns, provided that this Agreement may not be assigned by any
party without the prior written consent of the other parties (or in the case of
any consent by Investors, of the Required Holders), which consent shall not be
unreasonably withheld.
6. Amendments. This Agreement may not be amended or modified at any time
----------
except in such manner as may be agreed upon by a written instrument executed by
each of the parties hereto.
7. Waiver. No waiver of any provision hereof shall be effective unless made in
------
writing and signed by the waiving party. The failure of any party to require the
performance of any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
8. Termination. This Agreement shall automatically terminate upon the final
-----------
distribution of the Escrow Assets in accordance with the terms hereof.
9. Governing Law. This Agreement shall be construed and enforced in accordance
-------------
with the laws (other than the conflict of laws rules) of The Commonwealth of
Massachusetts.
10. Headings. The headings and captions in this Agreement are for convenience
--------
only and in no way define or limit the scope or content of any provision of this
Agreement.
11. Severability. In the event that any provision hereof would, under
------------
applicable law, be invalid or unenforceable in any respect, such provision shall
be construed by modifying or limiting it so as to be valid and enforceable to
the maximum extent compatible with, and possible under, applicable law. The
provisions hereof are severable, and in the event any provision hereof should be
-7-
<PAGE>
held invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.
12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and all of which together shall constitute one and the same agreement.
-8-
<PAGE>
The parties have executed this Agreement under seal as of the date first above
written.
Company: PHYSICIAN HEALTH CORPORATION
By:
-----------------------------------------
Title:
Escrow Agent: WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By:
------------------------------------
General Partner
Investors: WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By:
------------------------------------
General Partner
BANCBOSTON VENTURES, INC.
By:
-----------------------------------------
Title:
-9-
<PAGE>
Signature Page to
-----------------
Escrow Agreement
----------------
MERCURY ASSET MANAGEMENT plc, on
behalf of ROWAN NOMINEES LIMITED
By:
-----------------------------------------
Title:
NATWEST VENTURES INVESTMENTS LIMITED
By:
-----------------------------------------
Title:
-10-
<PAGE>
EXHIBIT 10.42
================================================================================
AMENDED AND RESTATED
CREDIT AGREEMENT
among
PHYSICIAN HEALTH CORPORATION,
PHC HOLDING CORPORATION,
VARIOUS BANKS
and
BANQUE PARIBAS,
as Agent
$62,500,000
________________________________________________
Dated as of October 27, 1997
and
Amended and Restated as of December 11, 1997
________________________________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Amount and Terms of Credit.................................... 1
1.01 The Commitments............................................. 1
1.02 Minimum Amount of Each Borrowing............................ 5
1.03 Notice of Borrowing......................................... 5
1.04 Disbursement of Funds....................................... 6
1.05 Notes....................................................... 7
1.06 Conversions................................................. 8
1.07 Pro Rata Borrowings......................................... 9
1.08 Interest.................................................... 9
1.09 Interest Periods............................................ 11
1.10 Increased Costs, Illegality, etc............................ 12
1.11 Compensation................................................ 14
1.12 Replacement of Banks........................................ 15
Section 2. Letters of Credit............................................. 16
2.01 Letters of Credit........................................... 16
2.02 Minimum Stated Amount....................................... 17
2.03 Letter of Credit Requests................................... 17
2.04 Letter of Credit Participations............................. 18
2.05 Agreement to Repay Letter of Credit Drawings................ 20
2.06 Increased Costs............................................. 20
Section 3. Fees; Reductions of Commitment................................ 21
3.01 Fees........................................................ 21
3.02 Voluntary Termination of Unutilized Commitments............. 22
3.03 Mandatory Reduction of Commitments.......................... 23
Section 4. Prepayments; Payments; Taxes.................................. 25
4.01 Voluntary Prepayments....................................... 25
4.02 Mandatory Repayments and Commitment Reductions.............. 27
4.03 Method and Place of Payment................................. 33
4.04 Net Payments................................................ 33
Section 5. Conditions Precedent to Loans on the Initial Borrowing Date... 35
5.01 Execution of Agreement; Notes............................... 35
5.02 Officer's Certificate....................................... 35
</TABLE>
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5.03 Opinions of Counsel......................................... 36
5.04 Corporate Documents; Proceedings............................ 36
5.05 Plans; Shareholders' Agreements; Management Agreements;
Employment Agreements; Collective Bargaining Agreements;
Debt Agreements; Affiliate Contracts; Tax Sharing
Agreements and Material Contracts......................... 36
5.06 Consummation of the Acquisitions............................ 38
5.07 Pledge Agreement............................................ 39
5.08 Security Agreement.......................................... 39
5.09 Subsidiaries Guaranty....................................... 40
5.10 Material Adverse Change, etc................................ 40
5.11 Litigation.................................................. 40
5.12 Fees, etc................................................... 40
5.13 Solvency Certificate; Insurance Analyses.................... 40
5.14 Approvals................................................... 41
5.15 Financial Statements; Projections; Management Letter
Reports.................................................... 41
5.16 Refinancing................................................. 42
5.17 Issuance of Senior Subordinated Notes....................... 43
5.18 Consent Letter.............................................. 43
5.19 Borrowing Base Certificate.................................. 44
5.20 Equity Amendments........................................... 44
5.21 Subordinated Debt........................................... 44
Section 6. Conditions Precedent to All Credit Events..................... 44
6.01 No Default; Representations and Warranties.................. 44
6.02 Material Adverse Change, etc................................ 44
6.03 Litigation.................................................. 45
6.04 Notice of Borrowing; Letter of Credit Request............... 45
6.05 Acquisition/Term Loans...................................... 45
6.06 Additional Conditions....................................... 45
Section 7. Representations, Warranties and Agreements.................... 46
7.01 Corporate Status............................................ 46
7.02 Corporate Power and Authority............................... 46
7.03 No Violation................................................ 47
7.04 Governmental Approvals...................................... 47
7.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc.............................. 47
7.06 Litigation.................................................. 49
7.07 True and Complete Disclosure................................ 49
7.08 Use of Proceeds; Margin Regulations......................... 49
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7.09 Tax Returns and Payments.................................... 50
7.10 Compliance with ERISA....................................... 50
7.11 The Security Documents...................................... 51
7.12 Representations and Warranties in Documents................. 52
7.13 Properties.................................................. 52
7.14 Capitalization.............................................. 52
7.15 Subsidiaries................................................ 53
7.16 Compliance with Statutes, etc............................... 53
7.17 Investment Company Act...................................... 53
7.18 Public Utility Holding Company Act.......................... 54
7.19 Environmental Matters....................................... 54
7.20 Labor Relations............................................. 55
7.21 Patents, Licenses, Franchises and Formulas.................. 55
7.22 Indebtedness................................................ 56
7.23 Restrictions on or Relating to Subsidiaries................. 56
7.24 The Transaction............................................. 56
7.25 Material Contracts.......................................... 57
7.26 Senior Subordinated Notes................................... 57
7.27 Defaults.................................................... 57
7.28 Unwind Provisions........................................... 57
7.29 Practice Management Agreements.............................. 57
7.30 Contemporaneous Acquisitions................................ 57
7.31 Post-Closing Acquisitions................................... 58
7.32 Repurchase Obligations...................................... 58
Section 8. Affirmative Covenants......................................... 58
8.01 Information Covenants....................................... 58
8.02 Books, Records and Inspections.............................. 62
8.03 Maintenance of Property, Insurance.......................... 62
8.04 Corporate Franchises........................................ 63
8.05 Compliance with Statutes, etc............................... 63
8.06 Compliance with Environmental Laws.......................... 63
8.07 ERISA....................................................... 64
8.08 End of Fiscal Years; Fiscal Quarters........................ 65
8.09 Performance of Obligations.................................. 65
8.10 Payment of Taxes............................................ 65
8.11 Interest Rate Protection.................................... 66
8.12 Use of Proceeds............................................. 66
8.13 UCC Searches................................................ 66
8.14 Intellectual Property Rights................................ 66
8.15 Permitted Acquisitions and Repayment of DVI Indebtedness.... 67
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8.16 Registry.................................................... 72
8.17 Further Actions............................................. 72
8.18 Concentration Account....................................... 73
8.19 Subsidiary Metroplex Note................................... 74
8.20 Assignment of Practice Management Agreement................. 74
8.21 Corporate Separateness...................................... 74
8.22 MHOA Pledged Securities..................................... 74
Section 9. Negative Covenants........................................... 74
9.01 Liens....................................................... 74
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc...... 76
9.03 Dividends................................................... 77
9.04 Leases...................................................... 78
9.05 Indebtedness................................................ 78
9.06 Advances, Investments and Loans............................. 79
9.07 Transactions with Affiliates................................ 80
9.08 Capital Expenditures........................................ 81
9.09 Fixed Charge Coverage Ratio................................. 81
9.10 Interest Coverage Ratio..................................... 82
9.11 Leverage Ratios 82
9.12 Minimum Consolidated Net Worth.............................. 84
9.13 Minimum EBITDA.............................................. 84
9.14 Accounts Receivable Days.................................... 84
9.15 Limitation on Voluntary Payments and Modification;
Limitation on Modifications of Certificate of
Incorporation, By-Laws and Certain Other Agreements; etc.. 84
9.16 Limitation on Certain Restrictions on Subsidiaries.......... 85
9.17 Limitation on Issuance of Capital Stock..................... 85
9.18 Business.................................................... 86
9.19 Limitation on Creation of Subsidiaries...................... 86
9.20 Concentration Account....................................... 86
9.21 Unwind Provisions........................................... 87
Section 10. Events of Default............................................ 87
10.01 Payments.................................................... 87
10.02 Representations, etc........................................ 87
10.03 Covenants................................................... 87
10.04 Default Under Other Agreements.............................. 87
10.05 Bankruptcy, etc............................................. 88
10.06 ERISA....................................................... 88
10.07 Security Documents.......................................... 89
</TABLE>
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10.08 Guaranties.................................................. 89
10.09 Judgments................................................... 89
10.10 Event Constituting a Material Adverse Change................ 90
10.11 Physician Turnover.......................................... 90
10.12 Change in Control........................................... 90
Section 11. Definitions and Accounting Terms............................. 91
11.01 Defined Terms............................................... 91
Section 12. The Agent.................................................... 120
12.01 Appointment................................................. 120
12.02 Nature of Duties............................................ 121
12.03 Lack of Reliance on the Agent............................... 121
12.04 Certain Rights of the Agent................................. 122
12.05 Reliance.................................................... 122
12.06 Indemnification............................................. 122
12.07 The Agent in Its Individual Capacity........................ 122
12.08 Holders..................................................... 123
12.09 Resignation by the Agent.................................... 123
Section 13. Guaranty..................................................... 123
13.01 The Guaranty................................................ 123
13.02 Bankruptcy.................................................. 124
13.03 Nature of Liability......................................... 124
13.04 Guaranty Absolute........................................... 125
13.05 Independent Obligation...................................... 125
13.06 Authorization............................................... 125
13.07 Reliance.................................................... 126
13.08 Subordination............................................... 126
13.09 Waiver...................................................... 126
13.10 Guaranty Continuing......................................... 127
13.11 Binding Nature of Guaranties................................ 128
13.12 Judgments Binding........................................... 128
Section 14. Miscellaneous................................................ 128
14.01 Payment of Expenses, etc.................................... 128
14.02 Right of Setoff............................................. 129
14.03 Notices..................................................... 129
14.04 Benefit of Agreement........................................ 130
14.05 No Waiver; Remedies Cumulative.............................. 131
14.06 Payments Pro Rata........................................... 132
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(v)
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14.07 Calculations; Computations.................................... 132
14.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL.................................................... 132
14.09 Counterparts.................................................. 134
14.10 Effectiveness................................................. 134
14.11 Headings Descriptive.......................................... 135
14.12 Amendment or Waiver........................................... 135
14.13 Survival...................................................... 137
14.14 Domicile of Loans............................................. 137
14.15 Post-Closing Obligations...................................... 137
14.16 Addition of New Banks; Original Notes......................... 137
</TABLE>
SCHEDULE I Commitments
SCHEDULE II Insurance
SCHEDULE III Financial Statements
SCHEDULE IV Intentionally Omitted
SCHEDULE V Real Property
SCHEDULE VI ERISA
SCHEDULE VII Capitalization
SCHEDULE VIII Subsidiaries
SCHEDULE IX Existing Indebtedness
SCHEDULE X Material Contracts
SCHEDULE XI Unwind Provisions and Mandatory Distributions
SCHEDULE XII Practice Management Agreements
SCHEDULE XIII Pre-Closing Acquisitions
SCHEDULE XIV Contemporaneous Acquisitions
SCHEDULE XV Post-Closing Acquisitions
SCHEDULE XVI Existing Liens
SCHEDULE XVII Acquisitions
SCHEDULE XVIII Dividend Restrictions
SCHEDULE XIX Outstanding Indebtedness Evidenced by Capital Lease Obligations
EXHIBIT A-1 Notice of Borrowing
EXHIBIT A-2 Notice of Conversion
EXHIBIT B-1 Term Note
EXHIBIT B-2 Acquisition Note
EXHIBIT B-3 Revolving Note
EXHIBIT B-4 Swingline Note
EXHIBIT C Letter of Credit Request
(vi)
<PAGE>
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E Form of Opinion of Jackson Walker, L.L.P.
EXHIBIT F Officers' Certificate of Credit Parties
EXHIBIT G-1 Form of Corporate Pledge Agreement
EXHIBIT G-2 Form of LLC Pledge Agreement
EXHIBIT H Form of Security Agreement
EXHIBIT I Subsidiaries Guaranty
EXHIBIT J Consent Letter
EXHIBIT K Borrowing Base Certificate
EXHIBIT L Bank Assignment and Assumption Agreement
EXHIBIT M Cash Collateral Agreement
EXHIBIT N Solvency Certificate
(vii)
<PAGE>
CREDIT AGREEMENT, dated as of October 27, 1997, and amended and
restated as of December 12, 1997, among PHYSICIAN HEALTH CORPORATION, a
corporation organized and existing under the laws of Delaware ("Holdings"), PHC
Holding Corporation, a corporation organized and existing under the laws of
Georgia and a Wholly-Owned Subsidiary of Holdings (the "Borrower"), the
financial institutions party hereto from time to time (each a "Bank" and,
collectively, the "Banks"), and BANQUE PARIBAS, as agent (the "Agent"). Unless
other wise defined herein, all capitalized terms used herein and defined in
Section 11 are used herein as therein defined.
W I T N E S S E T H:
WHEREAS, Holdings, the Borrower, the Original Bank and the Agent are
parties to a Credit Agreement, dated as of October 27, 1997 (as the same has
been amended, modified or supplemented to, but not including, the Restatement
Effective Date, the "Original Credit Agreement");
WHEREAS, the Borrower has requested that the Original Credit Agreement
be amended and restated and the Banks and the Agent are willing to amend and
restate the same upon the terms and conditions set forth below;
NOW, THEREFORE, the parties hereto agree that the Original Credit
Agreement shall be and hereby is amended and restated in its entirety as
follows:
Section 1. Amount and Terms of Credit.
--------------------------
1.01 The Commitments. (a) Subject to and upon the terms and
---------------
conditions set forth herein, each Bank with a Term Loan Commitment severally
agrees to make, on the Initial Borrowing Date and on the DVI Payment Date (so
long as the DVI Payment Date occurs prior to the Term Loan Commitment
Termination Date), a term loan (each, a "Term Loan" and, collectively, the "Term
Loans") to the Borrower, which Term Loans (i) shall be Base Rate Loans or
Eurodollar Loans; provided that (x) except as otherwise specifically provided in
--------
Section 1.10(b), all Term Loans comprising the same Borrowing shall at all times
be of the same Type and (y) no Eurodollar Loans may be incurred prior to the
Syndication Termination Date and (ii) shall not exceed for any Bank, in initial
aggregate principal amount, that amount which equals the Term Loan Commitment of
such Bank on such date (before giving effect to any reductions thereto on such
date pursuant to Section 3.03(b)(i), 3.03(b)(iii) and 3.03(b)(v) but after
giving effect to any reductions thereto on
<PAGE>
or prior to such date pursuant to Section 3.03(b)(ii) and 3.03(b)(iv)) less such
Bank's Term Loan Commitment Percentage of the Blocked Commitment; provided,
--------
however that Term Loans made after the Initial Borrowing Date shall be made from
- -------
the Blocked Commitment for each Bank and shall be in an amount equal to such
Bank's Term Loan Commitment Percentage of the Blocked Commitment. Once repaid,
Term Loans incurred hereunder may not be reborrowed. In addition, on the
Restatement Effective Date, the Borrower and Banque Paribas agree that $2
million of the Acquisition Loans which had been made pursuant to the Original
Credit Agreement prior to the Restatement Effective Date shall be deemed
automatically converted into an additional Borrowing of Term Loans.
(b) Subject to and upon the terms and conditions set forth herein,
each Bank with an Acquisition Loan Commitment severally agrees to make, at any
time and from time to time after the Acquisition Loan Commencement Date and
prior to the Acquisition Loan Termination Date, a loan or loans (each an
"Acquisition Loan" and, collectively, the "Acquisition Loans") to the Borrower,
which Acquisition Loans (i) shall, at the option of the Borrower, be Base Rate
Loans or Eurodollar Loans; provided that (x) except as otherwise specifically
--------
provided in Section 1.10(b), all Acquisition Loans comprising the same Borrowing
shall at all times be of the same Type and (y) no Eurodollar Loans may be
incurred prior to the Syndication Termination Date and (ii) shall not exceed for
any Bank, in initial aggregate principal amount, that amount which equals the
Acquisition Loan Commitment of such Bank at such time (before giving effect to
any reductions thereto on such date pursuant to Section 3.03(c)(i) or Section
3.03(c)(ii) but after giving effect to any reductions thereto on or prior to
such date pursuant to Section 3.03(c)(iii)). Once repaid, Acquisition Loans
incurred may not be reborrowed; provided, however that the $2 million of
-------- -------
Acquisition Loans converted to Term Loans or Revolving Loans in accordance with
the next succeeding sentence and any Acquisition Loans repaid in accordance with
Section 4.02(A)(e)(i) from the proceeds of the initial public offering of common
equity of Holdings shall be permitted to be reborrowed. After giving effect to
the conversion of $2 million of the Acquisition Loans to Term Loans in
accordance with Section 1.01(a) on the Restatement Effective Date, Acquisition
Loans in an amount set forth on Part B of Schedule I shall be outstanding on the
Restatement Effective Date. No Acquisition Loans may be incurred on the
Restatement Effective Date.
(c) Subject to and upon the terms and conditions set forth herein,
each Bank with a Revolving Loan Commitment severally agrees at any time and from
time to time after the Initial Borrowing Date and prior to the Revolving Loan
Maturity Date, to make a loan or loans (each a "Revolving Loan" and,
collectively, the "Revolving Loans") to the Borrower, which Revolving Loans (i)
shall, at the option of the Borrower, be Base Rate Loans or Eurodollar Loans;
provided that (x) except as otherwise specifically provided in Section 1.10(b),
- --------
all Revolving Loans comprising the same Borrowing shall at all times be of the
same Type and (y) no Eurodollar Loans may be incurred prior to the Syndication
Termination Date, (ii) may be repaid and reborrowed in accordance with the
provisions hereof, (iii) shall not exceed for any Bank at any time outstanding
that aggregate principal
-2-
<PAGE>
amount which, when added to the product of (x) such Bank's Percentage and (y)
the sum of (I) the aggregate amount of all Letter of Credit Outstandings
(exclusive of Unpaid Drawings which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of Revolving
Loans) and (II) the aggregate principal amount of all Swingline Loans then
outstanding (exclusive of Swingline Loans which are repaid with the proceeds of,
and simultaneously with the incurrence of, the respective incurrence of
Revolving Loans), equals the Revolving Loan Commitment of such Bank at such time
and (iv) shall not exceed for all Banks at any time that aggregate principal
amount which, when added to the aggregate principal amount of all Swingline
Loans then outstanding and the aggregate amount of all Letter of Credit
Outstandings at such time, equals the Borrowing Base at such time.
(d) Subject to and upon the terms and conditions herein set forth,
the Swingline Bank agrees to make at any time and from time to time after the
Initial Borrowing Date and prior to the Swingline Expiry Date, a loan or loans
to the Borrower (each a "Swingline Loan," and collectively, the "Swingline
Loans"), which Swingline Loans (i) shall be made and maintained as Base Rate
Loans; (ii) may be repaid and reborrowed in accordance with the provisions
hereof; (iii) shall not exceed in aggregate principal amount at any time
outstanding, when combined with the aggregate principal amount of (x) all
Revolving Loans then outstanding and (y) all Letter of Credit Outstandings at
such time (exclusive of Unpaid Drawings which are repaid with the proceeds of,
and simultaneously with the incurrence of, the respective incurrence of
Swingline Loans), an amount equal to the lesser of (A) the Total Revolving Loan
Commitment at such time (after giving effect to any reductions to the Total
Revolving Loan Commitment on such date) and (B) the Borrowing Base at such time;
and (iv) shall not exceed in aggregate principal amount at any time outstanding
the Maximum Swingline Amount. The Swingline Bank shall not be obligated to make
any Swingline Loans at a time when a Bank Default exists unless the Swingline
Bank has entered into arrangements satisfactory to it and the Borrower to
eliminate the Swingline Bank's risk with respect to the Defaulting Bank's or
Banks' participation in such Swingline Loans, including by cash collateralizing
such Defaulting Bank's or Banks' Percentage of the outstanding Swingline Loans.
The Swingline Bank shall not make any Swingline Loan after receiving a written
notice from the Borrower or the Required Banks stating that a Default or an
Event of Default exists and is continuing until such time as the Swingline Bank
shall have received written notice of (i) rescission of all such notices from
the party or parties originally delivering such notice, (ii) the waiver of such
Default or Event of Default by the Required Banks, (iii) the Agent in good faith
believes that such Default or Event of Default has ceased to exist or (iv) the
consent of the Required Banks to make Swingline Loans notwithstanding the
existence of such Default or Event of Default.
(e) On any Business Day, the Swingline Bank may, in its sole
discretion, give notice to the Banks that its outstanding Swingline Loans shall
be funded with a
-3-
<PAGE>
Borrowing of Revolving Loans, provided that such notice shall be deemed to have
--------
been automatically given upon the occurrence of a Default or an Event of Default
under Section 10.05 or upon the exercise of any of the remedies provided in the
last paragraph of Section 10, in which case a Borrowing of Revolving Loans
constituting Base Rate Loans (each such Borrowing, a "Mandatory Borrowing")
shall be made on the immediately succeeding Business Day from all Banks with a
Revolving Loan Commitment (without giving effect to any terminations and/or
reductions thereto pursuant to the last paragraph of Section 10) pro rata on the
--- ----
basis of their respective Percentages (determined before giving effect to any
termination of the Revolving Loan Commitments pursuant to the last paragraph of
Section 10) and the proceeds thereof shall be applied directly to the Swingline
Bank to repay the Swingline Bank for such outstanding Swingline Loans. Each such
Bank hereby irrevocably agrees to make Revolving Loans upon one Business Day's
notice pursuant to each Mandatory Borrowing in the amount and in the manner
specified in the preceding sentence and on the date specified in writing by the
Swingline Bank notwithstanding (i) the amount of the Mandatory Borrowing may not
comply with the minimum amount for Borrowings otherwise required hereunder, (ii)
whether any conditions specified in Section 6 are then satisfied, (iii) whether
a Default or an Event of Default then exists, (iv) the date of such Mandatory
Borrowing and (v) any reduction in the Total Revolving Loan Commitment after any
such Swingline Loans were made. In the event that any Mandatory Borrowing cannot
for any reason be made on the date otherwise required above (including, without
limitation, as a result of the commencement of a proceeding under the Bankruptcy
Code with respect to the Borrower), then each such Bank hereby agrees that it
shall forthwith purchase (as of the date the Mandatory Borrowing would otherwise
have occurred, but adjusted for any payments received from the Borrower on or
after such date and prior to such purchase) from the Swingline Bank (without
recourse or warranty) such participations in the outstanding Swingline Loans as
shall be necessary to cause such Banks to share in such Swingline Loans ratably
based upon their respective Percentages (determined before giving effect to any
termination of the Revolving Loan Commitments pursuant to the last para graph of
Section 10); provided that (x) all interest payable on the Swingline Loans shall
--------
be for the account of the Swingline Bank until the date as of which the
respective participation is required to be purchased and, to the extent
attributable to the purchased participation, shall be payable to the participant
from and after such date and (y) at the time any purchase of participations
pursuant to this sentence is actually made, the purchasing Bank shall be
required to pay the Swingline Bank interest on the principal amount of
participation purchased for each day from and including the day upon which the
Mandatory Borrowing would otherwise have occurred to but excluding the date of
payment for such participation, at the rate otherwise applicable to Revolving
Loans maintained as Base Rate Loans here under for each day thereafter.
(f) (i) Each New Bank shall purchase by assignment and assumption
from Banque Paribas on the Restatement Effective Date (without recourse to,
representation or warranty by (other than as expressly provided in this Section
1.01(f)), Banque Paribas),
-4-
<PAGE>
outstanding Loans made by Banque Paribas to the Borrower pursuant to the
Original Credit Agreement, with each New Bank to purchase Loans in an aggregate
principal amount so that after giving effect to all such assignments the
outstanding principal amount of Loans of each Bank under each facility shall be
as set forth on Part B of Schedule I. Each of the Banks hereby further agree
that such assignments shall be effected on the Restatement Effective Date as a
result of the New Banks making to Agents for the account of Banque Paribas
payments in an amount equal to the total outstanding amount of Loans of such
Bank as set forth on Part B of Schedule I.
(ii) (x) on the Restatement Effective Date all accrued (but
theretofore unpaid) interest with respect to all outstanding Loans under the
Original Credit Agreement immediately prior to the Restatement Effective Date
shall be paid by the Borrower and (y) all Fees under, and as defined in, the
Original Credit Agreement (including, without limitation, Commitment Commissions
(as defined in the Original Credit Agreement)) accrued prior to the Restatement
Effective Date shall be paid on the Restatement Effective Date by the Borrower.
(iii) Banque Paribas hereby represents and warrants to each New Bank
purchasing Loans from Banque Paribas by way of assignment pursuant to this
Section that it is the legal and beneficial owner of such Loans being assigned
by it under this Section to such New Bank and that such Loans are free and clear
of any adverse claim with respect to its legal and beneficial ownership thereof.
1.02 Minimum Amount of Each Borrowing. The aggregate principal
--------------------------------
amount of each Borrowing under a Facility hereunder shall not be less than the
Minimum Borrowing Amount for such Facility and, if greater, shall be in integral
multiples of $100,000 in the case of all Loans (other than Swingline Loans) and
$50,000 in the case of Swingline Loans. More than one Borrowing may occur on
the same date, but at no time shall there be outstanding more than five
Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to make
-------------------
a Borrowing hereunder (excluding Borrowings of Swingline Loans and Mandatory
Borrowings), it shall give the Agent at its Notice Office, prior to 11:00 A.M.
(New York time) at least one Business Day's prior written notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of Base Rate Loans and
at least three Business Days' prior written notice (or telephonic notice
promptly confirmed in writing) of each Borrowing of Eurodollar Loans. Each such
notice (each a "Notice of Borrowing"), except as otherwise expressly provided in
Section 1.10, shall be irrevocable and shall be given by the Borrower in the
form of Exhibit A-1, appropriately completed to specify (i) the aggregate
principal amount of the Loans to be made pursuant to such Borrowing, (ii) the
date of such Borrow ing (which shall be a Business Day), (iii) whether the Loans
being made pursuant to such Borrowing shall constitute Term Loans, Revolving
Loans or Acquisition Loans and (iv)
-5-
<PAGE>
whether the Loans being made pursuant to such Borrowing are to be initially
maintained as Base Rate Loans or Eurodollar Loans and, if Eurodollar Loans, the
initial Interest Period to be applicable thereto. Any notice received after
11:00 A.M. (New York time) shall be deemed to be received on the next succeeding
Business Day. The Agent shall promptly give each Bank which is required to make
Loans of the Tranche specified in the respective Notice of Borrowing notice of
such proposed Borrowing, of such Bank's proportionate share thereof and of the
other matters specified in the Notice of Borrowing.
(b) (i) Whenever the Borrower desires to make a Borrowing of
Swingline Loans hereunder, it shall give the Swingline Bank not later than 11:00
A.M. (New York time) on the date that the Swingline Loan is to be made, written
notice (or telephonic notice confirmed in writing) of each Swingline Loan to be
made hereunder. Each such notice shall be irrevocable and specify in each case
(A) the date of Borrowing (which shall be a Business Day) and (B) the aggregate
principal amount of Swingline Loans to be made pursuant to such Borrowing.
(ii) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Agent, the respective Issuing Bank (in the case of Letters of Credit) or the
Swingline Bank, as the case may be, may, prior to receipt of written
confirmation, act without liability upon the basis of telephonic notice believed
by the Agent, the respective Issuing Bank (in the case of Letters of Credit) or
the Swingline Bank, as the case may be, in good faith to be from the Chief
Executive Officer, President, Chief Financial Officer or Controller of the
Borrower. In each such case, the Agent's, such Issuing Bank's or the Swingline
Bank's record of the terms of such telephonic notice shall be conclusive absent
manifest error.
(iii) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(e), with the Borrower irrevocably agreeing, by its incurrence of
any Swingline Loan, to the making of the Mandatory Borrowings as set forth in
Section 1.01(e).
1.04 Disbursement of Funds. No later than 12:00 Noon (New York time)
---------------------
on the date specified in each Notice of Borrowing (or (x) in the case of
Swingline Loans, no later than the close of business on the date specified
pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, not
later than 12:00 Noon (New York time) on the date specified in Section 1.01(e)),
each Bank with a Commitment of the respective Tranche will make available its
pro rata portion (determined in accordance with Section 1.07) of each such
- --- ----
Borrowing requested to be made on such date (or in the case of Swingline Loans,
the Swingline Bank shall make available the full amount thereof). All such
amounts shall be made available in Dollars and in immediately available funds at
the Payment Office, and the Agent will immediately make available to the
Borrower at the Payment Office the aggregate of the amounts so made available by
the Banks. Unless the Agent shall have been notified in writing by any Bank
prior to the date of Borrowing that
-6-
<PAGE>
such Bank does not intend to make available to the Agent such Bank's portion of
any Borrowing to be made on such date, the Agent may assume that such Bank has
made such amount available to the Agent on such date of Borrowing and the Agent
may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to the Agent by such Bank, the Agent shall be entitled to recover such
corresponding amount on demand from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent shall
promptly notify the Borrower, and Borrower shall immediately pay such
corresponding amount to the Agent. The Agent shall also be entitled to recover
on demand from such Bank or Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Agent to such Borrower, until the date such
corresponding amount is recovered by the Agent, at a rate per annum equal to (i)
if recovered from such Bank, the Federal Funds Rate and (ii) if recovered from
either Borrower, the rate of interest applicable to the respective Borrowing,
as determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be
deemed to relieve any Bank from its obligation to make Loans hereunder or to
prejudice any rights which Borrower may have against any Bank as a result of any
failure by such Bank to make Loans hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal of,
-----
and interest on, the Loans made by each Bank shall be evidenced (i) if Term
Loans, by a promissory note duly executed and delivered by the Borrower
substantially in the form of Exhibit B-1 with blanks appropriately completed in
conformity herewith (each, a "Term Note" and, collectively, the "Term Notes"),
(ii) if Acquisition Loans, by a promissory note duly executed and delivered by
the Borrower substantially in the form of Exhibit B-2, with blanks appropriately
completed in conformity herewith (each an "Acquisition Note" and collectively,
the "Acquisition Notes"), (iii) if Revolving Loans, by a promissory note duly
executed and delivered by the Borrower substantially in the form of Exhibit B-3,
with blanks appropriately completed in conformity herewith (each a "Revolving
Note" and, collectively, the "Revolving Notes"), and (iv) if Swingline Loans, by
a promissory note duly executed and delivered by the Borrower substantially in
the form of Exhibit B-4, with blanks appropriately completed in conformity
herewith (the "Swingline Note").
(b) The Term Note issued to each Bank shall (i) be executed by the
Borrower, (ii) be payable to the order of such Bank or its registered assigns
and be dated the Initial Borrowing Date, (iii) be in a stated principal amount
equal to the Term Loan Commitment of such Bank on the Initial Borrowing Date and
be payable in the principal amount of the Term Loans evidenced thereby, (iv)
mature on the Term Loan Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary repayment as provided in Section 4.01, and mandatory repayment as
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<PAGE>
provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement
and the Guaranties and be secured by the Security Documents.
(c) The Acquisition Note issued to each Bank with an Acquisition Loan
Commitment shall (i) be executed by the Borrower, (ii) be payable to the order
of such Bank or its registered assigns and be dated the Initial Borrowing Date,
(iii) be in a stated principal amount equal to the Acquisition Loan Commitment
of such Bank and be payable in the principal amount of the Acquisition Loans
evidenced thereby, (iv) mature on the Acquisition Loan Maturity Date, (v) bear
interest as provided in the appropriate clause of Section 1.08 in respect of the
Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby,
(vi) be subject to voluntary repayment as provided in Section 4.01, and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the Guaranties and be secured by the Security
Documents.
(d) The Revolving Note issued to each Bank with a Revolving Loan
Commitment shall (i) be executed by the Borrower, (ii) be payable to the order
of such Bank or its registered assigns and be dated the Initial Borrowing Date,
(iii) be in a stated principal amount equal to the Revolving Loan Commitment of
such Bank and be payable in the principal amount of the Revolving Loans
evidenced thereby, (iv) mature on the Revolving Loan Maturity Date, (v) bear
interest as provided in the appropriate clause of Section 1.08 in respect of the
Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby,
(vi) be subject to voluntary repayment as provided in Section 4.01, and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the Guaranties and be secured by the Security
Documents.
(e) The Swingline Note issued to the Swingline Bank shall (i) be
executed by the Borrower, (ii) be payable to the order of the Swingline Bank or
its registered assigns and be dated the Initial Borrowing Date, (iii) be in a
stated principal amount equal to the Maximum Swingline Amount and be payable in
the principal amount of the outstanding Swingline Loans evidenced thereby from
time to time, (iv) mature on the Swingline Expiry Date, (v) bear interest as
provided in the appropriate clause of Section 1.08 in respect of the Base Rate
Loans evidenced thereby, (vi) be subject to voluntary repayment as provided in
Section 4.01, and mandatory repayment as provided in Section 4.02 and (vii) be
entitled to the benefits of this Agreement and the Guaranties and be secured by
the Security Documents.
(f) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or the making of an incorrect notation shall not affect the Borrower's
obligations in respect of such Loans.
-8-
<PAGE>
1.06 Conversions. The Borrower shall have the option to convert, on
-----------
any Business Day, all or a portion at least equal to the applicable Minimum
Borrowing Amount for such Tranche of the outstanding principal amount of the
Loans (other than Swingline Loans, which may not be converted pursuant to this
Section 1.06), made pursuant to one or more Borrowings (so long as of the same
Tranche) of one Type of Loan into a Borrowing or Borrowings (of the same
Tranche) of the other Type of Loan; provided that:
--------
(i) except as otherwise provided in Section 1.10(b), Eurodollar
Loans may be converted into Base Rate Loans only on the last day of an
Interest Period applicable to the Loans being converted and no such partial
conversion of Eurodollar Loans shall reduce the outstanding principal
amount of such Eurodollar Loans made pursuant to a single Borrowing to less
than the applicable Minimum Borrowing Amount for such Tranche applicable
thereto;
(ii) Base Rate Loans may only be converted into Eurodollar Loans
if no Default or Event of Default is in existence on the date of the
conversion;
(iii) no conversion pursuant to this Section 1.06 shall result in
a greater number of Borrowings than is permitted under Section 1.02; and
(iv) prior to the Syndication Termination Date, no Loan may be
converted into Eurodollar Loans.
Each such conversion shall be effected by the Borrower by giving the Agent at
its Notice Office prior to 12:00 Noon (New York time) at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
(each a "Notice of Conversion") which notice shall be in the form of Exhibit A-
2, appropriately completed to specify the Loans to be so converted, the
Borrowing(s) pursuant to which such Loans were made and, if to be converted into
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Agent shall give each Bank prompt notice of any such proposed conversion
affecting any of its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Loans (other than
-------------------
Swingline Loans) under this Agreement shall be incurred from the Banks pro rata
--- ----
on the basis of their respective Term Loan Commitments, Acquisition Loan
Commitments or Revolving Loan Commitments, as the case may be; provided that all
--------
Borrowings of Revolving Loans made pursuant to a Mandatory Borrowing shall be
incurred by the Borrower from the Banks pro rata on the basis of their
--- ----
Percentages. It is understood that no Bank shall be responsible for any default
by any other Bank of its obligation to make Loans hereunder and that each Bank
shall be obligated to make the Loans provided to be made by it hereunder
regardless of the failure of any other Bank to make its Loans hereunder.
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<PAGE>
1.08 Interest. (a) The Borrower agrees to pay interest in respect
--------
of the unpaid principal amount of each Base Rate Loan made to it from the date
of the Borrowing thereof (or with respect to Loans incurred prior to the
Restatement Effective Date, from the Restatement Effective Date,) until the
earlier of (i) the maturity thereof (whether by acceleration or otherwise) of
such Base Rate Loan and (ii) the conversion of such Base Rate Loan to a
Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall at all
times be equal to the sum of the Applicable Margin plus the Base Rate in effect
from time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan made to it from the date of the
Borrowing thereof (or with respect to Loans incurred prior to the Restatement
Effective Date, from the Restatement Effective Date) until the earlier of (i)
the maturity thereof (whether by acceleration or otherwise) of such Eurodollar
Loan and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan
pursuant to Section 1.06, 1.09 or 1.10(b), as applicable, at a rate per annum
which shall, during each Interest Period applicable thereto, be equal to the sum
of the Applicable Margin plus the Quoted Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable hereunder
shall, in each case, bear interest at a rate per annum equal to the greater of
(x) 2% per annum in excess of the rate otherwise applicable to Base Rate Loans
of the respective Tranche of Loans from time to time and (y) the rate which is
2% in excess of the rate borne by such Loans. Interest which accrues under this
Section 1.08(c) shall be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment
Day, (ii) in respect of each Eurodollar Loan on (x) the date of any prepayment
or repayment thereof (on the amount prepaid or repaid), (y) the date of any
conversion into a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as
applicable (on the amount converted) and (z) on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three month intervals after the first
day of such Interest Period and (iii) in respect of each Loan, at maturity
(whether by acceleration or otherwise) and, after such maturity, on demand.
Notwithstanding anything to the contrary in this Agreement or in the Original
Credit Agreement, all accrued (but theretofore unpaid) interest with respect to
Loans which were outstanding prior to the Restatement Effective Date shall be
payable on the Restatement Effective Date.
(e) Upon each Interest Determination Date, the Agent shall determine
the Quoted Rate for the Interest Period applicable to Eurodollar Loans and shall
promptly notify the Borrower and the Banks thereof. Each such determination
shall, absent manifest error, be final and conclusive and binding on all parties
hereto.
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<PAGE>
(f) All computations of interest hereunder shall be made in
accordance with Section 14.07(b).
1.09 Interest Periods. At the time it gives any Notice of Borrowing
----------------
or Notice of Conversion in respect of the making of, or conversion into, a
Eurodollar Loan (in the case of the initial Interest Period applicable thereto)
or prior to 11:00 A.M. (New York time) on the third Business Day prior to the
expiration of an Interest Period applicable to such Eurodollar Loan (in the case
of any subsequent Interest Period), the Borrower shall have the right to elect,
by giving the Agent notice thereof, the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, be a one, two, three or six-month period; provided that:
--------
(i) all Eurodollar Loans comprising a single Borrowing shall at
all times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Loan (including the date of any
conversion thereto from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Loan shall commence on the
day on which the next preceding Interest Period applicable thereto expires;
(iii) if any Interest Period relating to a Eurodollar Loan begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, however, that if any Interest Period for
-------- -------
a Eurodollar Loan would otherwise expire on a day which is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
(v) no Interest Period for a Borrowing under a Tranche shall be
selected which extends beyond the respective Maturity Date of such Tranche;
(vi) no Interest Period may be selected at any time when any
Default or Event of Default is then in existence;
(vii) no Interest Period in respect of any Borrowing of Term Loans
or Acquisition Loans, as the case may be, shall be selected which extends
beyond any date upon which a mandatory repayment of such Term Loans or
Acquisition Loans
-11-
<PAGE>
will be required to be made under Section 4.02(A)(c) or (d), as the case
may be, if, after giving effect to the selection of such Interest Period,
the aggregate principal amount of such Term Loans or Acquisition Loans, as
the case may be, maintained as Eurodollar Loans which have Interest Periods
expiring after such date will be in excess of the aggregate principal
amount of such Term Loans or Acquisition Loans, as the case may be, then
outstanding less the aggregate amount of such required prepayment; and
(viii) no Interest Period may be selected prior to the Syndication
Termination Date.
If upon the expiration of any Interest Period applicable to a Borrowing of
Eurodollar Loans the Borrower has failed to elect a new Interest Period to be
applicable to such Eurodollar Loans as provided above or a Default or Event of
Default then exists, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that any
---------------------------------
Bank shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto but, with respect to
clause (i) below, may be made only by the Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition of
Quoted Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation, order,
guideline or request (whether or not having the force of law) or in the
interpretation or administration thereof and including the introduction of
any new law or governmental rule, regulation, order, guideline or request,
such as, for example, but not limited to: (A) a change in the basis of
taxation of payments to any Bank of the principal of or interest on the
Notes or any other amounts payable hereunder (except for changes in the
rate of tax on, or determined by reference to, the net income or profits of
such Bank imposed by the jurisdiction in which its principal office or
applicable lending office is located) or (B) a change in official reserve
requirements (but, in all events, excluding reserves required under
Regulation D to the extent included in the computation of the Quoted Rate)
and/or (y) other circumstances since the date of this Agreement
-12-
<PAGE>
affecting such Bank or the interbank Eurodollar market or the position of
such Bank in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental rule,
regulation or order, (y) impossible by compliance by any Bank in good faith
with any governmental request (whether or not having the force of law) or
(z) impracticable as a result of a contingency occurring after the date of
this Agreement which materially and adversely affects the interbank
Eurodollar market;
then, and in any such event, such Bank (or the Agent, in the case of clause (i)
above) shall promptly give notice (if by telephone, promptly confirmed in
writing) to the Borrower, and, except in the case of clause (i) above, to the
Agent of such determination (which notice the Agent shall promptly transmit to
each of the other Banks). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the Agent
notifies the Borrower and the Banks that the circumstances giving rise to such
notice by the Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion given by the Borrower with respect to Eurodollar Loans which have not
yet been incurred (including by way of conversion) shall be deemed rescinded by
the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to
such Bank, upon written demand therefor, such additional amounts (in the form
of an increased rate of, or a different method of calculating, interest or
otherwise as such Bank in its sole discretion shall determine) as shall be
required to compensate such Bank for such increased costs or reductions in
amounts received or receivable hereunder (a written notice as to the additional
amounts owed to such Bank, showing in reasonable detail the basis for the
calculation thereof, submitted to the Borrower by such Bank shall, absent
manifest error, be final and conclusive and binding on all the parties hereto)
and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in Section 1.10(b) as promptly as possible and, in any event,
within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (i) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, by giving the Agent telephonic
notice (confirmed in writing) on the same date that such Borrower was notified
by the affected Bank or the Agent pursuant to Section 1.10(a)(ii) or (iii),
cancel the respective Borrowing or conversion, or (ii) if the affected
Eurodollar Loan is then outstanding, upon at least three Business Days' written
notice to the Agent, require the affected Bank to convert such Eurodollar Loan
into a Base Rate Loan; provided that if more than one Bank is affected at any
--------
time, then all affected Banks must be treated the same pursuant to this Section
1.10(b).
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<PAGE>
(c) If any Bank shall have determined that after the date hereof, the
adoption or effectiveness of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Bank or any corporation controlling such Bank with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's or such other corporation's
capital or assets as a consequence of such Bank's Commitment or Commitments
hereunder or its obligations hereunder to a level below that which such Bank or
such other corporation could have achieved but for such adoption, effectiveness,
change or compliance (taking into consideration such Bank's or such other
corporation's policies with respect to capital adequacy), then from time to
time, upon written demand by such Bank (with a copy to the Agent), accompanied
by the notice referred to in the second to the last sentence of this clause (c),
the Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank or such other corporation for such reduction. In
determining such additional amounts, each Bank will act reasonably and in good
faith and will use reasonable averaging and attribution methods. Each Bank,
upon determining that any additional amounts will be payable pursuant to this
Section 1.10(c), will give prompt written notice thereof to the Borrower (a copy
of which shall be sent by such Bank to the Agent), which notice shall set forth
the basis of the calculation of such additional amounts, although the failure to
give any such notice shall not release or diminish the Borrower's obligations to
pay additional amounts pursuant to this Section 1.10(c) upon the subsequent
receipt of such notice. A Bank's reasonable good faith determination of
compensation owing under this Section 1.10(c) shall, absent manifest error, be
final and conclusive and binding on all the parties hereto.
1.11 Compensation. The Borrower shall compensate each Bank, upon its
------------
written request (which request shall set forth in reasonable detail the basis
for requesting such compensation), for all losses, expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required by
such Bank to fund its Eurodollar Loans) which such Bank may sustain: (i) if for
any reason (other than a default by such Bank or the Agent) a Borrowing of, or
conversion from or into, Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion (whether or not
withdrawn by such Borrower or deemed withdrawn pursuant to Section 1.10(a));
(ii) if any repayment (including any repayment made pursuant to Section 4.02 or
as a result of an acceleration of the Loans pursuant to Section 10 or as a
result of the replacement of a Bank pursuant to Section 1.12) or conversion of
any of its Eurodollar Loans occurs on a date which is not the last day of an
Interest Period with respect thereto; (iii) if any prepayment of any of its
Eurodollar Loans is not made on any date specified in a notice of prepayment
given by such Borrower; or (iv) as a consequence of (x) any other default by the
Borrower
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<PAGE>
to repay its Loans when required by the terms of this Agreement or any Note held
by such Bank or (y) any election made pursuant to Section 1.10(b). A Bank's
basis for requesting compensation pursuant to this Section, and a Bank's
calculations of the amount thereof, shall, absent manifest error, be final and
conclusive and binding on all the parties hereto.
1.12 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank
--------------------
or otherwise defaults in its obligations to make Loans or fund Unpaid Drawings,
or (y) if any Bank (other than the Agent) refuses to consent to certain proposed
changes, waivers, discharges or terminations with respect to this Agreement
which have been approved by the Required Banks as provided in Section 14.12(b),
then the Borrower shall have the right, if no Default or Event of Default then
exists, to replace such Bank (the "Replaced Bank") with any other Bank or with
one or more Eligible Transferee or Transferees, none of whom shall constitute a
Defaulting Bank or shall be in default in its obligations to make Loans or fund
Unpaid Drawings at the time of such replacement (collectively, the "Replacement
Banks") reasonably acceptable to the Agent, the Swingline Bank and each Issuing
Bank with outstanding Letters of Credit (unless the respective Replacement Bank
is not acquiring any Revolving Loan Commitment); provided that:
--------
(i) at the time of any replacement pursuant to this Section 1.12,
the Replacement Bank shall enter into one or more assignment agreements
pursuant to Section 14.04(b) (and with all fees payable pursuant to said
Section 14.04(b) to be paid by the Replacement Bank) pursuant to which the
Replacement Bank shall acquire all of the Commitments and outstanding Loans
of, and participations in Letters of Credit by, the Replaced Bank and, in
connection therewith, shall pay to (x) the Replaced Bank in respect thereof
an amount equal to the sum of (A) an amount equal to the principal of, and
all accrued interest on, all outstanding Loans of the Replaced Bank, and
(B) an amount equal to such Replaced Bank's Percentage of all Unpaid
Drawings that have been funded by (and not reimbursed to) such Replaced
Bank, together with all then unpaid interest with respect thereto at such
time and (C) an amount equal to all accrued, but theretofore unpaid, Fees
owing to the Replaced Bank pursuant to Section 3.01 hereof, (y) the Issuing
Bank or Banks an amount equal to such Replaced Bank's Percentage of any
Unpaid Drawing (which at such time remains an Unpaid Drawing) to the extent
such amount was not theretofore funded by such Replaced Bank and (z) the
Swingline Bank an amount equal to such Bank's Percentage of any Mandatory
Borrowing to the extent such amount was not theretofore funded by such
Replaced Bank; and
(ii) all obligations of the Borrower owing to the Replaced Bank
(other than those specifically described in clause (i) above in respect of
which the assignment purchase price has been, or is concurrently being,
paid) shall be paid in full by the Borrower to such Replaced Bank
concurrently with such replacement.
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<PAGE>
Upon the execution of the respective assignment documentation, the payment of
amounts referred to in clauses (i) and (ii) above, recordation of the assignment
on the Register by the Agent pursuant to Section 8.16 and, if so requested by
the Replacement Bank, delivery to the Replacement Bank of the appropriate Notes
executed by the Borrower, the Replacement Bank shall become a Bank hereunder
and the Replaced Bank shall cease to constitute a Bank hereunder with respect to
the Loans and Commitments so transferred, except with respect to indemnification
provisions under this Agreement, which shall survive as to such Replaced Bank
and the Percentages of the Banks shall be automatically adjusted at such time to
the extent necessary to give effect to such replacement.
Section 2. Letters of Credit.
-----------------
2.01 Letters of Credit. (a) Subject to and upon the terms and
-----------------
conditions herein set forth, the Borrower may request any Issuing Bank at any
time and from time to time after the Initial Borrowing Date and prior to the
tenth Business Day immediately preceding the Revolving Loan Maturity Date to
issue, for the account of the Borrower and for the benefit of any holder (or any
trustee, agent or other similar representative for any such holders) of L/C
Supportable Indebtedness, an irrevocable standby letter of credit in a form
customarily used by such Issuing Bank or in such other form as has been approved
by such Issuing Bank in support of said L/C Supportable Indebtedness (each such
letter of credit, a "Letter of Credit" and, collectively, the "Letters of
Credit"). All Letters of Credit shall be denominated in Dollars.
(b) Each Issuing Bank (other than Banque Paribas) may agree in its sole
discretion and Banque Paribas hereby agrees that it will (subject to the terms
and conditions contained herein), at any time and from time to time after the
Initial Borrowing Date and prior to the Revolving Loan Maturity Date, following
its receipt of the respective Letter of Credit Request, issue for the account of
the Borrower one or more Letters of Credit in support of such L/C Supportable
Indebtedness as is permitted to remain outstanding without giving rise to a
Default or Event of Default hereunder; provided that the respective Issuing Bank
--------
shall be under no obligation to issue any Letter of Credit if at the time of
such issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain such Issuing
Bank from issuing such Letter of Credit or any requirement of law
applicable to such Issuing Bank or any request or directive (whether or not
having the force of law) from any governmental authority with jurisdiction
over such Issuing Bank shall prohibit, or request that such Issuing Bank
refrain from, the issuance of letters of credit generally or such Letter of
Credit in particular or shall impose upon such Issuing Bank with respect to
such Letter of Credit any restriction or reserve or capital requirement
(for which such Issuing Bank is not otherwise compensated) not in effect on
the date
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<PAGE>
hereof, or any unreimbursed loss, cost or expense which was not applicable,
in effect or known to such Issuing Bank as of the date hereof and which
such Issuing Bank in good faith deems material to it;
(ii) such Issuing Bank shall have received a notice of the type
described in the second sentence of Section 2.03(b) from any Bank prior to
the issuance of such Letter of Credit; or
(iii) a Bank Default exists, unless such Issuing Bank has entered
into arrangements satisfactory to it and the Borrower to eliminate such
Issuing Bank's risk with respect to the Bank which is the subject of the
Bank Default, including by cash collateralizing such Bank's Percentage of
the Letter of Credit Outstandings.
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of,
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed (x) $2,000,000 or (y) when added to the aggregate principal amount of all
Revolving Loans then outstanding and Swingline Loans then outstanding, the
lesser of (A) the Total Revolving Loan Commitment then in effect (after giving
effect to any reductions to the Total Revolving Loan Commitment on such date) or
(B) the Borrowing Base at such time and (ii) each Letter of Credit shall by its
terms terminate on or before the earlier of (x) the date which occurs 12 months
after the date of the issuance thereof (although the Letter of Credit issued in
connection with the acquisition of the Greater Cincinnati Gastro-Intestinal
Medical Practice may terminate 18 months after the date of the issuance thereof
and any other Letter of Credit may be renewable for successive periods of up to
12 months, but not beyond the Revolving Loan Maturity Date, on terms acceptable
to the Issuing Bank) and (y) the tenth Business Day immediately preceding the
Revolving Loan Maturity Date.
2.02 Minimum Stated Amount. The Stated Amount of each Letter of
---------------------
Credit shall be not less than $100,000 or such lesser amount as is acceptable to
the Issuing Bank and in no event shall there be more than five Letters of Credit
outstanding at any time or such greater amount as is acceptable to the Issuing
Bank.
2.03 Letter of Credit Requests. (a) Whenever the Borrower desires
-------------------------
that a Letter of Credit be issued for its account, the Borrower shall give the
Agent and the respective Issuing Bank at least 10 Business Days' (or such
shorter period as is acceptable to the respective Issuing Bank in any given
case) written notice prior to the proposed date of issuance (which shall be a
Business Day). Each notice shall be in the form of Exhibit C (each a "Letter of
Credit Request").
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<PAGE>
(b) The making of each Letter of Credit Request shall be deemed to be
a representation and warranty by the Borrower that such Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
2.01(c). Unless the Issuing Bank has received notice from any Bank before it
issues a Letter of Credit that one or more of the conditions specified in
Section 6 are not then satisfied, or that the issuance of such Letter of Credit
would violate Section 2.01(c), then such Issuing Bank may issue the requested
Letter of Credit for the account of the Borrower in accordance with the Issuing
Bank's usual and customary practices.
2.04 Letter of Credit Participations. (a) Immediately upon the
-------------------------------
issuance by the respective Issuing Bank of any Letter of Credit, such Issuing
Bank shall be deemed to have sold and transferred to each Bank with a Revolving
Loan Commitment, other than such Issuing Bank (each such Bank, in its capacity
under this Section 2.04, a "Participant"), and each such Participant shall be
deemed irrevocably and unconditionally to have purchased and received from such
Issuing Bank, without recourse or warranty, an undivided interest and
participation, to the extent of such Participant's Percentage in such Letter of
Credit, each substitute letter of credit, each drawing made thereunder and the
obligations of the Borrower under this Agreement with respect thereto, and any
security therefor or guaranty pertaining thereto. Upon any change in the
Revolving Loan Commitments of the Banks pursuant to Section 14.04 or on the
Restatement Effective Date, it is hereby agreed that, with respect to all
outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic
adjustment to the participations pursuant to this Section 2.04 to reflect the
new Percentages of the assignor and assignee Bank or of all Banks with Revolving
Loan Commitments, as the case may be.
(b) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall not have any obligation relative to the respective
Participants other than to confirm that any documents required to be delivered
under such Letter of Credit appear to have been delivered and that they appear
to comply on their face with the requirements of such Letter of Credit. Any
action taken or omitted to be taken by any Issuing Bank under or in connection
with any Letter of Credit if taken or omitted in the absence of gross negligence
or willful misconduct, shall not create for such Issuing Bank any resulting
liability to the Borrower, any Bank, any Participant or any other Person.
(c) In the event that any Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to the Issuing Bank pursuant to Section 2.05(a), such Issuing Bank shall
promptly notify the Agent, which shall promptly notify each Participant of such
failure, and each Participant shall promptly and unconditionally pay to the
Agent for the account of such Issuing Bank the amount of such Participant's
Percentage of such unreimbursed payment in Dollars and in same day funds. If the
Agent so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any
Participant required to fund a payment under a Letter of Credit, such
Participant
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<PAGE>
shall make available to the Agent at the Payment Office of the Agent for the
account of such Issuing Bank in Dollars such Participant's Percentage of the
amount of such payment on such Business Day in same day funds. If and to the
extent such Participant shall not have so made its Percentage of the amount of
such payment available to the Agent for the account of such Issuing Bank, such
Participant agrees to pay to the Agent for the account of such Issuing Bank,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to the Agent for the account
of such Issuing Bank at the Federal Funds Rate. The failure of any Participant
to make available to the Agent for the account of such Issuing Bank its
Percentage of any payment under any Letter of Credit shall not relieve any other
Participant of its obligation hereunder to make available to the Agent for the
account of such Issuing Bank its Percentage of any Letter of Credit on the date
required, as specified above, but no Participant shall be responsible for the
failure of any other Participant to make available to the Agent for the account
of such Issuing Bank such other Participant's Percentage of any such payment.
(d) Whenever any Issuing Bank receives a payment of a reimbursement
obligation as to which the Agent has received for the account of such Issuing
Bank any payments from the Participants pursuant to clause (c) above, such
Issuing Bank shall pay to the Agent and the Agent shall promptly pay each
Participant which has paid its Percentage thereof, in Dollars and in same day
funds, an amount equal to such Participant's share (based on the proportionate
aggregate amount funded by such Participant to the aggregate amount funded by
all Participants) of the principal amount of such reimbursement obligation and
interest thereon accruing after the purchase of the respective participations.
(e) The obligations of the Participants to make payments to the Agent
for the account of each Issuing Bank with respect to Letters of Credit issued
shall be irrevocable and not subject to any qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the Credit Documents;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time against a beneficiary named in a Letter
of Credit, any transferee of any Letter of Credit (or any Person for whom
any such transferee may be acting), the Agent, any Participant, or any
other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the Borrower and the
beneficiary named in any such Letter of Credit);
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<PAGE>
(iii) any draft, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.05 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
--------------------------------------------
hereby agrees to reimburse the respective Issuing Bank, by making payment to the
Agent in immediately available funds at the Payment Office (or by making the
payment directly to such Issuing Bank at such location as may otherwise have
been agreed upon by the Borrower and such Issuing Bank), for any payment or
disbursement made by such Issuing Bank under any Letter of Credit (each such
amount so paid until reimbursed, an "Unpaid Drawing"), immediately after, and in
any event on the date of, notification by the Issuing Bank to the Borrower of
such payment or disbursement, with interest on the amount so paid or disbursed
by such Issuing Bank, to the extent not reimbursed prior to 12:00 Noon (New York
time) on the date of such payment or disbursement, from and including the date
paid or disbursed to but excluding the date such Issuing Bank is reimbursed by
the Borrower therefor at a rate per annum which shall be the Base Rate in effect
from time to time plus 1-3/4% until the date on which the Borrower is so
notified and 3-3/4% thereafter, in each case with such interest to be payable on
demand.
(b) The obligations of the Borrower under this Section 2.05 to
reimburse the respective Issuing Bank with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against any Bank
(including in its capacity as Issuing Bank or as Participant), including,
without limitation, any defense based upon the failure of any drawing under a
Letter of Credit (each a "Drawing") to conform to the terms of the Letter of
Credit or any nonapplication or misapplication by the beneficiary of the
proceeds of such Drawing; provided, however, that the Borrower shall not be
-------- -------
obligated to reimburse any Issuing Bank for any wrongful payment made by such
Issuing Bank under a Letter of Credit as a result of acts or omissions
constituting willful misconduct or gross negligence on the part of such Issuing
Bank.
2.06 Increased Costs. If at any time after the date hereof any
---------------
Issuing Bank or any Participant determines that the introduction of or any
change in any applicable law, rule, regulation, order, guideline or request or
in the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by such
Issuing Bank or any Participant, or any corporation controlling such
-20-
<PAGE>
Person, with any request or directive by any such authority (whether or not
having the force of law), shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against letters of
credit issued by such Issuing Bank or participated in by any Participant, or
(ii) impose on such Issuing Bank or any Participant, or any corporation
controlling such Person, any other conditions relating, directly or indirectly,
to this Agreement or any Letter of Credit; and the result of any of the
foregoing is to increase the cost to such Issuing Bank or any Participant of
issuing, maintaining or participating in any Letter of Credit, or reduce the
amount of any sum received or receivable by such Issuing Bank or any Participant
hereunder or reduce the rate of return on its capital with respect to Letters of
Credit, then, upon demand to the Borrower by such Issuing Bank or any
Participant (a copy of which demand shall be sent by such Issuing Bank or such
Participant to the Agent), the Borrower shall pay to such Issuing Bank or such
Participant such additional amount or amounts as will compensate such Bank for
such increased cost or reduction in the amount receivable or reduction on the
rate of return on its capital. Such Issuing Bank or any Participant, upon
determining that any additional amounts will be payable pursuant to this
Section 2.06, will give prompt written notice thereof to the Borrower, which
notice shall include a certificate submitted to the Borrower by such Issuing
Bank or such Participant (a copy of which certificate shall be sent by such
Issuing Bank or such Participant to the Agent), setting forth in reasonable
detail the basis for the calculation of such additional amount or amounts
necessary to compensate such Issuing Bank or such Participant, although failure
to give any such notice shall not release or diminish the Borrower's obligations
to pay additional amounts pursuant to this Section 2.06. The certificate
required to be delivered pursuant to this Section 2.06 shall, absent manifest
error, be final, conclusive and binding on Holdings.
Section 3. Fees; Reductions of Commitment.
------------------------------
3.01 Fees. (a) The Borrower agrees to pay to the Agent for
----
distribution to each Bank with a Revolving Loan Commitment, a Term Loan
Commitment or an Acquisition Loan Commitment a commitment commission (the
"Commitment Commission") for the period from and including the Restatement
Effective Date to and excluding the Revolving Loan Maturity Date (or such
earlier date as the Total Commitment shall have been terminated) computed at a
rate for each day equal to 1/2 of 1% per annum with respect to the Revolving
Loan Commitment and the Acquisition Loan Commitment and 3% per annum with
respect to the Term Loan Commitment on the daily Aggregate Unutilized Commitment
of such Bank. Accrued Commitment Commission shall be due and payable quarterly
in arrears on each Quarterly Payment Date and on the Revolving Loan Maturity
Date or such earlier date upon which the Total Commitment is terminated.
(b) The Borrower agrees to pay to each Issuing Bank, for its own
account, a facing fee in respect of each Letter of Credit issued by such Issuing
Bank hereunder (the
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<PAGE>
"Facing Fee"), for the period from and including the date of issuance of such
Letter of Credit to and including the date of termination of such Letter of
Credit, equal to 1/4 of 1% per annum of the daily Stated Amount of such Letter
of Credit; provided that in no event shall the annual Facing Fee with respect to
each Letter of Credit be less than $1,000. Accrued Facing Fees shall be due and
payable in arrears to the Issuing Bank in respect of each Letter of Credit
issued by it on each Quarterly Payment Date and the first date after the
termination of the Total Revolving Loan Commitment on which no Letters of Credit
remain outstanding.
(c) The Borrower agrees to pay to the Agent for distribution to each
Bank with a Revolving Loan Commitment a fee in respect of each Letter of Credit
issued hereunder (the "Letter of Credit Fee"), for the period from and
including the date of issuance of such Letter of Credit to and including the
date of termination of such Letter of Credit, computed at a rate per annum equal
to the Applicable Margin for Revolving Loans which are maintained as Eurodollar
Loans of the daily Stated Amount of such Letter of Credit. Letter of Credit
Fees shall be distributed by the Agent to the Banks on the basis of the
respective Percentages as in effect from time to time. Accrued Letter of Credit
Fees shall be due and payable quarterly in arrears on each Quarterly Payment
Date and on the first date after the termination of the Total Revolving Loan
Commitment on which no Letters of Credit remain outstanding.
(d) The Borrower hereby agrees to pay in immediately available funds
directly to the Issuing Bank upon each issuance of, drawing under, and/or
amendment of, a Letter of Credit issued by the Issuing Bank such amount as shall
at the time of such issuance, drawing or amendment be the administrative charge
which the Issuing Bank is customarily charging for issuances of, drawings under
(including wire charges) or amendments of, letters of credit issued by it or
such alternative amounts as may have been agreed upon in writing by the Borrower
and the Issuing Bank.
(e) The Borrower shall pay to the Agent when and as due, for its own
account, such fees as may be agreed to in writing from time to time between the
Borrower and the Agent.
(f) Notwithstanding anything to the contrary contained in this
Agreement or in the Original Credit Agreement, all unpaid Fees under, and as
defined in, the Original Credit Agreement (including, without limitation,
Commitment Commissions (as defined in the Original Credit Agreement)) accrued
prior to the Restatement Effective Date shall be payable on the Restatement
Effective Date.
(g) All computations of Fees shall be made in accordance with Section
14.07(b).
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<PAGE>
3.02 Voluntary Termination of Unutilized Commitments. (a) Upon at
-----------------------------------------------
least three Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) to the Agent at its Notice Office (which notice the Agent
shall promptly transmit to each of the Banks), the Borrower shall have the
right, without premium or penalty, to terminate or reduce the Total Acquisition
Loan Commitment and/or the Total Revolving Loan Commitment, in whole or in part;
provided that (i) each such reduction shall apply proportionately to reduce the
- --------
Acquisition Loan Commitment or Revolving Loan Commitment, as the case may be, of
each Bank with such a Commitment and (ii) any partial reduction pursuant to
this Section 3.02 shall be in integral multiples of at least $500,000.
(b) In the event of certain refusals by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in Section
14.12(b), the Borrower shall have the right, upon five Business Days' prior
written notice to the Agent at its Notice Office (which notice the Agent shall
promptly transmit to each of the Banks), to terminate all of the Acquisition
Loan Commitment and/or the Revolving Loan Commitment of such Bank, so long as
all Loans, together with accrued and unpaid interest, Fees and all other
amounts, owing to such Bank (other than amounts owing in respect of any Tranche
of Term Loans or Acquisition Loans maintained by such Bank, if such Term Loans
or Acquisition Loans are not being repaid pursuant to Section 14.12(b)) are
repaid concurrently with the effectiveness of such termination pursuant to
Section 4.01(b) and the Borrower shall pay to the Agent at such time an amount
in cash and/or Cash Equivalents equal to such Bank's applicable Percentage of
the outstanding Letters of Credit (which cash and/or Cash Equivalents shall be
held by the Agent as security for the obligations of the Borrower hereunder in
respect of the outstanding Letters of Credit pursuant to a cash collateral
agreement to be entered into in form and substance reasonably satisfactory to
the Agent (at which time Part A of Schedule I shall be deemed modified to
reflect such changed amounts), and at such time, unless the respective Bank
continues to act as a Bank with respect to any Tranche of Term Loans or
Acquisition Loans or has a Revolving Loan Commitment, or Acquisition Loan
Commitment hereunder, such Bank shall no longer constitute a "Bank" for purposes
of this Agreement, except with respect to indemnifications and similar
provisions under this Agreement, which shall survive as to such repaid Bank.
3.03 Mandatory Reduction of Commitments. (a) The Total Commitment
----------------------------------
(and the Term Loan Commitment, the Revolving Loan Commitment and the Acquisition
Loan Commitment of each Bank with such a Commitment) shall terminate on November
15, 1997 unless the Initial Borrowing Date has occurred on or before such date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Term Loan Commitment (and the Term Loan
Commitment of each Bank with such a Commitment) shall (i) be reduced on the
Initial Borrowing Date
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<PAGE>
(after giving effect to the making of the Term Loans on such date) by an amount
equal to the amount of such Borrowing of Term Loans made on such date, (ii)
prior to the reduction of the Total Term Loan Commitment as provided in clause
(i) of this Section 3.03(b), be reduced from time to time to the extent required
by Section 4.02, (iii) be reduced on the Initial Borrowing Date (after giving
effect to all other reductions on such date) to an amount not to exceed the
amount of the Blocked Commitment, (iv) on each date on which any payment of
principal is made on the DVI Indebtedness, be reduced in an amount equal to the
amount of such payment, and (v) terminates in its entirety on the Term Loan
Commitment Termination Date (after giving effect to the making of Term Loans on
such date). Notwithstanding anything to the contrary contained in this
Agreement, after giving effect to the Restatement Effective Date and the
conversion of Acquisition Loans to Term Loans the Total Term Loan Commitment
shall be $8 million.
(c) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Acquisition Loan Commitment (and the Acquisition
Loan Commitment of each Bank with such a Commitment) shall (i) be reduced on
each date on which a Borrowing of Acquisition Loans is effected by an amount
equal to the amount of such Borrowing of Acquisition Loans made on such date,
(ii) terminate in its entirety on the Acquisition Loan Termination Date (after
giving effect to the making of Acquisition Loans on such date) and (iii) prior
to the termination of the Total Acquisition Loan Commitment as provided in
clause (ii) of this Section 3.03(c), be reduced from time to time to the extent
required by Section 4.02; provided, however notwithstanding any mandatory
-------- -------
commitment reductions pursuant to this Section 3.03, the Total Acquisition Loan
Commitment on the Restatement Effective Date shall be $32.5 million. In
addition, notwithstanding any other mandatory commitment reduction pursuant to
this Section 3.03, on the date that Holdings applies any proceeds from the
initial public offering of common equity of Holdings to repay Acquisition Loans,
the Total Acquisition Loan Commitment (and the Acquisition Loan Commitment of
each Bank with such a Commitment) shall be increased by an amount equal to the
amount of Acquisition Loans repaid on such date.
(d) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank) shall terminate on the Revolving Loan Maturity
Date.
(e) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank with such a Commitment) shall be reduced at the
time any payment is required to be made on the principal amount of Revolving
Loans (or would be required to be made if Revolving Loans were then outstanding)
pursuant to Section 4.02(B)(a) (except in the case of proceeds from the initial
public offering of Holdings common stock), by an amount equal to the maximum
amount of Revolving Loans that would be required to be repaid pursuant to
Section 4.02(B)(a) assuming that Revolving
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<PAGE>
Loans were outstanding in an aggregate principal amount equal to the Total
Revolving Loan Commitment.
(f) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Acquisition Loan Commitment (and the Acquisition
Loan Commitment of each Bank with such a Commitment) shall be reduced at the
time any payment is required to be made on the principal amount of Acquisition
Loans (or would be required to be made of Acquisition Loans then outstanding)
pursuant to Section 4.02(B)(a) (except in the case of proceeds from the initial
public offering of Holdings common stock), by an amount equal to the maximum
amount of Acquisition Loans that would be required to be repaid pursuant to
Section 4.02(B)(a) assuming that Acquisition Loans were outstanding in an
aggregate principal amount equal to the Total Acquisition Loan Commitment.
(g) Each reduction (or increase in accordance with Section in 3.03)
to the Total Term Loan Commitment, the Total Acquisition Loan Commitment and the
Total Revolving Loan Commitment, pursuant to this Section 3.03 shall be applied
proportionately to reduce (or increase, as the case may be) the Term Loan
Commitment, the Acquisition Loan Commitment or the Revolving Loan Commitment, as
the case may be, of each Bank with such a Commitment.
Section 4. Prepayments; Payments; Taxes.
----------------------------
4.01 Voluntary Prepayments. (a) The Borrower shall have the right
---------------------
to prepay Loans, without premium or penalty, in whole or in part from time to
time on the following terms and conditions:
(i) the Borrower shall give the Agent prior to 11:00 A.M. (New
York time) at its Notice Office at least three Business Days' prior written
notice in the case of Eurodollar Loans and one Business Day's prior written
notice in the case of Base Rate Loans (and on the date of such prepayment
in the case of Swingline Loans) of its intent to prepay the Loans, whether
Term Loans, Acquisition Loans, Revolving Loans or Swingline Loans shall be
prepaid, the amount of such prepayment and the Types of Loans to be prepaid
and, in the case of Eurodollar Loans, the specific Borrowing or Borrowings
pursuant to which made, which notice the Agent shall promptly transmit to
each of the Banks;
(ii) each prepayment shall be in an aggregate principal amount of
at least $250,000 and, if greater, in integral multiples of $100,000, in
the case of all Loans (other than Swingline Loans), and $50,000, in the
case of Swingline Loans; provided that no partial prepayment of Eurodollar
--------
Loans made pursuant to any
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<PAGE>
Borrowing shall reduce the outstanding Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount;
(iii) no prepayments of Eurodollar Loans made pursuant to this
Section 4.01 may be made on a day other than the last day of an Interest
Period applicable thereto;
(iv) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied (I) if made prior to the earlier of (x) the
Acquisition Loan Termination Date and (y) the date on which the Total
Acquisition Loan Commitment is zero, at the option of the Borrower, to the
Term Loans, the Acquisition Loans, the Revolving Loans or the Swingline
Loans and (II) if made on or after the earlier of (x) the Acquisition Loan
Termination Date and (y) the date on which the Total Acquisition Loan
Commitment is zero, at the option of the Borrower, either (A) to repay Term
Loans or Acquisition Loans in accordance with Section 4.01(a)(v), or (B) to
repay Revolving Loans or Swingline Loans;
(v) each prepayment of Term Loans or Acquisition Loans made on
or after the earlier of (x) the Acquisition Loan Termination Date and (y)
the date on which the Total Acquisition Loan Commitment is zero pursuant to
this Section 4.01 must consist of a prepayment of Term Loans (in an amount
equal to the Term TL Percentage of such prepayment) and Acquisition Loans
(in an amount equal to the Acquisition TL Percentage of such prepayment);
and
(vi) each prepayment of Term Loans pursuant to this Section 4.01
and each prepayment of Acquisition Loans shall be applied to reduce the
then remaining Scheduled Repayments of the respective Tranche being repaid
on a pro rata basis (based upon the then remaining principal amount of each
--- ----
such Scheduled Repayment); provided that the amount of the reduction to
each Scheduled Repayment of Acquisition Loans shall not be determined until
the earlier of (x) the Acquisition Loan Termination Date and (y) the date
on which the Total Acquisition Loan Commitment is zero and shall then be
based on the amount of each Scheduled Repayment at such time (after giving
effect to the incurrence of Acquisition Loans on such date) and provided
further that the amount of the reduction to each Scheduled Repayment of
Terms Loans shall not be determined until the earlier of the (x) Term Loan
Commitment Termination Date and (y) the date on which the Total Term Loan
Commitment is zero and shall then be based on the amount of each Scheduled
Repayment at such time (after giving effect to the incurrence of Term Loans
on such date).
(b) In the event of certain refusals by a Bank to consent to
certain proposed changes, waivers, discharges or terminations with respect to
this Agreement which have
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<PAGE>
been approved by the Required Banks as provided in Section 14.12(b), the
Borrower shall have the right, upon five Business Days' prior written notice to
the Administrative Agent at its Notice Office (which notice the Administrative
Agent shall promptly transmit to each of the Banks) to repay all Loans, together
with accrued and unpaid interest, Fees and all other amounts owing to such Bank
(or owing to such Bank with respect to each Tranche which gave rise to the need
to obtain such Bank's individual consent) in accordance with said Section
14.12(b) so long as (A) in the case of the repayment of Revolving Loans of any
Bank with a Revolving Loan Commitment pursuant to this clause (b) the Revolving
Loan Commitment of such Bank is terminated concurrently with such repayment
pursuant to Section 4.02(b) (at which time Part A of Schedule I shall be deemed
modified to reflect the changed Commitments), and (B) in the case of the
repayment of Loans of any Bank the consents required by Section 14.12(b) in
connection with the repayment pursuant to this clause (b) shall have been
obtained.
4.02 Mandatory Repayments and Commitment Reductions.
----------------------------------------------
(A) Requirements:
------------
(a) If any Borrowing Base Certificate shall disclose the existence
of a Borrowing Base Deficiency, the Borrower shall on the date of delivery of
the Borrowing Base Certificate in accordance with Section 8.01(k), repay the
principal of the Swingline Loans outstanding in an aggregate amount equal to the
Borrowing Base Deficiency and, to the extent such Swingline Loans have been
repaid in full and, to the extent such Borrowing Base Deficiency continues to
exist after such repayment, the Borrower shall repay the principal of the
Revolving Loans outstanding in an aggregate amount equal to the remaining
Borrowing Base Deficiency and, to the extent such Swingline and Revolving Loans
have been repaid in full, and, to the extent such Borrowing Base Deficiency
continues to exist after such repayments, the Borrower shall pay to the
Administrative Agent at the Payment Office an amount of cash or Cash Equivalents
equal to such excess, such cash or Cash Equivalents to be held as security for
all Obligations of the Borrower hereunder with respect to the Letter of Credit
Outstandings in a cash collateral account established and maintained (including
the investments made pursuant thereto) by the Administrative Agent pursuant to a
cash collateral agreement in form and substance satisfactory to the
Administrative Agent (the "Letter of Credit Cash Collateral Account").
(b) On any day on which the sum of (x) the aggregate outstanding
principal amount of the Revolving Loans, (y) the aggregate amount of all
Swingline Loans and (z) Letter of Credit Outstandings at such time, exceeds the
Total Revolving Loan Commitment as then in effect, the Borrower shall prepay the
principal of Swingline Loans and after the Swingline Loans have been repaid in
full, the principal of Revolving Loans in an amount equal to such excess. If,
after giving effect to the prepayment of all outstanding Swingline Loans and
Revolving Loans, the aggregate amount of the Letter of Credit Outstandings
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<PAGE>
exceeds the Total Revolving Loan Commitment as then in effect, the Borrower
shall pay to the Agent at its Payment Office on such date an amount of cash or
Cash Equivalents equal to the amount of such excess, such cash or Cash
Equivalents to be held as security for all Obligations of the Borrower hereunder
in the Letter of Credit Cash Collateral Account.
(c) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), the Borrower shall be required to
repay on each date set forth below the principal amount of Term Loans set forth
opposite the dates set forth below, to the extent such Term Loans are then
outstanding (provided, however Term Loans incurred to repay the DVI Indebtedness
-------- -------
shall amortize at the same rate as the DVI Indebtedness which was repaid would
have amortized in accordance with the DVI Debt Documents; provided, further,
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however, to the extent the DVI Indebtedness matures after the Term Loan Maturity
- -------
Date then all Loans made to refinance the DVI Indebtedness still outstanding on
that date shall be repaid on that date; provided, however, if Term Looans are
incurred to epay DVI Indebtedness then the payment set forth below shall be
reduced on a pro rata basis (based on the remaining Scheduuled Term Loan
--- ----
Repayments) in an aggregate amount equal to the amount of such Term Loans (each
such repayment as the same may be reduced as provided in Sections 4.01 and
4.02(B), a "Scheduled Term Loan Repayment"):
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
Each Quarterly Payment Date in 1998 $ 250,000
Each Quarterly Payment Date in 1999 $ 500,000
Each Quarterly Payment Date in 2000 $ 750,000
Each Quarterly Payment Date in 2001, $1,000,000
The First Quarterly Payment Date in
2002 and the Term Loan Maturity Date $5,000,000
</TABLE>
(d) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), the Borrower shall be required to
repay on each date set forth below a principal amount of Acquisition Loans, to
the extent then outstanding, equal to (i) the aggregate principal amount of the
maximum amount of Acquisition Loans outstanding at any time on or prior to the
Acquisition Loan Termination Date (after giving effect to any Acquisition Loans
made on such date) multiplied by (ii) the percentage set forth below opposite
such date (each such repayment as the same may be reduced as provided in
Sections 4.01 and 4.02(B), a "Scheduled Acquisition Loan Repayment" and the
Scheduled Term Loan Repayments, together with the Scheduled Acquisition Loan
Repayments, collectively referred to as the "Scheduled Repayments"):
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<PAGE>
Scheduled Acquisition Loan Repayment Dates Percentage
- ------------------------------------------ ----------
Each Quarterly Payment Date 5.00%
occurring during the 12 month period
commencing on the second anniversary of the
Initial Borrowing Date
Each Quarterly Payment Date 7.50%
occurring during the 12 month period
commencing on the third anniversary of the
Initial Borrowing Date
Each Quarterly Payment Date 12.50%
occurring during the 12 month period
commencing on the fourth anniversary of the
Initial Borrowing Date (with the fourth such
payment during such period to be on the
Acquisition Loan Maturity Date)
(e) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on the date of the receipt thereof by
Holdings or any of its Subsidiaries, an amount equal to:
(i) 100% of the cash proceeds (net of underwriting discounts and
commissions and all other reasonable costs associated with such
transaction) from any sale or issuance on or after the Effective Date of
equity of Holdings or any Subsidiary of Holdings (other than (a) equity
issued by Holdings on the Initial Borrowing Date, (b) equity issued after
the Initial Borrowing Date as consideration to be paid for Post-Closing
Acquisitions, (c) Permitted Equity Issuances, (d) the equity issued under
the Equity Call Agreement and (e) Excluded Public Offering Proceeds); and
(ii) 100% of the cash proceeds (net of underwriting discounts and
commissions, loan fees and all other reasonable costs associated with such
transaction) from any incurrence of any Indebtedness by Holdings or any
Subsidiary of Holdings (other than Indebtedness permitted by Section 9.05
as said Section is in effect on the Effective Date),
shall be applied as provided in Section 4.02(B).
(f) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, no later than 90 days after the last
day of each fiscal
-29-
<PAGE>
year of Holdings (beginning with fiscal year 1998), an amount equal to 75% of
Excess Cash Flow of Holdings and its Subsidiaries for the relevant Excess Cash
Flow Payment Period shall be applied as provided in Section 4.02(B).
(g) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on each date on or after the Effective
Date on which Holdings or any Subsidiary of Holdings receives cash proceeds from
any sale of assets or other dispositions (including capital stock and securities
other than capital stock the proceeds from the sale of which is recaptured under
Section 4.02(A)(e) or would be recaptured but for the exclusions contained
therein, but excluding (1) sales of inventory in the ordinary course of business
and (2) other sales of assets so long as the aggregate amount of Net Sale
Proceeds excluded pursuant to this clause (2) does not exceed $100,000 in the
aggregate for all such asset sales in any fiscal year of the Borrower), an
amount equal to 100% of the Net Sale Proceeds thereof shall be applied as
provided in Section 4.02(B); provided that such proceeds not in excess of
--------
$500,000 in the aggregate for all dispositions occurring during one fiscal year
of Holdings shall not be required to be so applied on such date to the extent
that Holdings delivers a certificate to the Agent on or prior to such date
stating that such proceeds shall be used to replace or restore any properties or
assets in respect of which such proceeds were paid within a period specified in
such certificate not to exceed 180 days after the date of receipt of such
proceeds (which certificate shall set forth estimates of the proceeds to be so
expended); and provided further, that if all or any portion of such proceeds not
----------------
so applied pursuant to Section 4.02(B) are not so used within the period
specified in the proviso, such remaining portion shall be applied on the last
day of such specified period as provided in Section 4.02(B).
(h) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on each date on or after the Effective
Date of the receipt thereof by Holdings or any Subsidiary of Holdings, an amount
equal to 100% of the cash proceeds of any Recovery Event (net of reasonable
costs incurred in connection with such Recovery Event (including the estimated
marginal increase in income taxes which will be payable as a result of such
Recovery Event by Holdings or any Subsidiary of Holdings)) shall be applied as
provided in Section 4.02(B); provided that such proceeds not in excess of
--------
$250,000 in the aggregate for all Recovery Events occurring during one fiscal
year of Holdings shall not be required to be so applied on such date to the
extent that Holdings delivers a certificate to the Agent on or prior to such
date stating that such proceeds shall be used to replace or restore any
properties or assets in respect of which such proceeds were paid within a period
specified in such certificate not to exceed 180 days after the date of receipt
of such proceeds (which certificate shall set forth estimates of the proceeds to
be so expended); and provided further, that if all or any portion of such
----------------
proceeds not so applied pursuant to Section 4.02(B) are not so used within the
period specified in the proviso, such remaining portion shall be applied on the
last day of such specified period as provided in Section 4.02(B).
-30-
<PAGE>
(i) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02(A), on each date upon which Holdings or
any of its Subsidiaries receives cash proceeds pursuant to any Acquisition
Agreement or any other agreement or understanding relating to any Acquisition
or Permitted Acquisition, including, without limitation, indemnification or
similar payments and post-closing adjustments, but excluding in each case (i)
reimbursement of out-of-pocket costs and expenses, an amount equal to 100% of
such proceeds (net of reasonable expenses incurred in connection with obtaining
such proceeds and the estimated marginal increase in income taxes payable in
respect thereof) and (ii) up to $100,000 of such proceeds received per annum,
shall be applied as provided in Section 4.02(B).
(j) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on each date upon which Holdings or
any of its Subsidiaries receives cash proceeds from any physician or physician
practice group pursuant to the termination of personal guarantees, the leaving
of or termination of employment or any unwind agreement of the type described in
Section 7.28, an amount equal to 100% of such proceeds (net of reasonable
expenses incurred in connection with obtaining such proceeds) shall be applied
as provided in Section 4.02(B).
(k) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, all then outstanding Loans of a Tranche shall be repaid in full
on the Maturity Date for such Tranche.
(B) Application:
-----------
(a) Each mandatory repayment of Loans pursuant to Section 4.02(A)(e)
through (j), inclusive, shall be applied:
(i) first, to prepay the principal of outstanding Term Loans and
Acquisition Loans on a pro rata basis, with the Term Loan Facility to
--- ----
receive the Term TL Percentage and the Acquisition Loan Facility to receive
the Acquisition TL Percentage, in each case, of the total amount to be
applied as a mandatory repayment of Term Loans and Acquisition Loans
pursuant to this Section 4.02(B), and which prepayments of such Term Loans
and Acquisition Loans shall be applied to reduce the then remaining
Scheduled Repayments of the respective Tranche pro rata (based on the then
--- ----
remaining Scheduled Repayments of the respective Tranche); provided that
the amount of the reduction to each Scheduled Repayment of Acquisition
Loans shall not be determined until the earlier of (x) the Acquisition Loan
Termination Date and (y) the date on which the Total Acquisition Loan
Commitment is zero and shall then be based on the amount of each Scheduled
Repayment at such time (after giving effect to the incurrence of
Acquisition Loans on such date); provided further that the amount of the
reduction to each Scheduled
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<PAGE>
Repayment of Term Loans shall not be determined until the earlier of (x)
the Term Loan Commitment Termination Date and (y) the date on which the
total Term Loan Commitment is zero and shall then be based on the amount of
each Scheduled Repayment at such time (after giving effect to the
incurrence of Term Loans on such date); provided, however, that prior to
-------- -------
the earlier of (x) the Acquisition Loan Termination Date and (y) the date
on which the Total Acquisition Loan Commitment is zero, the Borrower may
elect whether such mandatory repayments of Loans shall be applied to the
Acquisition Loan Facility or the Term Loan Facility and the amounts, if
any, which shall be applied to such Facilities; provided further, however,
-------- ------- -------
if there shall be no Term Loans outstanding or no Acquisition Loans
outstanding, then the Borrower shall apply such mandatory repayments to the
Facility with respect to which there are outstanding Loans; provided,
--------
further, however, that with respect to Term Loans, application of
------- -------
prepayments shall not be applied against the last two $5,000,000 Scheduled
Term Loan Repayments unless and to the extent that the DVI Indebtedness has
been funded;
(ii) second, to reduce the Total Acquisition Loan Commitment (it
being understood and agreed that the amount of such reduction shall be
deemed to be an application of proceeds for purposes of this Section
4.02(B)(a)(ii) even though cash is not actually applied); provided,
--------
however, that the proceeds from the initial public offering of Holdings
-------
common stock shall not reduce the Total Acquisition Loan Commitment
(although such proceeds shall be applied as set forth in clauses (iii)
through (vi) of this Section 4.02(B)(a)
(iii) third, to prepay the principal of outstanding Swingline Loans
(with, except in the case of proceeds from the initial public offering of
Holdings common stock, a corresponding reduction to the Total Revolving
Loan Commitment);
(iv) fourth, to prepay the principal of outstanding Revolving
Loans (with, except in the case of proceeds from the initial public
offering of Holdings common stock, a corresponding reduction to the Total
Revolving Loan Commitment);
(v) fifth, to cash collateralize Letter of Credit Outstandings by
depositing cash in the Letter of Credit Cash Collateral Account in an
amount equal to such Letter of Credit Outstandings (it being understood
that the Total Revolving Loan Commitment shall be reduced by the amount of
cash collateral required to be deposited by this clause (v) except to the
extent that the amount of cash collateral deposited relates to proceeds
from the initial public offering of Holdings common stock); and
(vi) sixth, to reduce the remaining (i.e., after giving effect to
---
all prior reductions thereto, including, without limitation, to the
reductions theretofore
-32-
<PAGE>
effected pursuant to the preceding clauses (iii), (iv) and (v)) Total
Revolving Loan Commitment (it being understood and agreed that the amount
of such reduction shall be deemed to be an application of proceeds for
purposes of this Sections 4.02(B)(a)(vi) even though cash is not actually
applied); provided, however, that proceeds from the initial public offering
-------- -------
of Holdings common stock shall not reduce the Total Revolving Loan
Commitment.
(b) With respect to each repayment of Loans required by this Section
4.02, the Borrower may designate the Types of Loans which are to be repaid and,
in the case of Eurodollar Loans, the specific Borrowing or Borrowings of the
respective Tranche pursuant to which made; provided that: (i) repayments of
--------
Eurodollar Loans pursuant to this Section 4.02 may only be made on the last day
of an Interest Period applicable thereto unless all Eurodollar Loans of the
respective Tranche with Interest Periods ending on such date of required
repayment and all Base Rate Loans of the respective Tranche have been paid in
full; (ii) if any repayment of Eurodollar Loans made pursuant to a single
Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such
Borrowing to an amount less than the applicable Minimum Borrowing Amount, such
Borrowing shall immediately be converted into Base Rate Loans; and (iii) each
repayment of any Loans made pursuant to a single Borrowing shall be applied pro
---
rata among such Loans. In the absence of a designation by such Borrower as
- ----
described in the preceding sentence, the Agent shall, subject to the above, make
such designation in its sole discretion.
4.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement or any Note shall be made to
the Agent for the account of the Bank or Banks entitled thereto not later than
12:00 Noon (New York time) on the date when due and shall be made in Dollars in
immediately available funds at the Payment Office of the Agent. Whenever any
payment to be made hereunder or under any Note shall be stated to be due on a
day which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and, with respect to payments of principal,
interest shall be payable at the applicable rate during such extension.
4.04 Net Payments. (a) All payments made by Holdings or the
------------
Borrower hereunder, or by the Borrower under any Note, will be made without
setoff, counterclaim or other defense. Except as provided in Section 4.04(b),
all such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or here after imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payments (but excluding, except as provided in the
second succeeding sentence, any tax imposed on or measured by the net income of
a Bank pursuant to the laws of the jurisdiction or any political subdivision or
taxing authority thereof or therein in which the principal office or applicable
lending office of such Bank is located) and all interest, penalties or similar
liabilities with respect thereto (collectively, "Taxes").
-33-
<PAGE>
If any Taxes are so levied or imposed, the Borrower and Holdings jointly and
severally agree to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due hereunder
or under any Note, after withholding or deduction for or on account of any
Taxes, will not be less than the amount provided for herein or in such Note. If
any amounts are payable in respect of Taxes pursuant to the preceding sentence,
then the Borrower and Holdings shall jointly and severally be obligated to
reimburse each Bank, upon the written request of such Bank, for taxes imposed on
or measured by the net income of such Bank pursuant to the laws of the
jurisdiction or any political subdivision or taxing authority thereof or therein
in which the principal office or applicable lending office of such Bank is
located as such Bank shall determine are payable by such Bank in respect of such
amounts so paid to or on behalf of such Bank pursuant to the preceding sentence
and in respect of any amounts paid to or on behalf of such Bank pursuant to this
sentence. The Borrower or Holdings, as the case may be, will furnish to the
Agent within 45 days after the date of the payment of any Taxes due pursuant to
applicable law certified copies of tax receipts evidencing such payment by the
Borrower or Holdings. The Borrower and Holdings jointly and severally agree to
indemnify and hold harmless each Bank, and reimburse such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Agent on or prior to the Effective Date, or in the case of a Bank that
is an assignee or transferee of an interest under this Agreement pursuant to
Section 14.04 (unless the respective Bank was already a Bank hereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Bank, (i) two accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note, or (ii) if the Bank is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit D (any such certificate, a "Section
4.04(b)(ii) Certificate") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8 (or successor form) certifying to
such Bank's entitlement to a complete exemption from United States withholding
tax with respect to payments of interest to be made under this Agreement and
under any Note. In addition, each Bank agrees that from time to time after the
Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to Holdings and the Agent two new accurate and complete original signed
copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section
4.04(b)(ii) Certificate, as the case may be, and such other forms as may be
required in order to confirm or establish the entitlement of such Bank to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement
-34-
<PAGE>
and any Note, or it shall immediately notify Holdings and the Agent of its
inability to deliver any such Form or Certificate, in which case such Bank shall
not be required to deliver any such form of certificate pursuant to this Section
4.04(b). Notwithstanding anything to the contrary contained in Section 4.04(a),
but subject to the immediately succeeding sentence, (x) the Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Bank which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
U.S. Federal income tax purposes to the extent that such Bank has not provided
to the Borrower U.S. Internal Revenue Service Forms that establish a complete
exemption from such deduction or withholding and (y) the Borrower shall not be
obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to
a Bank in respect of income or similar taxes imposed by the United States if (I)
such Bank has not provided the Borrower the Internal Revenue Service Forms
required to be provided the Borrower pursuant to this Section 4.04(b) or (II) in
the case of a payment, other than interest, to a Bank described in clause (ii)
above, to the extent that such forms do not establish a complete exemption from
withholding of such taxes. Notwithstanding anything to the contrary contained in
the preceding sentence or elsewhere in this Section 4.04, the Borrower agrees to
pay additional amounts and to indemnify each Bank in the manner set forth in
Section 4.04(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in respect of any amounts deducted or withheld by
it as described in the immediately preceding sentence as a result of any changes
after the Effective Date in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of income or similar Taxes.
Section 5. Conditions Precedent to Loans on the Initial Borrowing
------------------------------------------------------
Date. The obligation of each Bank to make Loans on the Initial Borrowing Date
- ----
is subject at the time of such Loan to the satisfaction of the following
conditions:
5.01 Execution of Agreement; Notes. On or prior to the Initial
-----------------------------
Borrowing Date (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Agent for the account of each of the Banks the
appropriate Term Note, Acquisition Note or Revolving Note executed by the
Borrower and for the account of the Swingline Bank, the Swingline Note executed
by the Borrower, in each case in the amount, maturity and as otherwise provided
herein.
5.02 Officer's Certificate. On the Initial Borrowing Date, the Agent
---------------------
shall have received a certificate dated the Initial Borrowing Date signed on
behalf of Holdings by the Chief Executive Officer, President, Chief Financial
Officer or any Vice President of Holdings stating that all of the conditions in
Sections 5.06, 5.10, 5.11, 5.14, 5.16, 5.17,
-35-
<PAGE>
5.20, 5.21, 6.01, 6.02 and 6.03 have been satisfied on such date; provided the
--------
certificate shall not be required to certify as to the acceptability of any
items to the Agent and/or the Banks or as to whether the Agent and/or the Banks
are satisfied with any of the matters described in said Sections.
5.03 Opinions of Counsel. On the Initial Borrowing Date, the Agent
-------------------
shall have received from (i) Jackson Walker L.L.P., counsel to Holdings and its
Subsidiaries, an opinion addressed to the Agent, the Collateral Agent and each
of the Banks and dated the Initial Borrowing Date covering the matters set forth
in Exhibit E and (ii) counsel rendering such opinions, reliance letters
addressed to the Agent, the Collateral Agent and each of the Banks dated the
Initial Borrowing Date with respect to all legal opinions delivered in
connection with the Acquisitions, which legal opinions and reliance letters
shall be in form and substance satisfactory to the Agent.
5.04 Corporate Documents; Proceedings. (a) On the Initial Borrowing
--------------------------------
Date, the Agent shall have received a certificate, dated the Initial Borrowing
Date, signed by the Chief Executive Officer, President, Chief Financial Officer,
President or any Vice President of each Credit Party, and, to the extent
required by the Agent, attested to by the Secretary or any Assistant Secretary
of such Credit Party, in the form of Exhibit F with appropriate insertions,
together with copies of the Certificate of Incorporation and By-Laws of such
Credit Party and the resolutions of such Credit Party referred to in such
certificate, and the foregoing shall be acceptable to the Agent and the Required
Banks in their sole discretion.
(b) All corporate and legal proceedings and all instruments and
agreements relating to the transactions contemplated by this Agreement and the
other Documents shall be satisfactory in form and substance to the Agent and the
Required Banks, and the Agent shall have received all information and copies of
all documents and papers, including records of corporate proceedings,
governmental approvals, good standing certificates and bring-down telegrams, if
any, which the Agent or the Required Banks may have requested in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate or governmental authorities.
5.05 Plans; Shareholders' Agreements; Management Agreements;
------------------------------------------------------
Employment Agreements; Collective Bargaining Agreements; Debt Agreements;
- -------------------------------------------------------------------------
Affiliate Contracts; Tax Sharing Agreements and Material Contracts. On or
- ------------------------------------------------------------------
prior to the Initial Borrowing Date, there shall have been delivered to the
Agent true and correct copies, certified as true and complete by an appropriate
officer of Holdings or the Borrower of:
(i) all Plans (and for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report (including, to the extent required, the related
financial and actuarial
-36-
<PAGE>
statements and opinions and other supporting statements, certifications,
schedules and information), required by the Agent and for each such Plan
that is a "single-employer plan," as defined in Section 4001(a)(15) of
ERISA, the most recently prepared actuarial valuation therefor) and any
other "employee benefit plans," as defined in Section 3(3) of ERISA, and
any other material agreements, plans or arrangements, with or for the
benefit of current or former employees of Holdings or any of its
Subsidiaries or any ERISA Affiliate (provided that the foregoing shall
apply in the case of any multiemployer plan, as defined in 4001(a)(3) of
ERISA, only to the extent that any document described therein is in the
possession of Holdings or any Subsidiary of Holdings or any ERISA Affiliate
or reasonably available thereto from the sponsor or trustee of any such
plan) (collectively, the "Employee Benefit Plans");
(ii) all agreements entered into by Holdings or any Subsidiary of
Holdings governing the terms and relative rights of its capital stock and
any agreements entered into by shareholders relating to any such entity
with respect to their capital stock (collectively, the "Shareholders'
Agreements");
(iii) all agreements with members of, or with respect to the,
management of Holdings or any Subsidiary of Holdings other than Employment
Agreements (collectively, the "Management Agreements");
(iv) any employment agreements entered into by Holdings or any
Subsidiary of Holdings with any physician or with any officer or director
of Holdings, or any Subsidiary of Holdings (collectively, the "Employment
Agreements");
(v) all collective bargaining agreements applying or relating to
any employee of Holdings or any Subsidiary of Holdings (collectively, the
"Collective Bargaining Agreements");
(vi) all agreements evidencing or relating to Indebtedness of
Holdings or any Subsidiary of Holdings in excess of $100,000 whether or not
such agreement is to remain outstanding after giving effect to the
incurrence of Loans on the Initial Borrowing Date (collectively, the "Debt
Agreements");
(vii) all tax sharing, tax allocation and other similar agreements
entered into by Holdings or any Subsidiary of Holdings (collectively, the
"Tax Sharing Agreements");
-37-
<PAGE>
(viii) all contracts, agreements or understandings entered into
between Holdings or any of its Subsidiaries on the one hand, and any of its
Affiliates, on the other hand (collectively, the "Affiliate Contracts");
and
(ix) all material contracts and licenses of Holdings or any of
its Subsidiaries that are to remain in effect after giving effect to the
consummation of the Transaction, including, without limitation, all
material management service contracts, practice management agreements, and
all personal guarantees from physicians guaranteeing the revenues of their
practices and all material securities purchase agreements (collectively,
the "Material Contracts");
all of which Employee Benefit Plans, Shareholders' Agreements, Management
Agreements, Employment Agreements, Collective Bargaining Agreements, Debt
Agreements, Tax Sharing Agreements, Affiliate Contracts and Material Contracts
shall be in form and substance satisfactory to the Agent and the Required Banks
and shall be in full force and effect on the Initial Borrowing Date.
5.06 Consummation of the Acquisitions. (a) On or prior to the
--------------------------------
Initial Borrowing Date, there shall have been delivered to the Banks true and
correct copies of all Acquisition Documents and all terms and provisions of such
Acquisition Documents shall be in form and substance satisfactory to the Agent
and the Required Banks andshall not have been amended without the consent of
the Agent and the Required Banks; provided, however, in the case of the
-------- -------
Acquisition Documents relating to Post-Closing Acquisitions, there shall have
been delivered to the Banks true and correct copies of substantially final forms
of the Acquisition Documents and the final forms of such Acquisition Documents
shall not vary materially therefrom. Each Acquisition, including all of the
terms and conditions thereof, shall have been duly approved by the board of
directors and (if required by applicable law) the shareholders of the parties
thereto, and all Acquisition Documents shall have been duly executed and
delivered by the parties thereto and shall be in full force and effect. The
representations and warranties set forth in the Acquisition Documents shall be
true and correct in all material respects as if made on and as of the Initial
Borrowing Date. Each of the conditions precedent to Holdings' and the
Borrower's obligations to consummate each Pre-Closing Acquisition and each
Contemporaneous Acquisition as set forth in the applicable Acquisition Documents
shall have been satisfied to the satisfaction of the Agent and the Required
Banks or waived with the consent of the Agent and the Required Banks, and each
Pre-Closing Acquisition and each Contemporaneous Acquisition shall have been
consummated in accordance with all applicable law and the respective Acquisition
Documents and the consideration payable in connection therewith shall not exceed
the Purchase Price for such Acquisition.
(b) On the Initial Borrowing Date after giving effect to the
Transaction, the ownership and capital structure (including, without limitation,
the terms of any capital
-38-
<PAGE>
stock, options, warrants or other securities issued or to be issued by Holdings
or any of its Subsidiaries) as of the Initial Borrowing Date and management of
Holdings and its Subsidiaries shall be in form and substance satisfactory to the
Agent and the Required Banks.
5.07 Pledge Agreement. On the Initial Borrowing Date, each Credit
----------------
Party (other than Immaterial Subsidiaries) shall have duly authorized, executed
and delivered a Pledge Agreement substantially in the form of Exhibit G-1
(together with the Pledge Agreement in the form of Exhibit G-2 referred to in
Section 8.22 as modified, supplemented or amended from time to time,
collectively, the "Pledge Agreement") and shall have delivered to the Collateral
Agent, as Pledgee thereunder, all of the Pledged Securities referred to therein
then owned by Holdings and each Subsidiary of Holdings (x) endorsed in blank in
the case of promissory notes constituting Pledged Securities and (y) together
with executed and undated irrevocable stock powers, in the case of capital stock
constituting Pledged Securities; provided, however, Pledged Securities of
-------- -------
Immaterial Subsidiaries and of MHOA Texas I, L.L.C. shall not be required to be
pledged.
5.08 Security Agreement. On the Initial Borrowing Date, each Credit
------------------
Party (other than the Immaterial Subsidiaries) shall have duly authorized,
executed and delivered a Security Agreement in the form of Exhibit H (as
modified, supplemented or amended from time to time, the "Security Agreement")
covering all of such Credit Party's present and future Security Agreement
Collateral, together with:
(i) proper financing statements (Form UCC-1 or such other financing
statements or similar notices as shall be required by local law) fully
executed for filing under the UCC or other appropriate filing offices of
each jurisdiction as may be necessary or, in the opinion of the Collateral
Agent, desirable to perfect the security interests purported to be created
by the Security Agreement;
(ii) certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, listing all judgment liens, tax liens or
effective financing statements that name Holdings or any of its
Subsidiaries, or a division or other operating unit of any such Person, as
debtor and that are filed in the jurisdictions referred to in said clause
(i), together with copies of such other financing statements (none of which
shall cover the Collateral except to the extent evidencing Permitted Liens
or for which the Collateral Agent shall receive termination statements
(Form UCC-3 or such other termination statements as shall be required by
local law) fully executed for filing);
(iii) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreement as may be necessary
or, in the opinion of
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the Collateral Agent, desirable to perfect the security interests intended
to be created by such Security Agreement; and
(iv) evidence that all other actions necessary or, in the opinion
of the Collateral Agent, desirable to perfect and protect the security
interests purported to be created by the Security Agreement have been
taken.
5.09 Subsidiaries Guaranty. On the Initial Borrowing Date, each
---------------------
Subsidiary of Holdings (other than the Borrower and Immaterial Subsidiaries)
shall have duly authorized, executed and delivered a Guaranty in the form of
Exhibit I (as modified, supplemented or amended from time to time, the
"Subsidiaries Guaranty").
5.10 Material Adverse Change, etc. Since June 30, 1997, nothing
----------------------------
shall have occurred (and the Banks shall have become aware of no facts or
conditions not previously known) which the Agent or the Required Banks shall
determine (a) could reasonably be expected to have a material adverse effect on
the rights or remedies of the Banks or the Agent, or on the ability of Holdings
or any of its Subsidiaries to perform their obligations to the Agent and the
Banks under this Agreement or any other Credit Document, (b) could reasonably be
expected to have a materially adverse effect on the performance, business,
assets, nature of assets, liabilities, operations, properties, condition
(financial or otherwise) or prospects of Holdings and its Subsidiaries taken as
a whole or (c) indicates the inaccuracy in any material respect of the
information previously provided to the Agent or the Banks (taken as a whole) in
connection with their analysis of the transactions contemplated hereby or
indicates that the information previously provided omitted to disclose any
material information.
5.11 Litigation. On the Initial Borrowing Date, no litigation by
----------
any entity (private or governmental) shall be pending or threatened with respect
to this Agreement, any other Document or any documentation executed in
connection herewith or with respect to the transactions contemplated hereby, or
which the Agent or Required Banks shall determine could reasonably be expected
to have a materially adverse effect on the Transaction or on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole.
5.12 Fees, etc. On the Initial Borrowing Date, the Borrower shall
----------
have paid in full to the Agent and the Banks all costs, fees and expenses
(including, without limitation, all reasonable legal fees and expenses) payable
to the Agent to the extent then due pursuant hereto or as otherwise agreed
between Holdings and the Agent.
5.13 Solvency Certificate; Insurance Analyses. On the Initial
----------------------------------------
Borrowing Date, Holdings shall cause to be delivered to the Agent and the Banks:
(i) a solvency
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certificate from the Chief Financial Officer of Holdings, in the form of Exhibit
N hereto, which shall be addressed to the Agent and each of the Banks and dated
the Initial Borrowing Date and in form and substance satisfactory to the Agent
and the Required Banks, setting forth the conclusion that, after giving effect
to the Transaction and the incurrence of all financings contemplated herein,
each of Holdings and its Subsidiaries (on a consolidated basis) and each
subsidiary of the Borrower and its Subsidiaries (on a consolidated basis), are
not insolvent and will not be rendered insolvent by the Indebtedness incurred in
connection herewith, will not be left with unreasonably small capital with which
to engage in their respective businesses and will not have incurred debts beyond
their ability to pay such debts as they mature and become due and (ii) evidence
(including, without limitation, certificates with respect to each insurance
policy listed on Schedule II) of insurance, complying with the requirements of
Section 8.03, with respect to the business and properties of Holdings and its
Subsidiaries, in scope, form and substance satisfactory to the Agent and the
Required Banks and naming each of the Collateral Agent, the Agent and the Banks
as an additional insured and the Collateral Agent as loss payee and stating that
such insurance shall not be cancelled or revised without 30 days' prior written
notice by the insurer to the Collateral Agent.
5.14 Approvals. All necessary governmental and third party approvals
---------
in connection with the Transaction and the transactions contemplated by the
Documents and otherwise referred to herein or therein (including, but not
limited to, those approvals required in respect of existing permits, landlord
consents and transfers of contract rights) shall have been obtained and remain
in effect, and all applicable waiting periods shall have expired without any
action being taken by any competent authority which restrains, prevents or
imposes, in the sole judgment of the Agent or the Required Banks, adverse
conditions upon the consummation of the Transaction or the other transactions
contemplated by the Documents and otherwise referred to herein or therein.
Additionally, there shall not exist any judgment, order, injunction or other
restraint issued or filed or a hearing seeking injunction relief or other
restraint pending or notified prohibiting or imposing materially adverse
conditions upon the consummation of the Transaction, the transactions
contemplated by the Documents, the making of the Loans or the issuance of
Letters of Credit.
5.15 Financial Statements; Projections; Management Letter Reports.
------------------------------------------------------------
(a) On or prior to the Initial Borrowing Date, the Banks shall have received:
(i) the audited consolidated balance sheets of the Holdings for the
fiscal years, ended December 31, 1995 and December 31, 1996 and the audited
consolidated balance sheet of Holdings at June 30, 1997 and the related
consolidated statements of operations and cash flows of Holdings for the
fiscal year or six month period, as the case may be, ended as of such dates
and consolidated balance sheet of each of the Companies as at the
respective dates set forth on Schedule III annexed hereto and the related
statements of earnings and stockholders' equity and
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cash flows of each of such companies (or similar financial statements as
specified on such Schedule), as applicable for the fiscal periods ended as
of the dates specified in such Schedule, which, in the case of the annual
statements, have been audited by Arthur Andersen L.L.P., in the case of the
financial statements of Holdings and have been examined or reviewed by the
independent certified public accountants as specified on such Schedule in
the case of the other financial statements, who delivered unqualified
opinions in respect thereto except as specified on such Schedule; and
(ii) the pro forma (after giving effect to the Transaction and the
related financing thereof) consolidated balance sheet of Holdings as at the
Initial Borrowing Date, all of which financial statements in clauses (i)
and (ii) shall be prepared in accordance with generally accepted accounting
principles consistent with past practices and shall be in form and
substance satisfactory to the Agent and the Required Banks, and shall not
disclose any material adverse differences in the business, properties,
assets, liabilities, results of operations, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole
from that previously disclosed to the Agent and the Required Banks.
(b) On the Initial Borrowing Date, the Banks shall have received
detailed consolidated financial projections, certified by the Chief Financial
Officer of Holdings, for Holdings and its Subsidiaries, which include the
projected results of the Borrower, after giving effect to the Transaction and
the other transactions contemplated herein, for the period commencing on the
Initial Borrowing Date and ending after the fifth anniversary of the Initial
Borrowing Date (the "Projections"), which Projections, and the supporting
assumptions and explanations thereto, and the accounting practices and
procedures to be utilized by Holdings following the Initial Borrowing Date,
shall be satisfactory in form and substance to the Agent and the Required Banks.
(c) On or prior to the Initial Borrowing Date, the Agent shall
have received a copy of any "management letter" received by the Borrower or any
of its Subsidiaries from its certified public accountants.
5.16 Refinancing. (a) On the Initial Borrowing Date and after
-----------
giving effect to the Loans incurred on the Initial Borrowing Date, the
Acquisitions and the other transactions contemplated hereby, neither Holdings
nor any of its Subsidiaries shall have any Indebtedness or preferred stock
outstanding except for the Loans, the Existing Indebtedness, which Existing
Indebtedness shall not exceed $26,565,002 and the Holdings Preferred Stock set
forth on Schedule VII. All of the Existing Indebtedness shall remain
outstanding after the transactions contemplated hereby without any defaults or
events of default existing thereunder or arising as a result of the transactions
contemplated hereby. None of the
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Existing Indebtedness shall have been incurred in anticipation of the
transactions contemplated hereby, except to finance the Acquisitions.
(b) The Agent and the Required Banks shall be reasonably satisfied
with the amount of and the terms and conditions of the repayment of, and
termination of all commitments and documentation relating to, all Indebtedness
repaid by Holdings or its Subsidiaries, in connection with the transactions
contemplated hereby (collectively, the "Refinanced Indebtedness") and the amount
of all accrued interest, premiums, fees, commissions and expenses owing in
connection with the repayment of such Refinanced Indebtedness. In no event
shall the aggregate amount paid pursuant to the preceding sentence exceed
$29,565,002. All Liens arising in connection with such Refinanced Indebtedness
shall have been terminated (and all appropriate releases, termination statements
or other instruments of assignment with respect thereto shall have been obtained
and filed promptly), in each case to the satisfaction of the Agent and the
Required Banks.
(c) The Agent shall have received copies, certified as true and
complete by an appropriate officer of Holdings, of all documents executed in
connection with the repayment and termination of the Refinanced Indebtedness
and the release of the Liens thereunder (the "Debt Termination Documents") all
of which shall be in form and substance satisfactory to the Agent and the
Required Banks.
5.17 Issuance of Senior Subordinated Notes. On the Initial Borrowing
-------------------------------------
Date and prior to the Acquisitions, (a) Holdings shall have received gross cash
proceeds of at least $9,000,000 from the issuance of the Senior Subordinated
Notes and the Borrower shall have utilized the full amount of such cash
consideration to make payments owing in connection with the Transaction prior to
utilizing any proceeds of any Loans for such purpose and (b) Holdings shall have
received a binding commitment from the purchaser of the Senior Subordinated
Notes to purchase up to an additional $6,000,000 of Senior Subordinated Notes.
On or prior to the Initial Borrowing Date, there shall have been delivered to
the Banks true and correct copies of all Senior Subordinated Loan Documents
(certified as such by an appropriate officer of Holdings), and all of the terms
and conditions of such Senior Subordinated Loan Documents (including, without
limitation, the maturity, subordination provisions, covenants, events of
default, interest rate and limitations on cash interest payable and conditions
pursuant to which the additional Senior Subordinated Notes are required to be
issued) shall be in form and substance satisfactory to the Agent and the
Required Banks.
5.18 Consent Letter. The Agent shall have received a letter from CT
--------------
Corporation System, presently located at 1633 Broadway, New York, New York
10019, substantially in the form of Exhibit J hereto, indicating its consent to
its appointment by Holdings and its Subsidiaries as their agent to receive
service of process as specified in Section 14.08 of this Agreement and Section
21 of the Subsidiaries Guaranty.
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5.19 Borrowing Base Certificate. On the Initial Borrowing Date, the
--------------------------
Borrower shall have delivered to each Bank its initial Borrowing Base
Certificate meeting the requirements of Section 8.01(k).
5.20 Equity Amendments. Holdings shall obtain amendments to the
-----------------
terms of its capital stock (the "Equity Amendments"), in form and substance
satisfactory to the Agent and the Required Banks, subordinating any put rights,
mandatory redemption provisions or similar provisions which require the payment
by Holdings or any of its Subsidiaries of any amounts with respect to such
capital stock while any "senior debt" (to be defined in a manner acceptable to
the Agent) remains outstanding and such other amendments as may be reasonably
requested by the Agent.
5.21 Subordinated Debt. All indebtedness of any subsidiary of
-----------------
Holdings required by the Agent to be subordinated to the Loans (the "Other
Subordinated Debt") shall have been amended (the "Subordinated Debt Amendments")
to provide that such Subsidiary shall be released from all of its obligations
under such indebtedness and such indebtedness is assumed by Holdings and shall
be subordinated to all indebtedness under this Agreement and refinancings
thereof and under Interest Rate Protection or Other Hedging Agreements with such
subordination provisions to be in form and substance satisfactory to the
Required Banks.
Section 6. Conditions Precedent to All Credit Events. The obligation
-----------------------------------------
of each Bank to make Loans (including Loans made on the Initial Borrowing Date)
and the obligation of an Issuing Bank to issue any Letter of Credit and the
occurrence of the Restatement Effective Date, is subject, at the time of each
such Credit Event or at the time of the Restatement Effective Date, as the case
may be, (except as hereinafter indicated), to the satisfaction of the following
conditions:
6.01 No Default; Representations and Warranties. On the Restatement
------------------------------------------
Effective Date and at the time of each such Credit Event and also after giving
effect thereto (i) there shall exist no Default or Event of Default and (ii) all
representations and warranties contained herein and in the other Credit
Documents shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on the date
of the Restatement Effective Date and/or the date of making of such Credit Event
except for representations and warranties expressly stated to relate to a
specific earlier date, which shall be true and correct in all material respects
as of such date.
6.02 Material Adverse Change, etc. Nothing shall have occurred since
-----------------------------
June 30, 1997 (and the Banks shall have become aware of no facts or conditions
not previously known) which the Agent or the Required Banks shall determine (i)
could reasonably be expected to have a material adverse effect on the rights or
remedies of the Banks or the
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<PAGE>
Agent, or on the ability of Holdings or any Subsidiary of Holdings to perform
its obligations to the Banks under this Agreement or any other Credit Document
or (ii) which could reasonably be expected to have a materially adverse effect
on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.
6.03 Litigation. At the time of each such Credit Event and also
----------
after giving effect thereto, no litigation by any entity (private or
governmental) shall be pending or threatened with respect to this Agreement or
any other Credit Document executed in connection herewith or the transactions
contemplated hereby or which the Required Banks shall determine could reasonably
be expected to have a materially adverse effect on the performance, business,
assets, nature of assets, liabilities, operations, properties, condition
(financial or otherwise) or prospects of Holdings and its Subsidiaries taken as
a whole.
6.04 Notice of Borrowing; Letter of Credit Request. (a) Prior to
---------------------------------------------
the making of each Loan (other than a Swingline Loan or a Mandatory Borrowing),
the Agent shall have received a Notice of Borrowing meeting the requirements of
Section 1.03. Prior to the making of each Swingline Loan, the Swingline Bank
shall have received the notice referred to in Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the Issuing Bank
shall have received a Letter of Credit Request meeting the requirements of
Section 2.03.
6.05 Acquisition/Term Loans. Prior to the making of each Acquisition
----------------------
Loan and each Term Loan after the Initial Borrowing Date, all conditions to the
Permitted Acquisition or the repayment of the DVI Indebtedness to be funded with
the proceeds of such Loans set forth in Section 8.15 and, in the case of
Permitted Acquisitions, in the definition thereof, shall have been satisfied and
the president or any other senior executive officer of Holdings shall have
delivered an officer's certificate certifying that such conditions have been
met.
6.06 Additional Conditions. Prior to the making of each Loan after
---------------------
the Initial Borrowing Date, all conditions to Borrowing contained in Section 5
which, in the Agent's judgement, had not previously been adequately satisfied,
shall have been satisfied in the judgment of the Agent.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Borrower to each of the Banks that all the
conditions specified in Section 5 and in this Section 6 and applicable to such
Credit Event exist as of that time. All of the Notes, certificates, legal
opinions and other documents and papers referred to in Section 5 and in this
Section 6, unless otherwise specified, shall be delivered to the Agent at the
Notice Office for the account of each of the Banks and, except for the Notes,
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in sufficient counterparts for each of the Banks and, unless otherwise
specified, shall be in form and substance satisfactory to the Banks.
Section 7. Representations, Warranties and Agreements. In order to
------------------------------------------
induce the Banks to enter into this Agreement and to make the Loans, and issue
(or participate in) the Letters of Credit as provided herein, each of Holdings
and the Borrower makes the following representations, warranties and agreements
as to itself and as to each of its Subsidiaries, as of the Initial Borrowing
Date (both before and after giving effect to the Credit Events occurring on such
date, the Transaction and the other transactions contem plated by the Documents,
and all references to Holdings and the Borrower herein and elsewhere in this
Agreement, shall, unless otherwise specifically indicated, be references to
Holdings and the Borrower after giving effect to the Transaction) and as of the
date of each subsequent Credit Event which representations, warranties and
agreements shall sur vive the execution and delivery of this Agreement and the
Notes and any subsequent Credit Event, with the occurrence of each Credit Event
on or after the Initial Borrowing Date being deemed to constitute a
representation and warranty that the matters specified in this Section 7 are
true and correct on and as of the Initial Borrowing Date and on the date of each
such Credit Event:
7.01 Corporate Status. Each of Holdings and its Subsidiaries (other
----------------
than Physician Network of Brevard Inc., a Florida corporation) (i) is a duly
organized and validly existing corporation (or a limited liability company or
partnership if so designated in Schedule VIII) in good standing under the laws
of the jurisdiction of its organization, (ii) has the corporate power and
authority to own its property and assets and to transact the business in which
it is engaged and presently proposes to engage and (iii) is duly qualified and
is authorized to do business and is in good standing in each jurisdiction where
the ownership, leasing or operation of property or the conduct of its business
requires such qualifications except for failures to be so qualified which, in
the aggregate, could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.
7.02 Corporate Power and Authority. Each of Holdings and its
-----------------------------
Subsidiaries has the corporate power to execute, deliver and perform the terms
and provisions of each of the Documents to which it is party and has taken all
necessary corporate action (or limited liability company or partnership action,
as applicable) to authorize the execution, delivery and performance by it of
each of such Documents. Each of Holdings and its Subsidiaries has duly executed
and delivered each of the Documents to which it is party, and each of such
Documents constitutes its legal, valid and binding obligation enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, reorganization, moratorium or similar laws relating to or
limiting creditors'
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<PAGE>
rights generally or by general equitable principles (regardless of whether the
issue of enforceability is considered in a proceeding in equity or at law).
7.03 No Violation. Neither the execution, delivery or performance by
------------
Holdings or any of its Subsidiaries of the Documents to which it is a party, nor
compliance by it with the terms and provisions thereof, (i) will contravene any
provision of any applicable law, statute, rule or regulation or any order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
will conflict with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(except pursuant to the Security Documents) upon any of the property or assets
of Holdings or any of its Subsidiaries pursuant to the terms of any indenture,
mortgage, deed of trust, credit agreement or loan agreement, or any other
agreement, contract or instrument to which Holdings or its Subsidiaries is a
party or by which it or any of its property or assets is bound or to which it
may be subject or (iii) will violate any provision of the Certificate of
Incorporation or By-Laws (or similar organizational documents) of Holdings or
any of its Subsidiaries.
7.04 Governmental Approvals. No order, consent, approval, license,
----------------------
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made on or prior to the Initial Borrowing Date
and are in full force and effect), or exemption by, any governmental or public
body or authority, or any subdivision thereof, is required to authorize, or is
required in connection with, (i) the execution, delivery and performance of any
Document or (ii) the legality, validity, binding effect or enforceability of any
such Document.
7.05 Financial Statements; Financial Condition; Undisclosed
------------------------------------------------------
Liabilities; Projections; etc. (a) (i) The audited consolidated balance sheets
- ------------------------------
of Holdings for the fiscal years ended December 31, 1995 and December 31, 1996
and the audited consolidated balance sheet of Holdings at June 30, 1997 and the
related consolidated statements of operations and cash flows of Holdings for the
fiscal year or six month period, as the case may be, ended as of such dates, and
the financial statements of each Company listed on Schedule III at the dates
listed on Schedule III and for the fiscal periods ended as of the dates listed
on Schedule III, which, in the case of the annual statements, have been audited
by Arthur Andersen L.L.P., in the case of the financial statements of Holdings
and have been examined or reviewed by the independent certified public
accountants listed on Schedule III, in the case of the other financial
statements, who delivered unqualified opinions in respect thereto and (ii) the
pro forma (after giving effect to the Transaction and the related financing
thereof) consolidated balance sheet of Holdings as at the Initial Borrowing
Date, copies of all of which financial statements referred to in the preceding
clauses (i) and (ii) have heretofore been furnished to the Agent, present fairly
the financial position of the respective entities at the dates of said
statements and the results of operations for the period covered thereby (or, in
the case of the pro forma balance sheet, present a
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good faith estimate of the pro forma financial condition of Holdings and its
Subsidiaries (after giving effect to the Transaction) on a consolidated basis at
the date thereof). All such financial statements have been prepared in
accordance with generally accepted accounting principles and practices
consistently applied except to the extent provided in the notes to said
financial statements and with respect to interim financial statements, subject
to normal year end adjustments. Since June 30, 1997, there has been no material
adverse change in the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
(b) On and as of the Initial Borrowing Date, on a pro forma basis
after giving effect to the Transaction and all other transactions contemplated
by the Documents as of such date and to all Indebtedness (including, without
limitation, the Loans) being incurred in connection with the Transaction, and
Liens created, and to be created, by each Credit Party in connection therewith:
(a) the sum of the assets (including all contribution and subrogation rights and
other intangible assets), at a fair valuation, of each Credit Party will exceed
its debts; (b) no Credit Party has incurred or intends to, or believes that it
will, incur debts beyond its ability to pay such debts as such debts mature; and
(c) each Credit Party will have sufficient capital with which to conduct its
business. For purposes of this Section 7.05(b) "debt" means any liability on a
claim, and "claim" means (i) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or
(ii) right to an equitable remedy for breach of performance if such breach gives
rise to a payment, whether or not such right to an equitable remedy is reduced
to judgment, fixed, contingent, matured, unmatured, subordinated, disputed,
undisputed, secured or unsecured.
(c) Except as fully reflected in the financial statements and the
notes related thereto described in Section 7.05(a), there were as of the Initial
Borrowing Date (and after giving effect to the Transaction and the other
transactions contemplated hereby and by the Documents) no liabilities or
obligations with respect to Holdings or any of its Subsidiaries of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due) which, either individually or in aggregate, could reasonably be
expected to be material to Holdings and its Subsidiaries taken as a whole. As
of the Initial Borrowing Date, neither Holdings nor any of its Subsidiaries
knows of any basis for the assertion against Holdings or any of its Subsidiaries
of any liability or obligation of any nature whatsoever that is not fully
reflected in the financial statements and the notes related thereto described in
Section 7.05(a) which, either individually or in the aggregate, could reasonably
be expected to be material to Holdings and its Subsidiaries taken as a whole.
As of the Initial Borrowing Date (and after giving effect to the Transaction)
none of Holdings or any of its Subsidiaries will have any outstanding
Indebtedness or preferred stock other than (i)
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the Loans, (ii) the Existing Indebtedness, (iii) the Senior Subordinated Notes
and (iv) Holdings Preferred Stock set forth on Schedule VII.
(d) On and as of the Initial Borrowing Date, the Projections have
been prepared in good faith by Holdings and there are no statements or
conclusions in any of the Projections which are based upon or include
information known to Holdings or the Borrower to be misleading or which fail to
take into account material information regarding the matters reported therein.
On the Initial Borrowing Date, each of Holdings and the Borrower believes that
the Projections were reasonable and attainable (although actual results may
differ from the Projections and no representation is made that the Projections
will in fact be attained).
7.06 Litigation. There are no actions, suits or proceedings pending
----------
or, to the best knowledge of Holdings, threatened (i) with respect to any
Document, or (ii) that are reasonably likely to materially and adversely affect
the performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
7.07 True and Complete Disclosure. All factual information (taken as
----------------------------
a whole) heretofore or contemporaneously furnished by or on behalf of Holdings
or any Subsidiary of Holdings in writing to any Bank (including, without
limitation, all information contained in the Documents) for purposes of or in
connection with this Agreement or any transaction contemplated herein is, and
all other such factual information (taken as a whole with all information
previously furnished) hereafter furnished by or on behalf of Holdings or any
Subsidiary of Holdings in writing to any Bank will be, true and accurate in all
material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact.
7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the
-----------------------------------
Term Loans incurred on the Initial Borrowing Date shall be used to finance, in
part, the Purchase Price of the Contemporaneous Acquisitions, directly or
indirectly to repay the Indebtedness of the Companies incurred to finance the
Pre-Closing Acquisitions and to pay Transaction Fees and Expenses. All proceeds
of the Term Loans incurred on a DVI Payment Date shall be used to repay DVI
Indebtedness. In addition, proceeds of the Term Loans incurred on the Initial
Borrowing Date in excess of the amounts used in accordance with the first
sentence of this Section 7.08 shall be deposited in the Cash Collateral Account
to be utilized solely to pay the Purchase Price and closing costs with respect
to the Post-Closing Acquisitions or other acquisitions approved by the Required
Banks or to pay amounts owing pursuant to the DVI Revolver in accordance with
the terms of the Cash Collateral Agreement.
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(b) All proceeds of Revolving Loans and Swingline Loans shall be used
by the Borrower for general corporate and working capital purposes of the
Borrower and its Subsidiaries but shall not be permitted to be used to effect
Permitted Acquisitions.
(c) All proceeds of Acquisition Loans shall be used by the Borrower
only to effect Permitted Acquisitions and to pay fees, costs and expenses
related to such acquisitions; provided, however, proceeds of Acquisition Loans
may be dividended by the Borrower to Holdings to be used by Holdings to effect
Permitted Acquisitions.
(d) No part of the proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof nor the occurrence of any other Credit Event will violate or
be inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.
7.09 Tax Returns and Payments. Each of Holdings and its Subsidiaries
------------------------
has timely filed or caused to be timely filed (including pursuant to any valid
extensions of time for filing) with the appropriate taxing authority, all
material returns, statements, forms and reports for taxes (the "Returns")
required to be filed by or with respect to the income, properties or operations
of Holdings and/or any of its Subsidiaries. The Returns accurately reflect in
all material respects all liability for taxes of Holdings and its Subsidiaries
as a whole for the periods covered thereby. Each of Holdings and its
Subsidiaries have paid all material taxes payable by them which have become due
other than those contested in good faith and for which adequate reserves have
been established in accordance with generally accepted accounting principles.
There is no material action, suit, proceeding, investigation, audit, or claim
now pending or, to the best knowledge of Holdings or any of its Subsidiaries,
threatened by any authority regarding any taxes relating to Holdings or any of
its Subsidiaries. As of the Initial Borrowing Date, neither Holdings nor any of
its Subsidiaries has entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of limitations relating
to the payment or collection of taxes of Holdings or any of its Subsidiaries, or
is aware of any circumstances that would cause the taxable years or other
taxable periods of Holdings or any of its Subsidiaries not to be subject to the
normally applicable statute of limitations. Neither Holdings nor any of its
Subsidiaries has provided, with respect to themselves or property held by them,
any consent under Section 341 of the Code. None of Holdings or any of its
Subsidiaries has incurred, or will incur, any material tax liability in
connection with the Transaction or any other transactions contemplated hereby
(it being understood that the representation contained in this sentence does not
cover any future tax liabilities of Holdings or any of its Subsidiaries arising
as a result of the operation of their businesses in the ordinary course of
business).
7.10 Compliance with ERISA. Schedule VI sets forth each Plan; each
---------------------
Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its
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terms and with all applicable laws, including, without limitation, ERISA and the
Code; each Plan (and each related trust, if any) which is intended to be
qualified under Section 401(a) of the Code has received a determination letter
from the Internal Revenue Service to the effect that it meets the requirements
of Sections 401(a) and 501(a) of the Code; no Reportable Event has occurred; no
Plan which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA)
is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no
Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an
accumulated funding deficiency, within the meaning of such sections of the Code
or ERISA, or has applied for or received a waiver of an accumulated funding
deficiency or an extension of any amortization period, within the meaning of
Section 412 of the Code or Section 303 or 304 of ERISA; all contributions
required to be made with respect to a Plan have been timely made; neither
Holdings nor any Subsidiary of Holdings nor any ERISA Affiliate has incurred any
material liability (including any indirect, contingent or secondary liability)
to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or
4975 of the Code or expects to incur any such liability under any of the
foregoing sections with respect to any Plan; no condition exists which presents
a material risk to Holdings or any Subsidiary of Holdings or any ERISA Affiliate
of incurring a liability to or on account of a Plan pursuant to the foregoing
provisions of ERISA and the Code; no proceedings have been instituted to
terminate or appoint a trustee to administer any Plan which is subject to Title
IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with
respect to the administration, operation or the investment of assets of any Plan
(other than routine claims for benefits) is pending, expected or threatened;
using actuarial assumptions and computation methods consistent with Part 1 of
subtitle E of Title IV of ERISA, the aggregate liabilities of Holdings and its
Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer plans
(as defined in Section 4001(a)(3) of ERISA) in the event of a complete
withdrawal therefrom, as of the close of the most recent fiscal year of each
such Plan ended prior to the date of the most recent Credit Event, would not
exceed $100,000; each group health plan (as defined in Section 607(1) of ERISA
or Section 4980B(g)(2) of the Code) which covers or has covered employees or
former employees of Holdings, any Subsidiary of Holdings, or any ERISA Affiliate
has at all times been operated in compliance with the provisions of Part 6 of
subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed
under the Code or ERISA on the assets of Holdings or any Subsidiary of Holdings
or any ERISA Affiliate exists or is likely to arise on account of any Plan; and
Holdings and its Subsidiaries may cease contributions to or terminate any
employee benefit plan maintained by any of them without incurring any material
liability.
7.11 The Security Documents. (a) The provisions of the Security
----------------------
Agreement are effective to create in favor of the Collateral Agent for the
benefit of the Secured Creditors a legal, valid and enforceable security
interest in all right, title and interest of the respective Credit Parties in
the Collateral described therein and the Collateral
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Agent, for the benefit of the Secured Creditors, has a fully perfected Lien on,
and security interest in, all right, title and interest of the respective Credit
Parties, in all of the Collateral described therein, subject to no other Liens
other than Permitted Liens. The recordation of the Security Agreement in the
United States Patent and Trademark Office together with filings on Form UCC-1
made pursuant to the Security Agreement will be effective, under federal and
state law, to perfect the security interest granted to the Collateral Agent in
the trademarks and patents, if any, covered by the Security Agreement and the
filing of the Security Agreement with the United States Copyright Office
together with filings on Form UCC-1 made pursuant to the Security Agreement will
be effective under federal and state law to perfect the security interest
granted to the Collateral Agent in the copyrights covered by the Security
Agreement. Each of the Credit Parties party to the Security Agreement has good
and merchantable title to all Collateral described therein, free and clear of
all Liens except those described above in this clause (a).
(b) The security interests created in favor of the Collateral Agent,
as Pledgee for the benefit of the Secured Creditors, under the Pledge Agreement
constitute first perfected security interests in the Pledged Securities
described in the Pledge Agreement, subject to no security interests of any other
Person. No filings or recordings are required in order to perfect (or maintain
the perfection or priority of) the security interests created in the Pledged
Securities and the proceeds thereof under the Pledge Agreement.
7.12 Representations and Warranties in Documents. All
-------------------------------------------
representations and warranties set forth in the Documents are true and correct
in all material respects at the time as of which such representations and
warranties were made and on the Initial Borrowing Date.
7.13 Properties. Each of Holdings and its Subsidiaries has good and
----------
merchantable title to all properties owned by them, including all property
reflected in the consolidated pro forma balance sheet (after giving effect to
the Transaction) referred to in Section 7.05(a) (except as sold or otherwise
disposed of since the date of such balance sheet in the ordinary course of
business or as permitted by Section 9.02), free and clear of all Liens, other
than (i) as referred to in the consolidated balance sheet or in the notes
thereto or in the pro forma balance sheet or (ii) otherwise permitted by Section
9.01. Schedule V contains a true and complete list of each parcel of Real
Property owned or leased by Holdings and each of its Subsidiaries on the Initial
Borrowing Date, and the type of interest therein held by Holdings and/or its
Subsidiaries.
7.14 Capitalization. On the Initial Borrowing Date, after giving
--------------
effect to the Transaction, the authorized capital stock of Holdings consists of
(i) 100,000,000 shares of common stock, $.0025 par value per share ("Holdings
Common Stock"), 4,968,572 of which shares are issued and outstanding; (ii)
40,000,000 shares of Non-Voting Common
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Stock, $.0025 par value, of which no shares are issued and outstanding; (iii)
20,000,000 shares of Prime Common Stock, $.0025 par value ("Holdings Prime
Stock"), of which 4,955,904 shares are issued and outstanding; (iv) 500,000
shares of Class A Stock, $0.01 par value, of which 200,000 shares are issued and
outstanding; and (v) 18,000,000 shares of preferred stock, $0.01 par value per
share ("Holdings Preferred Stock"), of which 9,000,000 shares consist of Series
B Redeemable Convertible Preferred Stock of which 3,460,362 shares are issued
and outstanding, and of which 6,000,000 shares consist of Series B Non-Voting
Redeemable Convertible Preferred Stock of which 917,814 shares are issued and
outstanding. All outstanding shares of capital stock of Holdings are owned by
the persons and in the amounts set forth on Schedule VII. On the Initial
Borrowing Date, the authorized capital stock of the Borrower consists of 10,000
shares of common stock, $.01 par value per share ("Borrower Common Stock"), of
which 1,000 shares are issued and outstanding and are owned solely by Holdings.
All of such outstanding shares have been duly and validly issued, are fully paid
and nonassessable, and have not been issued in violation of any preemptive
rights. Except as set forth in Schedule VII, VIII, X (limited only to the
documents indicated by an asterisk) and XI, on the Initial Borrowing Date,
neither Holdings nor any of its Subsidiaries has outstanding any securities
convertible into or exchangeable for its capital stock or outstanding any rights
to subscribe for or to purchase, or any options for the purchase of, or any
agreements providing the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, its capital stock.
7.15 Subsidiaries. On the Initial Borrowing Date, the corporations,
------------
limited liability companies and partnerships listed on Schedule VIII are the
only Subsidiaries of Holdings. Schedule VIII correctly sets forth, as of the
Initial Borrowing Date, the percentage ownership (direct and indirect) of
Holdings in each class of capital stock (or other equity interests) of each of
its Subsidiaries and also identifies the direct owner thereof.
7.16 Compliance with Statutes, etc. Each of Holdings and its
------------------------------
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statutes, regulations, orders
and restrictions relating to environmental standards and controls and relating
to the prohibition on the corporate practice of medicine), except with respect
to each of the foregoing such noncompliance as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
7.17 Investment Company Act. None of Holdings nor any of its
----------------------
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
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7.18 Public Utility Holding Company Act. None of Holdings nor any of
----------------------------------
its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
7.19 Environmental Matters. (a) Holdings and each of its
---------------------
Subsidiaries is in compliance with, in all respects, all applicable
Environmental Laws and the requirements of any permits issued under such
Environmental Laws except such noncompliances which, in the aggregate, could not
reasonably be expected to have a material adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole. There are no past, pending or, to the best knowledge of
Holdings or the Borrower, threatened material Environmental Claims against
Holdings or any of its Subsidiaries or any Real Property currently owned or
operated by Holdings or any of its Subsidiaries. There are no facts,
circumstances, conditions or occurrences concerning the business or operations
of Holdings or any of its Subsidiaries or any Real Property owned or operated at
any time by Holdings or any of its Subsidiaries or, to the knowledge of Holdings
any property adjoining any such Real Property that could reasonably be expected
(i) to form the basis of an Environmental Claim against Holdings or any of its
Subsidiaries or any Real Property owned or operated by Holdings or any of its
Subsidiaries or (ii) to cause such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such Real
Property under any Environmental Law except such Environmental Claims and
restrictions which individually or in the aggregate could not reasonably be
expected to have a material adverse effect on the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
(b) Neither Holdings nor any of its Subsidiaries has, at any time,
generated, used, treated, stored, transported or released Hazardous Materials
on, to or from any Real Property at any time owned, leased or at any time
operated by Holdings or any of its Subsidiaries, except for such Hazardous
Material of a type and only in a quantity used in the normal course of business
of Holdings or its Subsidiaries (or the physician practices) which Hazardous
Material is being held, stored, used and disposed of in accordance with
applicable law.
(c) To the best knowledge of Holdings, there are not now and never
have been any underground storage tanks located on any Real Property owned or
operated by Holdings or any of its Subsidiaries.
(d) To the best knowledge of Holdings, no Real Property at any time
owned or at any time operated by Holdings or any of its Subsidiaries is located
in any site listed
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on, or proposed in the Federal Register for listing on, the Superfund National
Priorities List, or listed on the Comprehensive Environmental Response
Compensation and Liability Information System or their state equivalent.
7.20 Labor Relations. Neither Holdings nor any of its Subsidiaries
---------------
is engaged in any unfair labor practice that could reasonably be expected to
have a material adverse effect on Holdings and its Subsidiaries taken as a
whole. There is (i) no significant unfair labor practice complaint pending
against Holdings or any of its Subsidiaries or, to the best knowledge of
Holdings or the Borrower, threatened against any of them, before the National
Labor Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against Holdings or any of its Subsidiaries or, to the best knowledge of
Holdings or the Borrower, threatened against any of them and (ii) no significant
strike, labor dispute, slowdown or stoppage pending against Holdings or any of
its Subsidiaries or, to the best knowledge of Holdings or the Borrower,
threatened against Holdings or any of its Subsidiaries.
7.21 Patents, Licenses, Franchises and Formulas. (a) Holdings,
------------------------------------------
together with its Subsidiaries, has a license to use or otherwise has the right
to use, free and clear of pending or threatened Liens, all the material patents,
patent applications, trademarks, service marks, trade names, trade secrets,
copyrights, proprietary information, computer programs, data bases, licenses,
franchises and formulas, or rights with respect to the foregoing (collectively,
"Intellectual Property"), and has obtained all licenses and other rights of
whatever nature, necessary for the present conduct of its business, without any
known conflict with the rights of others which, or the failure to obtain which,
as the case may be, could reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.
(b) Holdings, together with its Subsidiaries, has the right to
practice under and use all of its Intellectual Property.
(c) Neither Holdings nor any of its Subsidiaries has knowledge of any
claim by any third party contesting the validity, enforceability, use or
ownership of the Intellectual Property, or of any existing state of facts that
would support a claim that use by Holdings or any of its Subsidiaries of any
such Intellectual Property has infringed or otherwise violated any Intellectual
Property right of any other Person and that to the best knowledge of Holdings
and its Subsidiaries no claim is threatened except for such claims that could
not individually or in the aggregate reasonably be expected to have a material
adverse affect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
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7.22 Indebtedness. Schedule IX sets forth a true and complete list
------------
of all Indebtedness (other than the Loans and the Senior Subordinated Notes) and
preferred stock of Holdings and each of its Subsidiaries as of the Initial
Borrowing Date after giving effect to the Transaction and the other transactions
contemplated hereby (the "Existing Indebtedness"), in each case showing the
aggregate amount thereof and the name of the respective obligor and any other
entity which directly or indirectly guaranteed such debt. None of the Existing
Indebtedness was incurred in connection with, or in contemplation of, the
Transaction or the other transactions contemplated hereby except to finance the
Pre-Closing Acquisitions.
7.23 Restrictions on or Relating to Subsidiaries. Except as set
-------------------------------------------
forth on Schedule XVIII, there does not exist any encumbrance or restriction on
the ability of (i) any Subsidiary of Holdings to pay dividends or make any other
distributions on its capital stock or any other interest or participation in its
profits owned by Holdings or any Subsidiary of Holdings or to pay any
Indebtedness owed to Holdings or a Subsidiary of Holdings, (ii) any Subsidiary
of Holdings to make loans or advances to Holdings or any of Holdings'
Subsidiaries or (iii) Holdings or any Subsidiary of Holdings to transfer any of
its properties or assets to Holdings or any Subsidiary of Holdings, except for
such encumbrances or restrictions existing under or by reason of (x) applicable
law, (y) this Agreement and the other Credit Documents or (z) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of Holdings or a Subsidiary of the Borrower.
7.24 The Transaction. All aspects of the Transaction have been
---------------
effected in accordance with the Documents and all applicable law. At the time
of consummation thereof, all consents and approvals of, and filings and
registrations with, and all other actions in respect of, all governmental
agencies, authorities or instrumentalities required in order to consummate the
Transaction shall have been obtained, given, filed or taken and are in full
force and effect (or effective judicial relief with respect thereto has been
obtained). All applicable waiting periods with respect thereto have or, prior
to the time when required, will have, expired without, in all such cases, any
action being taken by any competent authority which restrains, prevents or
imposes material adverse conditions upon the consummation of the Transaction.
Additionally, at the time of consummation thereof, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the consummation of the Transaction. The Physician Practice
Groups being acquired pursuant to the Acquisitions have aggregate pro forma
Revenues and EBITDA of at least $46.9 million and $6.2 million, respectively.
The Purchase Price (and the components of such Purchase Price) for each
Acquisition is as set forth in Schedule XVII. All of the pro forma EBITDA
referred to in the second preceding sentence is personally guaranteed by the
selling physicians. Set forth on Schedule XVII are the names of the individuals
providing personal guarantees (the "Personal Guarantees") and a description of
such guarantees. Each of the Personal Guarantees constitute the legal, valid
and binding obligation of each of the guarantors enforceable in accordance with
its terms,
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except as the enforceability thereof may be limited by bankruptcy,
reorganization, moratorium or similar laws relating to creditors' rights
generally or by general equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law).
7.25 Material Contracts. All Material Contracts of Holdings and each
------------------
of its Subsidiaries as of the Initial Borrowing Date are listed on Schedule X.
7.26 Senior Subordinated Notes. The subordination provisions of the
-------------------------
Senior Subordinated Notes and the senior subordinated guaranties relating to
such notes and the subordination provisions of the Other Subordinated Debt are
enforceable against Holdings and its Subsidiaries and the holders thereof, as
the case may be, and the Loans and other Obligations hereunder (including,
without limitation, pursuant to the Guaranties) and obligations arising pursuant
to the Interest Rate Protection or Other Hedging Agreements are within the
definition of "Senior Debt" included in such subordination provisions.
7.27 Defaults. As of the Initial Borrowing Date, neither Holdings
--------
nor any of its Subsidiaries is in, nor has Holdings or any of its Subsidiaries
received any notices alleging any, breach or default by Holdings or any of its
Subsidiaries under any contract with a doctor or medical practice group or under
any other Material Contract.
7.28 Unwind Provisions. Except as set forth on Schedule XI as of the
-----------------
Initial Borrowing Date, neither Holdings nor any of its Subsidiaries is party to
an agreement of any nature which allows any party to such agreement, upon the
happening or non-happening of an event, to repurchase the stock or assets it
sold to Holdings or its Subsidiary in the original sale of such parties medical
practice or put such party in the position or a similar position to that the
party maintained prior to entering into such agreement.
7.29 Practice Management Agreements. As of the Initial Borrowing
------------------------------
Date, all of the Practice Management Agreements or similar agreements with
physicians or physician entities to which Holdings or its Subsidiaries are
directly or indirectly parties to are set forth on Schedule XII. All of the
rights and interest, including the ability to collect proceeds, of Holdings and
its Subsidiaries under the agreements set forth on Schedule XII are assignable
to the Collateral Agent and the Banks, as collateral, without the consent or
approval of any third party.
7.30 Contemporaneous Acquisitions. All of the Acquisitions that the
----------------------------
Borrower or its Subsidiaries will effect on the Initial Borrowing Date are set
forth on Schedule XIV (the "Contemporaneous Acquisitions).
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7.31 Post-Closing Acquisitions. All of the Acquisitions that the
-------------------------
Borrower or its Subsidiaries will effect after the Initial Closing Date with the
proceeds of the Loans or the Senior Subordinated Notes deposited in the Cash
Collateral Account are set forth on Schedule XV (the "Post-Closing
Acquisitions").
7.32 Repurchase Obligations. As of the Initial Borrowing Date, no
----------------------
Material Contract requires Holdings or any of its Subsidiaries to repurchase,
purchase or otherwise acquire or make distributions with respect to, its capital
stock (or with respect to rights, options or warrants with respect to its
capital stock) other than as set forth on Schedule XI.
Section 8. Affirmative Covenants. Each of Holdings and the Borrower
---------------------
covenants and agrees that on and after the Effective Date and until the Total
Commitment and all Letters of Credit have terminated and the Loans, Notes and
Unpaid Drawings, together with interest, Fees and all other Obligations incurred
hereunder and thereunder, are paid in full:
8.01 Information Covenants. The Borrower will furnish to the Agent:
---------------------
(a) Monthly Reports. Within 30 days after the end of each fiscal
---------------
month, the consolidated and consolidating balance sheets of Holdings and
its Subsidiaries as at the end of such month and the related consolidated
and consolidating statements of earnings for such month and for the elapsed
portion of the fiscal year ended with the last day of such month, setting
forth comparative figures for the corresponding month and elapsed portion
of such fiscal year for the prior fiscal year and comparable budgeted
figures for such period, all of which shall be certified by the chief
financial officer or controller of Holdings, subject to normal year-end
audit adjustments and shall be accompanied by a management discussion and
analysis of the results of operations and financial condition with respect
to such period.
(b) Quarterly Financial Statements. Within 45 days after the close
------------------------------
of each of the first three quarterly accounting periods in each fiscal year
of Holdings the consolidated and consolidating balance sheets of Holdings
and its Subsidiaries as at the end of such quarterly period and the related
consolidated and consolidating statements of earnings and stockholders'
equity and statement of cash flows for such quarter, in each case for such
quarterly period and for the elapsed portion of the fiscal year ended with
the last day of such quarterly period, in each case, setting forth
comparative figures for the related periods in the prior fiscal year and
comparable budgeted figures for such period, all of which shall be
certified by the chief financial officer or controller of Holdings, subject
to normal year-end audit
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adjustments and shall be accompanied by a management discussion and
analysis of the results of operations and financial condition with respect
to such period.
(c) Annual Financial Statements. Within 90 days after the close of
---------------------------
each fiscal year of Holdings, the consolidated and consolidating balance
sheets of Holdings and its Subsidiaries as at the end of such fiscal year
and the related consolidated and consolidating statements of earnings and
stockholders' equity and statement of cash flows for such fiscal year and
setting forth comparative figures for the preceding fiscal year and
comparable budgeted figures for such period and certified, (x) in the case
of the consolidating statements, by the chief financial officer of Holdings
and (y) in the case of the consolidated financial statements of Holdings
and its Subsidiaries, by any of the "big six" or other independent
certified public accountants of recognized national standing reasonably
acceptable to the Required Banks, together with a signed opinion of such
accounting firm (which opinion shall not be qualified in any respect)
stating that in the course of its regular audit of the financial statements
of Holdings which audit was conducted in accordance with generally
accepted auditing standards, such accounting firm obtained no knowledge of
any Default or Event of Default which has occurred and is continuing or, if
in the opinion of such accounting firm such a Default or Event of Default
has occurred and is continuing, a statement as to the nature thereof and
shall be accompanied by a management discussion and analysis of the results
of operations and financial condition with respect to such period.
(d) Management Letters. Promptly after the receipt thereof by
------------------
Holdings or any of its Subsidiaries, a copy of any "management letter"
received by Holdings or any of its Subsidiaries from its certified public
accountants.
(e) Budgets. As soon as available but in no event later than 30 days
-------
after the first day of the applicable fiscal year of Holdings, a budget for
Holdings and its Subsidiaries in form customarily prepared by Holdings
(including budgeted statements of earnings, sources and uses of cash, cash
flow statements and balance sheets) prepared by Holdings for each calendar
month of such fiscal year and on an annual basis for the next succeeding
fiscal year prepared in reasonable detail with appropriate presentation and
discussion of the principal assumptions upon which such budgets are based,
accompanied by the statement of the chief financial officer or controller
of Holdings to the effect that, to the best of his knowledge, the budget is
a reasonable estimate for the periods covered thereby.
(f) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Section 8.01(a), (b) and (c), a
certificate of the chief financial officer, chief executive officer,
president or controller of the Borrower to the effect that no Default or
Event of Default has occurred and is continuing or, if
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any Default or Event of Default has occurred and is continuing, specifying
the nature and extent thereof, which certificate, (x) in the case of
certificates delivered pursuant to Section 8.01(b) or (c), shall set forth
the calculations required to establish whether Holdings was in compliance
with the provisions of Sections 3.03, 4.02, 8.15, 9.01, 9.02, 9.04, 9.05,
9.06 and 9.08 through 9.14 inclusive, at the end of such fiscal quarter or
year, as the case may be, and (y) in the case of certificates delivered
pursuant to Section 8.01(c), the amount of Excess Cash Flow for the
relevant Excess Cash Flow Payment Period.
(g) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within two Business Days after an officer of Holdings or any of its
Subsidiaries obtains knowledge thereof, notice of (i) the occurrence of
any event which constitutes a Default or Event of Default, (ii) any
litigation or governmental investigation or proceeding pending (x) against
Holdings or its Subsidiaries which could reasonably be expected to
materially and adversely affect the performance, business, assets, nature
of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole
or (y) with respect to any Document, (iii) any other event which could
reasonably be expected to materially and adversely affect the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole and (iv) any default or breach by Holdings or
any of its Subsidiaries under any contract or agreement with any doctor or
medical practice or any other Material Contract or receipt of any notice of
such default or breach received from any doctor or medical practice or any
party to any other Material Contract.
(h) Other Reports and Filings. Promptly upon transmission thereof,
-------------------------
copies of any financial information, proxy materials and other information
and reports, if any, which the Borrower or any of its Subsidiaries (x) has
filed with the Securities and Exchange Commission (the "SEC ") or (y) has
delivered to holders of, or any agent or trustee with respect to,
Indebtedness of the Borrower or any of its Subsidiaries in its capacity as
such a holder, agent, or trustee.
(i) Environmental Matters. Promptly upon, and in any event within
---------------------
two Business Days after an officer of Holdings or of any of its
Subsidiaries obtaining knowledge thereof, notice of any of the following
environmental matters (i) any pending or threatened material Environmental
Claim against Holdings or any of its Subsidiaries or any Real Property
owned or operated at any time by Holdings or any of its Subsidiaries; (ii)
any condition or occurrence on or arising from any Real Property owned or
operated at any time by Holdings or any of its Subsidiaries that (a) could
reasonably be anticipated to result in a material noncompliance by Holdings
or any of its Subsidiaries with any applicable Environmental Law, or (b)
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could reasonably be anticipated to form the basis of a material
Environmental Claim against Holdings or any of its Subsidiaries or any Real
Property owned or operated by Holdings or any of its Subsidiaries; (iii)
any condition or occurrence on any Real Property owned or operated by
Holdings or any of its Subsidiaries or any property adjoining such Real
Property that could reasonably be anticipated to cause such Real Property
to be subject to any material restrictions on the ownership, occupancy, use
or transferability of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to a material
Release or material threatened Release or the actual or alleged presence of
any Hazardous Material on or from any Real Property owned or operated at
any time by Holdings or any of its Subsidiaries in each case as required by
any Environmental Law or any governmental or other administrative agency.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action
and Holdings or such Subsidiary's response thereto. In addition, Holdings
will provide the Banks with copies of all material communications with any
government or governmental agency relating to material Environmental
Claims, all material communications with any person relating to material
Environmental Claims, and such detailed reports of any Environmental Claim
as may reasonably be requested by the Required Banks.
(j) Annual Meetings with Banks. Within 120 days after the close of
--------------------------
each fiscal year of Holdings, Holdings shall, at the request of the Agent,
hold a meeting (at a mutually agreeable location and time) with all Banks
who choose to attend such meeting at which meeting shall be reviewed the
financial results of the previous fiscal year and the financial condition
of Holdings and its Subsidiaries and the budgets presented for the current
fiscal year of the Holdings and its Subsidiaries.
(k) Borrowing Base Certificates. (i) On the Initial Borrowing Date
---------------------------
and (ii) no later than 11:00 A.M. (New York time) on the thirtieth day
after each calendar month, a borrowing base certificate of the Borrower in
the form of Exhibit K (each a "Borrowing Base Certificate"), with respect
to the Eligible Receivables and Eligible Inventory of the Borrower and its
Subsidiaries as of (x) in the case of clause (i), August 30, 1997 (after
giving effect to the Transaction) and (y) in the case of clause (ii), the
last day of the immediately preceding month, and in all such cases,
certified by the chief financial officer, chief executive officer or
controller of the Borrower.
(l) Other Information. From time to time, such other information or
-----------------
documents (financial or otherwise) with respect to any Credit Party or any
of its Subsidiaries, as the Agent or the Required Banks may reasonably
request.
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8.02 Books, Records and Inspections. Holdings will, and will cause
------------------------------
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries, in conformity with United States generally
accepted accounting principles and all requirements of law, shall be made of all
dealings and transactions in relation to its business and activities. The
Holdings will, and will cause each of its Subsidiaries to, permit officers and
designated representatives of the Agent or any Bank to visit and inspect, under
guidance of officers of Holdings or of such Subsidiary, any of the properties of
Holdings or such Subsidiary, and to examine the books of account of Holdings or
such Subsidiary and discuss the affairs, finances and accounts of Holdings or
of such Subsidiary with, and be advised as to the same by, its and their
officers, all at such reasonable times and intervals and to such reasonable
extent as the Agent or such Bank may request.
8.03 Maintenance of Property, Insurance. (a) Schedule II sets forth
----------------------------------
a true and complete listing of all insurance maintained by Holdings and each of
its Subsidiaries as of the Effective Date. Holdings will, and will cause each
of its Subsidiaries to, (i) keep all material property useful and necessary in
its business in good working order and condition (ordinary wear and tear
excepted), (ii) maintain with financially sound and reputable insurance
companies insurance on all its property in at least such amounts and against at
least such risks as are described on Schedule II, and (iii) furnish to each
Bank, upon written request, full information as to the insurance carried. The
provisions of this Section 8.03 shall be deemed to be supplemental to, but not
duplicative of, the provisions of any of the Security Documents that require the
maintenance of insurance.
(b) Holdings will at all times keep, and will cause each of its
Subsidiaries to keep, its property insured in favor of the Collateral Agent, and
all policies (including mortgage policies) or certificates (or certified copies
thereof) with respect to such insurance (and any other insurance maintained by
Holdings or its Subsidiaries (other than employee benefit insurance)) (i) shall
be endorsed to the Collateral Agent's satisfaction for the benefit of the
Collateral Agent (including, without limitation, by naming the Collateral Agent
as loss payee and naming the Collateral Agent, the Agent and each Bank as an
additional insured) with respect to Collateral, (ii) shall state that such
insurance policies shall not be cancelled or revised without 30 days' prior
written notice thereof by the respective insurer to the Collateral Agent, (iii)
shall provide that the respective insurers irrevocably waive any and all rights
of subrogation with respect to the Collateral Agent, (iv) shall contain the
standard noncontributory mortgagee clause endorsement in favor of the Collateral
Agent with respect to hazard insurance coverage, (v) shall provide that any
losses shall be payable notwithstanding (A) any act or neglect of Holdings or
any of its Subsidiaries, (B) the occupation or use of the properties for
purposes more hazardous than those permitted by the terms of the respective
policy if such coverage is obtainable at commercially reasonable rates and is of
the kind from time to time customarily insured against by Persons owning or
using similar property and in such amounts as are customary, (C) any foreclosure
or other proceeding relating to the insured properties or (D) any change in the
title to or
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ownership or possession of the insured properties and (vi) shall be deposited
with the Collateral Agent. If Holdings or any of its Subsidiaries shall fail to
insure its property in accordance with this Section 8.03, or if Holdings or any
of its Subsidiaries shall fail to endorse and deposit all policies or
certificates with respect thereto, the Collateral Agent shall have the right
(but shall be under no obligation) to procure such insurance and the Borrower
agrees to reimburse the Collateral Agent for all costs and expenses of procuring
such insurance.
8.04 Corporate Franchises. Holdings will do, and will cause each of
--------------------
its Subsidiaries (other than Immaterial Subsidiaries) to do or cause to be done,
all things necessary to preserve and keep in full force and effect its existence
and its rights, franchises, licenses and patents; provided, however, that
-------- -------
nothing in this Section 8.04 shall prevent the withdrawal by Holdings or any
Subsidiary of Holdings of its qualification as a foreign corporation in any
jurisdiction where such withdrawal could not reasonably be expected to have a
material adverse effect on the performance, business, assets, nature of assets,
liabilities, properties, operations, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
8.05 Compliance with Statutes, etc. Holdings will, and will cause
------------------------------
each of its Subsidiaries to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property except such noncompliances as could not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
8.06 Compliance with Environmental Laws. (a) Holdings will comply,
----------------------------------
and will cause each of its Subsidiaries to comply, in all material respects with
all Environmental Laws applicable to ownership or use of the Real Property, will
promptly pay or cause Holdings to pay all costs and expenses incurred in such
compliance, and will keep or cause to be kept all such Real Properties free and
clear of any Liens imposed pursuant to such Environmental Laws. Neither
Holdings nor any Subsidiary of Holdings will generate, use, treat, store,
release or dispose of, or permit the generation, use, treatment, storage,
Release or disposal of Hazardous Materials on any Real Property, or transport or
permit the transportation of Hazardous Materials to or from any Real Property,
other than in compliance with applicable law.
(b) At the request of the Agent or the Required Banks at any time and
from time to time during the existence of this Agreement: (i) if an Event of
Default exists under this Agreement, (ii) upon the reasonable belief by the
Agent that Holdings or any of its Subsidiaries has breached any representation
or covenant herein with respect to any
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environmental matters and such breach is continuing, or (iii) in the event
notice is provided under Section 8.01(i) herein, Holdings will provide, at its
sole cost and expense (or will cause Holdings to provide at its sole cost and
expense), an environmental site assessment report reasonable in scope concerning
any Real Property of Holdings or its Subsidiaries, prepared by an environmental
consulting firm approved by the Agent and the Required Banks, indicating the
presence or Release of Hazardous Materials on or from any of the Real Property
and the potential cost of any removal or remedial action in connection with any
Hazardous Materials on such Real Property. If Holdings fails to provide the
same after thirty days' notice, the Agent may order the same, and Holdings shall
grant and hereby grants to the Agent and the Banks and their agents access to
such Real Property and specifically grants the Agent and the Banks an
irrevocable non-exclusive license, subject to the rights of tenants, to
undertake such an assessment all at Holdings' expense, which assessments, if
obtained, will be provided to Holdings.
8.07 ERISA. As soon as possible and, in any event, within ten (10)
-----
days after Holdings, any Subsidiary of Holdings or any ERISA Affiliate knows or
has reason to know of the occurrence of any of the following, Holdings will
deliver to each of the Banks a certificate of the chief financial officer of
Holdings setting forth the full details as to such occurrence and the action, if
any, that Holdings, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by Holdings, the Subsidiary, the ERISA Affiliate, the PBGC, a
Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred (except to the extent that Holdings has previously
delivered to the Banks a certificate and notices (if any) concerning such event
pursuant to the next clause hereof); that a contributing sponsor (as defined in
Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject
to the advance reporting requirement of PBGC Regulation Section 4043.61 (without
regard to subparagraph (b)(1) thereof), and an event described in subsection
.62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is
reasonably expected to occur with respect to such Plan within the following 30
days; that an accumulated funding deficiency, within the meaning of Section 412
of the Code or Section 302 of ERISA, has been incurred or an application may be
or has been made for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of ERISA
with respect to a Plan; that any contribution required to be made with respect
to a Plan has not been timely made; that a Plan has been or may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA; that a
Plan has an Unfunded Current Liability; that proceedings may be or have been
instituted to terminate or appoint a trustee to administer a Plan which is
subject to Title IV of ERISA; that a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to a Plan; that
Holdings, any Subsidiary of Holdings or any ERISA Affiliate will or may incur
any liability (including any indirect, contingent, or secondary liability) to or
on account of the termination of or withdrawal from a Plan under Section
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4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan
under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or
502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B
of the Code; or that Holdings or any Subsidiary of Holdings may incur any
material liability pursuant to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) that provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan.
Holdings will deliver to each of the Banks (i) a complete copy of the annual
report (on Internal Revenue Service Form 5500-series) of each Plan (including,
to the extent required, the related financial and actuarial statements and
opinions and other supporting statements, certifications, schedules and
information) required to be filed with the Internal Revenue Service and (ii)
copies of any records, documents or other information that must be furnished to
the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In
addition to any certificates or notices delivered to the Banks pursuant to the
first sentence hereof, copies of annual reports and any records, documents or
other information required to be furnished to the PBGC, and any material notices
received by Holdings, any Subsidiary of Holdings or any ERISA Affiliate with
respect to any Plan shall be delivered to the Banks no later than ten (10) days
after the date such annual report has been filed with the Internal Revenue
Service or such records, documents and/or information has been furnished to the
PBGC or such notice has been received by Holdings, the Subsidiary or the ERISA
Affiliate, as applicable.
8.08 End of Fiscal Years; Fiscal Quarters. Holdings will cause its,
------------------------------------
and each of its Subsidiaries', fiscal years to end on December 31 and each of
its, and each of its Subsidiaries', first three fiscal quarters to end on March
31, June 30 and September 30.
8.09 Performance of Obligations. Holdings will, and will cause each
--------------------------
of its Subsidiaries to, perform all of its obligations under the terms of each
mortgage, indenture, security agreement and other debt instrument by which it is
bound, except such non-performances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
8.10 Payment of Taxes. Holdings will pay and discharge, and will
----------------
cause each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties would
otherwise attach thereto, and all lawful claims which, if unpaid, might become a
lien or charge upon any properties of Holdings or any of its Subsidiaries not
otherwise permitted under Section 9.01; provided that neither Holdings nor any
--------
of its Subsidiaries shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by proper
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proceedings if it has maintained adequate reserves with respect thereto in
accordance with generally accepted accounting principles.
8.11 Interest Rate Protection. The Borrower shall no later than 120
------------------------
days following the Initial Borrowing Date enter into arrangements acceptable to
the Agent establishing a fixed or maximum interest rate acceptable to the Agent
for an aggregate notional amount of at least 50% of the principal amount of the
Borrower's Term Loans outstanding on such date for a period of at least three
years. The Borrower shall no later than 180 days following each drawing under
the Acquisition Loan Facility and each drawing under the Term Loan Facility
enter into arrangements reasonably acceptable to the Agent establishing a fixed
or maximum interest rate acceptable to the Agent for an aggregate notional
amount of at least 50% of the outstanding principal amount of the Borrower's
Acquisition Loans and additional Term Loans (after giving effect to such
borrowing) for a period of at least three years.
8.12 Use of Proceeds. All proceeds of the Loans shall be used as
---------------
provided in Section 7.08.
8.13 UCC Searches. At the request of the Agent, Holdings shall
------------
deliver to the Agent (at the Borrower's own cost) copies of Request for
Information or Copies (UCC-11), or equivalent reports for the purpose of
verifying that all financing statements necessary or, in the opinion of the
Collateral Agent reasonably desirable, to perfect the security interests
purported to be created by the Security Agreement shall have been properly
recorded and filed.
8.14 Intellectual Property Rights. Holdings will, and will cause
----------------------------
each of its Subsidiaries to, make all filings in connection with the transfer of
the Intellectual Property rights in the Acquisitions. Holdings will, and will
cause each of its Subsidiaries to, maintain in full force and effect any and all
Intellectual Property rights necessary or appropriate to the business of
Holdings or any Subsidiary of Holdings and take no action (including, without
limitation, the licensing of Intellectual Property), or fail to take an action,
as the case may be, in connection with such Intellectual Property rights which
could reasonably be expected to result in a material adverse effect on the
performance, business, assets, nature of assets, liabilities, properties,
operations, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole. Holdings will, and will cause each of its
Subsidiaries to, diligently prosecute any and all pending applications filed in
connection with seeking or seeking to perfect the Intellectual Property rights
and take all other reasonable actions necessary for the protection and
maintenance of the Intellectual Property rights necessary or appropriate to the
business of Holdings or any Subsidiary of Holdings at all times from and after
the Initial Borrowing Date other than any such actions the failure of which, in
the aggregate, could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations,
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properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
8.15 Permitted Acquisitions and Repayment of DVI Indebtedness. (a)
--------------------------------------------------------
Subject to the remaining provisions of this Section 8.15 applicable thereto and
the requirements contained in the definition of Permitted Acquisition, the
Borrower and its Subsidiaries may from time to time after the Initial Borrowing
Date effect Permitted Acquisitions or repay the DVI Indebtedness, so long as
with respect to each Permitted Acquisition and the repayment of the DVI
Indebtedness, to the extent provided below:
(i) no Default or Event of Default or default or event of
default under the Senior Subordinated Notes is in existence at the time of
the consummation of such Permitted Acquisition or repayment of the DVI
Indebtedness or would exist after giving effect thereto, all
representations and warranties contained herein and in the other Credit
Documents shall be true and correct in all material respects with the same
effect as though such representations and warranties were made on and as of
the date of such Permitted Acquisition or date of repayment of the DVI
Indebtedness (both before and after giving effect thereto) and no other
agreement, contract or instrument to which the Borrower or any of its
Subsidiaries is a party restricts such Permitted Acquisition or repayment
of DVI Indebtedness;
(ii) the Borrower shall have given the Agent and the Banks at
least 30 days (or ten Business Days, in the case of clause (s) below) prior
written notice of any such Permitted Acquisition (each such notice, a
"Permitted Acquisition Notice") or proposed repayment of the DVI
Indebtedness, which notice shall (r) contain the estimated date such
Permitted Acquisition is scheduled to be consummated or date of repayment
of the DVI Indebtedness, (s) attach a true and correct copy of the draft
purchase agreement, letter of intent, description of material terms or
similar agreement executed by the Borrower or one of its Subsidiaries and
the seller in connection with such Permitted Acquisition, (t) contain the
estimated aggregate purchase price of such Permitted Acquisition and the
amount of related costs and expenses and the intended method of financing
thereof, (u) contain the estimated amount of Acquisition Loans required to
effect such Permitted Acquisition, (v) contain a description of any
Permitted Earn-Out Debt or Permitted Seller Notes to be incurred by
Holdings in connection with such Permitted Acquisition and the maximum
potential liability of Holdings with respect thereto, and (w) contain a
description of the Permitted Equity Issuances to be effected by Holdings in
connection with such Permitted Acquisition;
(iii) the Borrower shall have provided the Banks with all
information provided to its Board of Directors or any of its shareholders
with respect to such Permitted Acquisition, including without limitation,
all information required
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pursuant to the Securities Purchase Agreement and such other information
related to the Person or business, division or product line being acquired
and the Permitted Acquisition as the Agent shall reasonably request,
including without limitation expert reports prepared by such accounting,
environmental, and/or other experts as the Agent shall reasonably request;
(iv) (I) as soon as available but not less than the earlier of
three days after the execution thereof, a copy of the executed purchase
agreement and all related agreements, schedules and exhibits with respect
to such Permitted Acquisition and (II) at the time of delivery of the
purchase agreement, certification from the Borrower as to the purchase
price for the acquisition and the estimated amount of all related costs,
fees and expenses and that, except as described, there are no other amounts
which will be payable in connection with the respective Permitted
Acquisition;
(v) with respect to the Permitted Acquisitions effected during
any twelve month period, the sum (without duplication) of (I) Acquisition
Loans incurred by the Borrower, (II) the fair market value (as determined
in good faith by the Board of Directors of Holdings) of Holdings Common
Stock issued as consideration in such Permitted Acquisitions, (III) the
aggregate amount (determined by using the face amount of the debt or the
amount payable at maturity, whichever is greater) of Permitted Seller Notes
issued by Holdings in connection with such Permitted Acquisitions and (IV)
the maximum potential liability of Holdings with respect to all Permitted
Earn-Out Debt issued in connection with such Permitted Acquisitions, shall
not exceed $15,000,000 during any twelve month period with the first such
period commencing on the Initial Borrowing Date;
(vi) calculations are made by the Borrower of the Consolidated
EBITDA of the Person or business, division or product line being acquired
pursuant to the respective Permitted Acquisition (determined in accordance
with the definition of Consolidated EBITDA contained herein, but treating
references therein and in any other defined terms used in determining
Consolidated EBITDA to "Holdings" to instead be references to the Person or
business, division or product line being acquired pursuant to the
respective Permitted Acquisition), and the amount thereof shall exceed zero
for the period of four consecutive fiscal quarters (taken as one accounting
period) most recently ended prior to the date of the Permitted Acquisition
(the "Calculation Period"); provided, however, in the case of calculations
-------- -------
based on financial statements not audited by a "big-six accounting firm" or
other nationally recognized accounting firm reasonably acceptable to the
Agent, the Agent and the Required Banks shall be satisfied that the
Consolidated EBITDA of such Person or business, division or product line
being acquired pursuant to the respective Permitted Acquisition exceeds
zero for the Calculation Period;
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(vii) the Agent shall be satisfied in its reasonable discretion
that the proposed Permitted Acquisition will not be reasonably likely to
result in materially increased liabilities (contingent or otherwise) of
Holdings or any of its Subsidiaries other than Permitted Seller Notes and
Permitted Earn-Out Debt incurred in accordance with the provisions of this
Agreement (including, without limitation, tax, ERISA or environmental
liabilities);
provided that, so long as the Permitted Acquisition Notice has been given
--------
as required above and so long as Holdings has furnished each Bank,
following request by the Agent, information with respect to liabilities of
the type described in this clause with all information so requested, if the
Agent has not notified the Borrower on or prior to the tenth day prior to
the consummation of the Permitted Acquisition that Agent has not yet been
satisfied that the proposed Permitted Acquisition would not be reasonably
likely to result in materially increased liabilities of the Borrower or any
of its Subsidiaries, such Bank shall be deemed for purposes of this clause
(vii) to be so satisfied;
(viii) in the case of both Permitted Acquisitions and repayment
of DVI Indebtedness, after giving effect to any additional indebtedness to
be incurred in connection therewith and, in the case of Permitted
Acquisitions only, the Consolidated EBITDA of the Person or business,
division or product line being acquired pursuant to the respective
Permitted Acquisition determined in accordance with clause 8.15(a)(vi)
above for the Calculation Period, (I) the ratio of Consolidated
Indebtedness on the last day of the Calculation Period to Consolidated
EBITDA of Holdings and its Subsidiaries for the Calculation Period, on a
Pro Forma Basis shall be equal to or less than 3.50:1 and (II) the ratio of
Consolidated Senior Indebtedness on the last day of the Calculation Period
to Consolidated EBITDA of Holdings and its Subsidiaries for the Calculation
Period, on a Pro Forma Basis shall be equal to or less than the lesser of
2.50:1;
(ix) in the case of both Permitted Acquisitions and repayment
of DVI Indebtedness, recalculations are made by the Borrower of compliance
with the covenants contained in Sections 9.09 through 9.13, inclusive, for
the Calculation Period in a Pro Forma Basis, and such recalculations shall
show that all such covenants would have been complied with throughout the
Calculation Period on a Pro Forma Basis;
(x) in the case of both Permitted Acquisitions and repayment
of DVI Indebtedness, the Borrower in good faith believes, on a Pro Forma
Basis (as if the Calculation Period were the one-year period following the
date of the consummation of the respective Permitted Acquisition) that the
financial covenants contained in such Sections 9.09 through 9.13,
inclusive, will continue to be met for the one year period following the
date of the consummation of the respective Permitted Acquisition;
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(xi) in the case of a repayment of the DVI Indebtedness, the
consent of the Required Banks shall have been obtained; provided, however,
-------- -------
this restriction shall not prevent any mandatory payments on the DVI
Indebtedness from sources other than Term Loans;
(xii) in the case of Permitted Acquisitions, the purchase price
for any Permitted Acquisition may not exceed ten times the Consolidated
EBITDA of the Person or business, division or product line being acquired
for the Calculation Period;
(xiii) in the case of Permitted Acquisitions, the Borrower shall
not draw more than $2 million from the Acquisition Loan Facility to be used
to purchase any one Person or business, division or product line;
(xiv) in the case of Permitted Acquisitions, the sum of the
items described in clauses (I) - (IV) of Section 8.15(a)(v) in connection
with each Permitted Acquisition shall not exceed $5 million;
(xv) with respect to the Permitted Acquisitions effected
during a twelve month period, the Borrower shall not draw more than $7
million from the Acquisition Loan Facility during any twelve month period;
(xvi) the aggregate amount (determined by using the face amount
of the debt or the amount payable at maturity, whichever is greater) of
Permitted Seller Notes and Permitted Earn-Out Debt issued by Holdings after
the date hereof shall not exceed $19.5 million and (A) such Indebtedness
shall have an average maximum current pay interest of no more than 8% per
annum, with no single item of Indebtedness bearing interest at a rate
greater than 10% per annum, (B) no single item of Indebtedness shall have a
final maturity of less than two years and (C) all such Indebtedness shall
have an average weighted-life to maturity of not less than 2.5 years.
(xvii) in the case of Permitted Acquisitions, the Borrower shall
only include for any Person or business, division or product line acquired,
100% of audited financial statement based Consolidated EBITDA calculated on
a Pro Forma Basis and 75% of personally guaranteed unaudited financial
statement based Consolidated EBITDA calculated on a Pro Forma Basis with
respect to calculation made in connection with the covenants contained in
this Section 8.15 and Sections 9.09 through 9.13, inclusive; and
(xviii) prior to the consummation of the respective Permitted
Acquisition or repayment of DVI Indebtedness, as the case may be, the
Borrower shall furnish
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the Agent and the Banks an officer's certificate executed by the chief
financial officer of Holdings, certifying as to compliance with the
requirements of the applicable preceding clauses (i) through (xvii) and
containing the calculations required by preceding clauses (v), (vi),
(viii), (ix), (xii), (xiv), (xv) and (xvi). The consummation of each
Permitted Acquisition or the repayment of the DVI Indebtedness, as the case
may be, shall be deemed to be a representation and warranty by Holdings
that all conditions thereto have been satisfied and that same is permitted
in accordance with the terms of this Agreement, which representation and
warranty shall be deemed to be a representation and warranty for all
purposes hereunder, including, without limitation, Sections 6 and 10;
(b) At the time of each Permitted Acquisition involving the creation
or acquisition of a Subsidiary, not less than 100% of the capital stock of such
Subsidiary shall be directly owned by the Borrower and such 100% owned by the
Borrower shall be pledged for the benefit of the Secured Creditors pursuant to
the Pledge Agreement or pursuant to a similar agreement satisfactory to the
Agent; provided, however, for up to three (3) Business Day after such Permitted
-------- -------
Acquisition, Holdings may own such Subsidiary.
(c) The Borrower shall cause each Subsidiary which is formed to
effect, or is acquired pursuant to, a Permitted Acquisition to execute and
deliver, prior to the date of the respective Permitted Acquisition, the
Subsidiaries Guaranty (or by an amendment thereto pursuant to which it shall be
a party thereto) or a substantially similar guaranty, in either case with the
documentation to be in form and substance satisfactory to the Agent.
(d) The Borrower shall on the date of a Permitted Acquisition cause
the respective Subsidiary of the Borrower to, grant to the Collateral Agent, for
the benefit of the Secured Creditors, first priority perfected security
interests in all property of the Borrower or such Subsidiaries (whether real,
personal or otherwise) acquired in connection with the Permitted Acquisition and
to take, or cause such Subsidiary to take, all actions requested by the Agent or
the Required Banks (including, without limitation, the obtaining of UCC-11's,
the filing of UCC-1's and the obtaining of mortgage policies, title surveys and
real estate appraisals) in connection with the granting of such security
interests. All security interests required to be granted pursuant to this
Section 8.15(d) shall be granted pursuant to such security documentation (which
shall be substantially similar to the analogous Security Documents already
executed and satisfactory in form and substance to the Agent) and shall (except
as otherwise consented to by the Agent and the Required Banks) constitute valid
and enforceable perfected security interests prior to the rights of all third
Persons and subject to no other Liens except Permitted Liens. The security
documents and other instruments related thereto shall be duly recorded or filed
in such manner and in such places as are required by law to establish, perfect,
preserve and protect the Liens, in favor of the Collateral Agent for the benefit
of the Secured Creditors, required to be granted pursuant to the respective
Additional Security Documents and all taxes, fees
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and other charges payable in connection therewith shall be paid in full by the
Borrower. At the time of the execution and delivery of Additional Security
Documents, the Borrower shall cause to be delivered to the Collateral Agent such
opinions of counsel, mortgage policies, environmental appraisals, surveys and
other related documents as may be reasonably requested by the Collateral Agent
or the Required Banks to assure themselves that this Section has been complied
with. All actions required to be taken by this Section 8.15(d) with respect to
the Additional Collateral shall be completed no later than the date on which the
Permitted Acquisition is effected.
8.16 Registry. The Borrower hereby designates the Agent to serve as
--------
the Borrower's agent, solely for purposes of this Section 8.16, to maintain a
register (the "Register") on which it will record the Commitments from time to
time of each of the Banks, the Loans made by each of the Banks and each
repayment in respect of the principal amount of the Loans of each Bank. Failure
to make any such recordation, or any error in such recordation shall not affect
the Borrower's obligations in respect of such Loans. With respect to any Bank,
the transfer of the Commitments of such Bank and the rights to the principal of,
and interest on, any Loan made pursuant to such Commitments shall not be
effective until such transfer is recorded on the Register maintained by the
Agent with respect to ownership of such Commitments and Loans and prior to such
recordation all amounts owing to the transferor with respect to such Commitments
and Loans shall remain owing to the transferor. The registration of an
assignment or transfer of all or part of any Commitments and Loans shall be
recorded by the Agent on the Register only upon the acceptance by the Agent of a
properly executed and delivered assignment and assumption agreement pursuant to
Section 14.04(b). Coincident with the delivery of such an assignment and
assumption agreement to the Agent for acceptance and registration of assignment
or transfer of all or part of a Loan, or as soon thereafter as practicable, the
assigning or transferor Bank shall surrender the Note evidencing such Loan, and
thereupon one or more new Notes in the same aggregate principal amount shall be
issued to the assigning or transferor Bank and/or the new Bank. The Borrower
agrees to indemnify the Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Agent in performing its duties under this Section
8.16.
8.17 Further Actions. (a) Each Credit Party shall grant to the
---------------
Collateral Agent, for the benefit of the Secured Creditors, at the request of
the Agent or the Required Banks, at any time, a security interest in any Real
Property or vehicles owned by any such Credit Party and any other assets of such
Credit Party not already subject to a Mortgage or other Security Document. Each
Credit Party shall take all actions requested by the Agent or the Required Banks
(including, without limitation, the obtaining of mortgage policies, title
surveys and real estate appraisals satisfying the requirements of all applicable
laws) in connection with the granting of such security interests; provided,
--------
however, in no event shall the Agent or the Required Banks request a security
- -------
interest in any Leaseholds
-72-
<PAGE>
unless the Agent or the Required Banks has reasonably determined that such
Leasehold has material value.
(b) The security interests required to be granted pursuant to clause
(a) above shall be granted pursuant to mortgages, deeds of trust and security
agreements, in each case satisfactory in form and substance to the Agent and the
Required Banks, which mortgages and security agreements shall create valid and
enforceable perfected security interests prior to the rights of all third
Persons and subject to no other Liens except Permitted Liens. The mortgages and
other instruments related thereto and security agreements shall be duly recorded
or filed in such manner and in such places and at such times as are required by
law to establish, perfect, preserve and protect the Liens, in favor of the
Collateral Agent for the benefit of the Secured Creditors, required to be
granted pursuant to such documents and all taxes, fees and other charges payable
in connection therewith shall be paid in full by the Borrower. At the time of
the execution and delivery of the additional documents, the Borrower shall cause
to be delivered to the Collateral Agent such opinions of counsel, mortgage
policies, title surveys, real estate appraisals, certificates of title and other
related documents as may be reasonably requested by the Agent or the Required
Banks to assure themselves that this Section 8.17 has been complied with.
(c) Each Credit Party agrees that each action required by Section
8.17(a), or (b) shall be completed within 60 days of the date such action is
requested to be taken.
8.18 Concentration Account. Within ninety days after the Initial
---------------------
Borrowing Date, Holdings shall, and shall have caused each of its Subsidiaries
to, have duly authorized, executed and delivered a Concentration Account Consent
Letter in such form as approved by the Collateral Agent (each as modified,
amended or supplemented from time to time in accordance with the terms thereof
and hereof, a "Concentration Account Consent Letter") with the Collateral Agent
and the Concentration Account Bank, acknowledging that the Concentration Account
listed on a notice sent by Holdings or any of its Subsidiaries to the Collateral
Agent at the time of creation of such account maintained at the Concentration
Account Bank is under the exclusive dominion and control of the Collateral Agent
and that all moneys, instruments and other securities deposited in such
Concentration Account are to be held by the Concentration Account Bank for the
benefit of the Collateral Agent subject to the right of the account parties to
utilize such deposited amounts in accordance with the Concentration Deposit
Account Consent Letter. Each of Holdings and its Subsidiaries represents and
warrants that it does not now maintain, and will not in the future maintain, any
other Concentration Account with any Concentration Account Bank other than the
applicable Concentration Account; provided, however, that Holdings and its
-------- -------
Subsidiaries shall be permitted to establish new Concentration Accounts pursuant
to the terms of the Security Agreement.
-73-
<PAGE>
8.19 Subsidiary Metroplex Note. In connection with any payment with
-------------------------
respect to the Subsidiary Metroplex Note, Holdings shall make the necessary
requests under the Equity Call Agreement in order to obtain all funds necessary
to make such payment from the shareholders of Holdings party to the Equity Call
Agreement unless the funds necessary to make such payment consist of Excluded
Public Offering Proceeds; provided, however, in the event that Holdings does not
-------- -------
make the necessary requests under the Equity Call Agreement, then the Agent
shall be entitled to make such request.
8.20 Assignment of Practice Management Agreement. Holdings will, and
-------------------------------------------
will cause each of its Subsidiaries a party to any agreement set forth on
Schedule XII to, assign all rights and interest, including the ability to
collect proceeds, that it may have under such agreements to the Collateral Agent
for the benefit of the Secured Creditors pursuant to the Security Agreement.
8.21 Corporate Separateness. Holdings and each of its Subsidiaries
----------------------
will take all such action as is necessary to keep the operations of each such
Person separate and apart from those of each such other Person, including,
without limitation, ensuring that all customary corporate formalities, including
the maintenance of corporate records and holding regular meetings of
shareholders and directors are followed. None of Holdings or any of its
Subsidiaries shall take any action, or conduct its affairs in a manner, which is
likely to result in the corporate existence of Holdings or any of its
Subsidiaries being disregarded, or in the assets and liabilities of Holdings or
any of its Subsidiaries being substantively consolidated with those of Holdings
or any of its Subsidiaries in a bankruptcy, reorganization or other insolvency
proceeding.
8.22 MHOA Pledged Securities. Immediately following the repayment of
-----------------------
the DVI Indebtedness and the DVI Revolver, the applicable Credit Parties shall
duly authorize, execute and deliver a Pledge Agreement substantially in the form
of Exhibit G-2 and shall deliver to the Collateral Agent, as Pledgee thereunder,
all of the Pledged Securities referred to therein then owned by Holdings and
each Subsidiary of Holdings together with executed and undated irrevocable stock
powers.
Section 9. Negative Covenants. Holdings hereby covenants that on and
------------------
after the Effective Date and until the Total Commitment and all Letters of
Credit have terminated and the Loans, Notes and Unpaid Drawings, together with
interest, Fees and all other Obligations incurred hereunder and thereunder, are
paid in full:
9.01 Liens. Holdings will not, and will not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or
sell any such property or assets subject to an
-74-
<PAGE>
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable with recourse to Holdings or
any of its Subsidiaries), or assign any right to receive income or permit the
filing of any financing statement under the UCC or any other similar notice of
Lien under any similar recording or notice statute; provided that the provisions
--------
of this Section 9.01 shall not prevent Holdings or any of its Subsidiaries from
creating, incurring, assuming or permitting the existence of the following
(liens described below are herein referred to as "Permitted Liens"):
(i) inchoate Liens with respect to Holdings or any of its
Subsidiaries for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves have
been established in accordance with generally accepted accounting
principles;
(ii) Liens in respect of property or assets of the Borrower or
any of its Subsidiaries imposed by law, which were incurred in the ordinary
course of business and do not secure Indebtedness for borrowed money, such
as carriers', ware housemen's, materialmen's, mechanics' and landlords'
liens and other similar Liens arising in the ordinary course of business,
and (x) which do not in the aggregate materially detract from the value of
the Borrower's or any of its Subsidiaries' property or assets or materially
impair the use thereof in the operation of the business of the Borrower or
its Subsidiaries or (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the property or assets subject to any such Lien;
(iii) Liens of the Borrower or its Subsidiaries in existence on
the Effective Date which are listed, and the property subject thereto
described, on Schedule XVI, but only to the respective dates, if any, set
forth in such Schedule XVI for the removal and termination of any such
Liens;
(iv) inchoate Liens (where there has been no execution or levy
and no pledge or delivery of collateral) arising from and out of judgments
or decrees in existence at such time not constituting an Event of Default;
(v) Liens created pursuant to the Security Documents;
(vi) easements, rights-of-way, restrictions, covenants,
encroachments and other similar charges or encumbrances on the property of
Holdings or any of its Subsidiaries arising in the ordinary course of
business and not materially interfering with the conduct of the business of
Holdings or any of its Subsidiaries;
(vii) Liens on property of the Borrower and its Subsidiaries
subject to, and securing only, Capitalized Lease Obligations to the extent
such Capitalized
-75-
<PAGE>
Lease Obligations are permitted by Section 9.05(iii); provided that such
--------
Liens only serve to secure the payment of Indebtedness arising under such
Capitalized Lease Obligation and the Lien encumbering the asset giving rise
to the Capitalized Lease Obligation does not encumber any other asset of
Holdings or any of its Subsidiaries;
(viii) Liens (other than any Lien imposed by ERISA) on property
of Holdings or any of its Subsidiaries incurred or deposits made in the
ordinary course of business in connection with (x) workers' compensation,
unemployment insurance and other types of social security or (y) to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money); provided that the aggregate
--------
amount of cash and the fair market value of the property encumbered by
Liens described in this clause (viii)(y) shall not exceed $100,000;
(ix) Liens placed upon equipment or machinery used in the
ordinary course of the business of the Borrower or any of its Subsidiaries
within 60 days following the time of purchase thereof by the Borrower or
any of its Subsidiaries and improvements and accretions thereto to secure
Indebtedness incurred to pay all or a portion of the purchase price thereof
or any Indebtedness incurred to refinance such Indebtedness, provided that
--------
(x) the aggregate principal amount of all Indebtedness secured by Liens
permitted by this clause (ix) does not exceed at any one time outstanding
the amounts permitted pursuant to 9.05 (iii) with respect to all machinery
and equipment and (y) in all events, the Lien encumbering the equipment or
machinery so acquired and improvements and accretions thereto does not
encumber any other asset of Holdings or any of its Subsidiaries;
(x) Liens arising from precautionary UCC-1 financing statement
filings regarding operating leases entered into by Holdings or any of its
Subsidiaries in the ordinary course of business; and
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc.
-------------------------------------------------------
Holdings will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets, or enter into any partnerships, joint ventures or sale-leaseback
transactions, or purchase or otherwise acquire (in one or a series of related
transactions) any part of the property or assets (other than purchases or other
acquisitions by the Borrower or any of its Subsidiaries of inventory, materials
and equipment in the ordinary course of business) of any Person, except that:
-76-
<PAGE>
(i) Capital Expenditures by the Borrower and its Subsidiaries
shall be permitted to the extent not in violation of Section 9.08;
(ii) the Borrower and its Subsidiaries may sell assets so long
as the aggregate amount of Net Sale Proceeds from such sales pursuant to
this clause (ii) in any one fiscal year does not exceed $600,000;
(iii) each of Holdings and its Subsidiaries may lease (as
lessee) real or personal property to the extent permitted by Sections 9.04
and 9.08;
(iv) investments may be made to the extent permitted by
Section 9.06;
(v) each of the Borrower and its Subsidiaries may make sales
of inventory in the ordinary course of business;
(vi) the Transaction shall be permitted as contemplated by the
Documents;
(vii) Permitted Acquisitions may be effected in accordance with
the requirements of Section 8.15;
(viii) Dividends permitted under Section 9.03 shall be permitted
hereunder; and
(ix) the Designated Assets shall be permitted to be resold to
the original sellers thereof pursuant to, and in accordance with, the
repurchase provisions of the Designated Agreements.
To the extent the Required Banks waive the provisions of this Section 9.02 with
respect to the sale of any Collateral (to the extent the Required Banks are
permitted to waive such provisions in accordance with Section 14.12), or any
Collateral is sold as permitted by this Section 9.02, such Collateral shall be
sold free and clear of the Liens created by the Security Documents, and the
Agent and Collateral Agent shall be authorized to take any actions deemed
appropriate in order to effect the foregoing.
9.03 Dividends. Holdings will not, nor will Holdings permit any
---------
of its Subsidiaries to, declare or pay any Dividends with respect to Holdings or
any of its Subsidiaries, except that any Subsidiary of the Borrower may pay
Dividends to the Borrower or any Wholly-Owned Subsidiary of the Borrower (other
than Immaterial Subsidiaries) and the Borrower may pay Dividends to Holdings (a)
with the proceeds of Acquisition Loans so long as contemporaneously with its
receipt thereof, Holdings uses such proceeds to effect Permitted Acquisitions
and (b) with the proceeds of the Senior
-77-
<PAGE>
Subordinated Notes so long as contemporaneously with its receipt thereof,
Holdings uses such proceeds to repay amounts owing with respect to the Company
Metroplex Notes.
9.04 Leases. Holdings will not incur any expense (including, without
------
limitation, any property taxes paid as additional rent or lease payments) under
any agreement to rent or lease any real or personal property (or any extension
or renewal thereof) (excluding Capitalized Lease Obligations) and Holdings will
not permit the aggregate expense (including, without limitation, any property
taxes paid as additional rent or lease payments) incurred by Holdings and its
Subsidiaries on a consolidated basis under any agreement to rent or lease any
real or personal property (or any extension or renewal thereof) (excluding
Capitalized Lease Obligations) to exceed $4 million for the period commencing on
the Initial Borrowing Date and ending on December 31, 1997 or to exceed $8
million for fiscal year 1998, $10 million for fiscal year 1999, $12 million for
fiscal year 2000 and $14 million for any fiscal year thereafter.
9.05 Indebtedness. Holdings will not, and will not permit any of its
------------
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(ii) Indebtedness of the Borrower or any of its Subsidiaries
under any Interest Rate Protection or Other Hedging Agreement or under any
similar type of agreement to the extent such is entered into to satisfy the
requirements of Section 8.11;
(iii) Indebtedness of the Borrower and its Subsidiaries
evidenced by Capitalized Lease Obligations incurred to the extent permitted
pursuant to Section 9.08 and Indebtedness secured by Liens permitted by
Section 9.01(ix); provided that the aggregate amount of Indebtedness
--------
evidenced by Capitalized Lease Obligations under all Capital Leases when
aggregated with the amount of Indebtedness secured by Liens permitted by
Section 9.01(ix) (I) incurred during any one year shall not exceed $1
million (except for 1998 when it shall not exceed $1.25 million) and (II)
outstanding at any one time shall not exceed $5 million plus the amounts
outstanding on the Initial Borrowing Date as set forth on Schedule XIX;
(iv) Existing Indebtedness of Holdings or any of its
Subsidiaries listed on Schedule IX but without giving effect to any
refinancing, renewal or extension in the principal amount thereof or
drawing of funds under the DVI Revolver;
-78-
<PAGE>
(v) Indebtedness of Holdings evidenced by Permitted Seller
Notes or constituting Permitted Earn-Out Debt issued in amounts not to
exceed, and in accordance with, the requirements of Section 8.15;
(vi) The Borrower or any of its Wholly-Owned Subsidiaries may
make intercompany loans to any domestic Wholly-Owned Subsidiaries of the
Borrower (other than Immaterial Subsidiaries), provided that such loans are
evidenced by an intercompany master note in form and substance satisfactory
to the Agent and such note is pledged to the Collateral Agent for the
benefit of the Secured Creditors pursuant to the Pledge Agreement; and
(vii) Indebtedness evidenced by the Senior Subordinated Notes in
an aggregate principal amount originally issued not to exceed $9,000,000;
provided, however, up to an additional $6,000,000 of additional Senior
Subordinated Notes shall be permitted to be issued so long as both before
and after giving effect to such issuance there shall exist no Default or
Event of Default and so long as the interest rate applicable to such notes
does not exceed 14%.
9.06 Advances, Investments and Loans. Holdings will not, and
-------------------------------
will not permit any of its Subsidiaries to, directly or indirectly lend money or
credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents, except that the following shall be permitted:
(i) the Borrower and its Subsidiaries (other than Immaterial
Subsidiaries) may acquire and hold receivables owing to any of them
(including, without limitation, through the indirect acquisition thereof
through a security interest), if created or acquired in the ordinary course
of business and payable or dischargeable in accordance with customary
terms;
(ii) the Borrower and its Subsidiaries may acquire and hold cash
and Cash Equivalents; provided that all such cash or Cash Equivalents shall
--------
be held by the Borrower or such Subsidiary in the Concentration Account in
accordance with the terms of the Concentration Account Consent Letter
except Subsidiaries of the Borrower may maintain cash in bank accounts of
each such Subsidiary so long as the aggregate amount contained in all
accounts of the Subsidiaries does not exceed one million dollars and;
provided further, that at any time that any Revolving Loans or Swingline
----------------
Loans are outstanding, the aggregate amount of cash and Cash Equivalents
permitted to be held by Holdings and its Subsidiaries shall not exceed
$3,500,000 for any period of five consecutive days;
-79-
<PAGE>
(iii) the Borrower may enter into interest rate protection
agreements to the extent such is entered into to satisfy the requirements
of Section 8.11;
(iv) the Borrower and its Subsidiaries may make Capital
Expenditures to the extent permitted by Section 9.08;
(v) the Transaction shall be permitted in accordance with the
provisions of Section 5;
(vi) the Borrower and its Subsidiaries may endorse negotiable
instruments for collection in the ordinary course of business;
(vii) the Borrower and its Subsidiaries may make loans and
advances in the ordinary course of business consistent with past practices
to their respective employees for moving, travel and emergency expenses and
other similar expenses and may make advances to doctors for the purpose of
allowing the doctors to make tax payments, so long as the aggregate
principal amount thereof at any one time outstanding (determined without
regard to any write-downs or write-offs of such loans and advances) shall
not exceed $500,000; and
(viii) the Borrower or any Wholly-Owned Subsidiary may make
intercompany loans permitted pursuant to Section 9.05(vi).
9.07 Transactions with Affiliates. Holdings will not, and will
----------------------------
not permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of Holdings or any Affiliate of Holdings' Subsidiaries unless (a)
such transaction or series of related transactions is in writing and on terms
that are no less favorable to Holdings or such Subsidiary, as the case may be,
than those that would be available in a comparable transaction in arm's-length
dealings with an unrelated third party, (b) with respect to any transaction or
series of related transactions involving aggregate value in excess of $50,000,
Holdings delivers an officers' certificate to the Agent certifying that such
transaction or series of related transactions complies with clause (a) above and
such transaction or series of related transactions has been approved by a
majority of the disinterested members of the board of directors of Holdings and
(c) with respect to any transaction or series of related transactions involving
aggregate payments in excess of $500,000, such transaction or series of related
transactions has been approved by the disinterested directors of Holdings (or in
the event there is only one disinterested director, by such disinterested
director) and Holdings delivers to the Agent a written opinion of an investment
banking firm of national standing or other recognized independent expert with
experience appraising the terms and conditions of the type of transaction or
series of related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to Holdings
-80-
<PAGE>
or such Subsidiary from a financial point of view; except that (i) Holdings and
its Subsidiaries may effect the Transaction, and (ii) loans and advances made in
accordance with Section 9.06(vii) shall be permitted.
9.08 Capital Expenditures. (a) Holdings will not and will not
--------------------
permit any of its Subsidiaries to, make any expenditure for fixed or capital
assets (including, without limitation, expenditures for maintenance and repairs
which should be capitalized in accordance with generally accepted accounting
principles and including Capitalized Lease Obligations) (collectively, "Capital
Expenditures"), except that (x) during the period (taken as one accounting
period) commencing on November 1, 1997 and ending on December 31, 1997 the
Borrower and its Subsidiaries may make Capital Expenditures (other than in
connection with Permitted Acquisitions) so long as the aggregate amount thereof
does not exceed the greater of (x) the amount permitted pursuant to the
Securities Purchase Agreement and (y) $1,000,000 during such period and (y)
during any calendar year thereafter the Borrower and its Subsidiaries may make
Capital Expenditures (other than in connection with Permitted Acquisitions) so
long as the aggregate amount thereof does not exceed the greater of (x) the
amount permitted pursuant to the Securities Purchase Agreement and (y) the
amount set forth opposite such fiscal year below, such amounts set forth below
will be adjusted upward by $25,000 for each physician employed directly or
indirectly by any company acquired pursuant to each Permitted Acquisition;
provided that 80% of the allowable Capital Expenditures not spent in 1997 may be
- --------
carried over into 1998.
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1998 $5,000,000
1999 5,000,000
2000 5,000,000
2001 5,000,000
2002 5,000,000
</TABLE>
(b) In addition to the Capital Expenditures permitted above, the
Borrower and its Subsidiaries may make Permitted Acquisitions in accordance with
Section 8.15 in an amount not to exceed the amounts permitted thereby.
9.09 Fixed Charge Coverage Ratio. Holdings will not permit the
---------------------------
Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters
(or, if shorter, the period beginning on November 1, 1997 and ending on the last
day of a fiscal quarter of Holdings ended after November 1, 1997), in each case
taken as one accounting period, to be less than 1.05:1.00 for the fiscal quarter
ending on December 31, 1997, 1.10:1.00
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<PAGE>
for the fiscal quarter ending on March 31, 1998, 1.15:1.00 for the fiscal
quarter ending on June 30, 1998 and 1.20:1:00 for all fiscal quarters ending
thereafter.
9.10 Interest Coverage Ratio. Holdings will not permit the ratio of
-----------------------
its Consolidated EBITDA to its Consolidated Interest Expense for any period of
four consecutive fiscal quarters (or, if shorter, the period beginning on
November 1, 1997 and ending on the last day of a fiscal quarter of Holdings
ended after November 1, 1997), in each case taken as one accounting period,
ending on a date set forth below to be less than the ratio set forth opposite
such date:
<TABLE>
<CAPTION>
Fiscal Quarter
Ended Ratio
-------------- -----
<S> <C>
December 31, 1997 3.25:1.00
March 31, 1998 3.50:1.00
June 30, 1998 3.75:1.00
September 30, 1998 4.00:1.00
December 31, 1998 4.00:1.00
March 31, 1999 4.50:1.00
June 30, 1999 4.50:1.00
September 30, 1999 4.50:1.00
December 31, 1999 4.50:1.00
March 31, 2000 5.00:1.00
June 30, 2000 5.00:1.00
September 30, 2000 5.00:1.00
December 31, 2000 5.00:1.00
March 31, 2001 5.00:1.00
June 30, 2001 5.00:1.00
September 30, 2001 5.00:1.00
December 31, 2001 5.00:1.00
March 31, 2002 5.00:1.00
June 30, 2002 5.00:1.00
</TABLE>
9.11 Leverage Ratios. (A) Consolidated Indebtedness to Consolidated
--------------- -----------------------------------------
EBITDA. Holdings will not permit the ratio of Consolidated Indebtedness as at
- ------
the end of any fiscal quarter ended on a date set forth below to Consolidated
EBITDA for any period of four consecutive fiscal quarters (or, if shorter, the
period beginning on the Initial Borrowing Date and ending on the last day of a
fiscal quarter ended after the Initial Borrowing Date), in each case taken as
one accounting period, ending on a date set forth below to be greater than the
ratio set forth opposite such date below:
-82-
<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarter
Ended Ratio
-------------- -----
<S> <C>
December 31, 1997 4.00:1.00
March 31, 1998 4.00:1.00
June 30, 1998 4.00:1.00
September 30, 1998 4.00:1.00
December 31, 1998 4.00:1.00
March 31, 1999 3.50:1.00
June 30, 1999 3.50:1.00
September 30, 1999 3.50:1.00
December 31, 1999 3.50:1.00
March 31, 2000 3.50:1.00
June 30, 2000 3.50:1.00
September 30, 2000 3.50:1.00
December 31, 2000 3.50:1.00
March 31, 2001 3.00:1.00
June 30, 2001 3.00:1.00
September 30, 2001 3.00:1.00
December 31, 2001 3.00:1.00
March 31, 2002 2.00:1.00
June 30, 2002 2.00:1.00
</TABLE>
(B) Consolidated Senior Indebtedness to Consolidated EBITDA.
-------------------------------------------------------
Holdings will not permit the ratio of Consolidated Senior Indebtedness as at the
end of any fiscal quarter ended on a date set forth below to Consolidated EBITDA
for any period of four consecutive fiscal quarters (or, if shorter, the period
beginning on the Initial Borrowing Date and ending of the last day of a fiscal
quarter ended after the Initial Borrowing Date), in each case taken as one
accounting period, ending on a date set forth below to be greater than the ratio
set forth opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter
Ended Ratio
-------------- -----
<S> <C>
December 31, 1997 3.00:1.00
March 31, 1998 3.00:1.00
June 30, 1998 3.00:1.00
September 30, 1998 3.00:1.00
December 31, 1998 2.50:1.00
March 31, 1999 2.50:1.00
June 30, 1999 2.50:1.00
September 30, 1999 2.50:1.00
</TABLE>
-83-
<PAGE>
<TABLE>
<S> <C>
December 31, 1999 2.50:1.00
March 31, 2000 2.00:1.00
June 30, 2000 2.00:1.00
September 30, 2000 2.00:1.00
December 31, 2000 2.00:1.00
March 31, 2001 1.50:1.00
June 30, 2001 1.50:1.00
September 30, 2001 1.50:1.00
December 31, 2001 1.50:1.00
March 31, 2002 1.00:1.00
June 30, 2002 1.00:1.00
</TABLE>
9.12 Minimum Consolidated Net Worth. Holdings will not permit its
------------------------------
Consolidated Net Worth (exclusive of write offs attributable to goodwill during
the first six months after the Initial Borrowing Date) at any time to be less
than the sum of (x) $12,000,000 plus (y) an amount equal to 85% of the increase
to the Consolidated Net Worth of Holdings from each issuance after the Effective
Date of capital stock of Holdings or any of its Subsidiaries.
9.13 Minimum EBITDA. Holdings will not permit its Consolidated
--------------
EBITDA for any period of four consecutive fiscal quarters (or, if shorter, the
period beginning on the Initial Borrowing Date and ending on the last day of a
fiscal quarter of Holdings ended after the Initial Borrowing Date), in each case
taken as one accounting period, to be less than the sum of (x) $5,800,000 and
(y) an amount equal to 75% of the Consolidated EBITDA of each company acquired
after the Initial Borrowing Date for the twelve month period immediately
preceding the date of each such company's acquisition.
9.14 Accounts Receivable Days. Holdings will not permit the number
------------------------
of Accounts Receivable Days on the last day of any fiscal quarter to be greater
than 75.
9.15 Limitation on Voluntary Payments and Modification; Limitation on
----------------------------------------------------------------
Modifications of Certificate of Incorporation, By-Laws and Certain Other
- ------------------------------------------------------------------------
Agreements; etc. Holdings will not, and will not permit any of its Subsidiaries
- ----------------
to:
(i) make (or give any notice in respect of) any voluntary or
optional payment or prepayment on or redemption (including pursuant to any
change of control provision) or acquisition for value of (including,
without limitation, by way of depositing with the trustee with respect
thereto money or securities before due for the purpose of paying when due),
any Existing Indebtedness, Senior Subordinated Notes, Permitted Earn-Out
Debt or Permitted Seller Notes or make (or give any notice in respect of)
any payment pursuant to Section 2.02(a) or (d) of the Senior Subordinated
Loan Agreement;
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(ii) amend or modify, or permit the amendment or modification of,
any material provision of the Documents, the Existing Indebtedness,
Permitted Earn-Out Debt, Permitted Seller Notes, the Senior Subordinated
Notes or any agreement relating to any of the foregoing;
(iii) amend, modify or change its Certificate of Incorporation
(including, without limitation, by the filing or modification of any
certificate of designation) or By-Laws, in a manner adverse to the Banks or
any agreement entered into by it, with respect to its capital stock, or
enter into any new agreement with respect to its capital stock;
(iv) amend, modify or change, terminate, or enter into any new
Shareholders' Agreement or amend, modify or change the Securities Purchase
Agreement;
(v) amend, modify or change, terminate or enter into any new Tax
Sharing Agreement; or
(vi) amend, modify or change, or enter into any new Management
Agreement, Employee Benefit Plan or Employment Agreement except if the
aggregate cost to Holdings and its Subsidiaries as a result of such
amendments, modifications, changes to such plans and agreements and new
plans and agreements is not reasonably likely to have a material adverse
effect on the performance, business, property, assets, nature of assets,
liabilities, condition (financial or otherwise) or prospects of Holdings
and its Subsidiaries taken as a whole.
9.16 Limitation on Certain Restrictions on Subsidiaries. Except
--------------------------------------------------
as set forth on Schedule XVIII, Holdings will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary of Holdings to (i) pay dividends or make any other distributions
on its capital stock or any other interest or participation in its profits owned
by Holdings or any Subsidiary of Holdings, or pay any Indebtedness owed to
Holdings or a Subsidiary of Holdings, (ii) make loans or advances to Holdings or
any of Holdings's Subsidiaries or (iii) transfer any of its properties or assets
to Holdings, except for such encumbrances or restrictions existing under or by
reason of (w) applicable law, (x) this Agreement and the other Credit Documents
and (y) customary provisions restricting subletting or assignments of any lease
governing a leasehold interest of Holdings or a Subsidiary of Holdings.
9.17 Limitation on Issuance of Capital Stock. (a) Holdings will
---------------------------------------
not permit any of its Subsidiaries to issue any capital stock (including by way
of sales of treasury stock) or any options or warrants to purchase, or
securities convertible into, capital stock,
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except (i) for transfers and replacements of then outstanding shares, (ii) for
stock splits, stock dividends and similar issuances which do not decrease the
percentage ownership of any person in any class of the capital stock of Holdings
or such Subsidiary, and (iii) upon the formation of any new Subsidiary as
permitted by this Agreement in connection with Permitted Acquisitions. Any stock
issued as permitted by this Section 9.17, if owned by Holdings or any of
Holdings's Subsidiaries, shall be immediately pledged as Collateral and
delivered pursuant to the Pledge Agreement.
(b) Holdings will not issue any capital stock, except for (i) shares
of capital stock issued upon conversion of any stock issued or authorized to be
issued under its Certificate of Incorporation as of the Effective Date, (ii)
shares of capital stock issued upon the exercise of any warrants of Holdings
outstanding as of the Effective Date, (iii) stock dividends and stock splits,
and (iv) issuances of Holdings Common Stock or Holdings Prime Stock (including,
without limitation, Permitted Equity Issuances) for cash (except that Permitted
Equity Issuances in connection with Permitted Acquisitions shall be permitted in
accordance with Section 8.15), where, after giving effect to all such issuances,
the proceeds therefrom are applied in accordance with Section 4.02(A)(e) and no
Default or Event of Default would exist under Section 10.12.
9.18 Business. On and after the tenth Business Day following the
--------
Initial Borrowing Date, Holdings will not conduct any business or own any assets
other than the stock of the Borrower (and other than immaterial assets and
leasehold interests), and for one Business Day after the acquisition thereof,
stock of Subsidiaries acquired or formed in connection with Permitted
Acquisitions. The Borrower will not, and will not permit any of its
Subsidiaries, to engage (directly or indirectly) in any business other than a
Permitted Business.
9.19 Limitation on Creation of Subsidiaries. Holdings will not, and
--------------------------------------
will not permit any of its Subsidiaries to, establish, create or acquire any new
Subsidiaries, except (a) Subsidiaries of the Borrower may be acquired or formed
in connection with Permitted Acquisitions to the extent otherwise permitted by
this Agreement and direct Subsidiaries of Holdings may be acquired or formed in
connection with Permitted Acquisitions so long as within one Business Day of the
acquisition thereof the stock of such Subsidiary is transferred to the Borrower
or (b) other Subsidiaries of the Borrower may be formed so long as in connection
with such formation such Subsidiary executes pledge agreements, security
agreements and guaranties in form and substance reasonably satisfactory to the
Agent and all capital stock of such Subsidiary is pledged to the Collateral
Agent for the benefit of the Secured Creditors pursuant to a pledge agreement
reasonably satisfactory to the Agent.
9.20 Concentration Account. Holdings will not, and will not permit
---------------------
any of its Subsidiaries to, directly or indirectly, open, maintain or otherwise
have any checking,
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savings or other deposit accounts at any bank or other financial institution
where cash or Cash Equivalents is or may be deposited or maintained with any
Person, other than (i) the bank deposit accounts of Subsidiaries of Holdings or
(ii) the Concentration Account.
9.21 Unwind Provisions. Neither Holdings nor any of its or its
-----------------
Subsidiaries will enter into any agreement of any nature of the type described
in Section 7.28 except for agreements substantially in the same form as the
agreements which are in effect on the Initial Borrowing Date, so long as any
"unwind provisions" or similar provisions arising in the case of any event other
than a breach under such agreement by Holdings or any of its Subsidiaries shall
not be effective prior to the 65th month anniversary of the Initial Borrowing
Date.
Section 10. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each an "Event of Default"):
10.01 Payments. The Borrower shall (i) default in the payment when
--------
due of any principal of any Loan or any Note or any Unpaid Drawing or (ii)
default, and such default shall continue unremedied for two or more Business
Days, in the payment when due of any interest on any Loan or Note or Unpaid
Drawing, or any Fees or any other amounts owing by it hereunder or thereunder;
or
10.02 Representations, etc. Any representation, warranty or
---------------------
statement made by any Credit Party herein or in any other Credit Document or in
any certificate delivered pursuant hereto or thereto shall prove to be untrue in
any material respect on the date as of which made or deemed made; or
10.03 Covenants. Any Credit Party shall (i) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 8.01(g)(i), 8.08, 8.11, 8.15, 8.16, 8.17, 8.19, 9 or 14.15, or (ii)
default in the due performance or observance by it of any other term, covenant
or agreement contained in this Agreement, and such default shall continue
unremedied for a period of 30 days after written notice thereof to the Borrower
by the Agent; or
10.04 Default Under Other Agreements. Holdings or any of its
------------------------------
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
the Indebtedness referred to in Section 10.01) beyond the period of grace (not
to exceed 10 days), if any, provided in the instrument or agreement under which
such Indebtedness was created, (ii) default in the observance or performance of
any agreement or condition relating to any Indebtedness (other than the
Indebtedness referred to in Section 10.01) or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause,
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<PAGE>
or to permit the holder or holders of such Indebtedness (or a trustee or agent
on behalf of such holder or holders) to cause (determined without regard to
whether any notice is required), any Indebtedness to become due prior to its
stated maturity and such default shall not have been cured or waived, or (iii)
any Indebtedness (other than the Indebtedness referred to in Section 10.01) of
Holdings or any of its Subsidiaries shall be declared to be due and payable, or
required to be prepaid other than by a regularly scheduled required prepayment,
prior to the stated maturity thereof; provided that it shall not constitute an
--------
Event of Default pursuant to this Section 10.04 unless the aggregate amount of
all Indebtedness referred to in the preceding clauses (i) through (iii) above
exceeds $250,000 at any one time; or
10.05 Bankruptcy, etc. Holdings or any of its Subsidiaries shall
----------------
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against
Holdings or any of its Subsidiaries and the petition is not controverted within
10 days, or is not dismissed or discharged, with in 60 days, after commencement
of the case; or a custodian (as defined in the Bankruptcy Code) is appointed
for, or takes charge of, all or substantially all of the property of Holdings or
any of its Subsidiaries, or Holdings or any of its Subsidiaries commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to Holdings or any of
its Subsidiaries, or there is commenced against Holdings or any of its
Subsidiaries any such proceeding which remains undismissed or undischarged for a
period of 60 days, or Holdings or any of its Subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or Holdings or any of its Subsidiaries suffers
any appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged or unstayed for a period of 60 days; or
Holdings or any of its Subsidiaries makes a general assignment for the benefit
of creditors; or any corporate action is taken by Holdings or any of its
Subsidiaries for the purpose of effecting any of the foregoing; or
10.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
-----
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days; any Plan which is
subject to Title IV of
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<PAGE>
ERISA shall have had or is likely to have a trustee appointed to administer such
Plan, any Plan which is subject to Title IV of ERISA is, shall have been or is
likely to be terminated or to be the subject of termination proceedings under
ERISA, any Plan shall have an Unfunded Current Liability, a contribution
required to be made with respect to a Plan has not been timely made, Holdings or
any Subsidiary of Holdings or any ERISA Affiliate has incurred or is likely to
incur any liability to or on account of a Plan under Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section
401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as
defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under
Section 4980B of the Code, or the Holdings or any Subsidiary of Holdings has
incurred or is likely to incur liabilities pursuant to one or more employee
welfare benefit plans (as defined in Section 3(1) of ERISA) that provide
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA) or Plans; (b) there shall result from any such event or
events the imposition of a lien, the granting of a security interest, or a
liability or a material risk of incurring a liability; and (c) such lien,
security interest or liability, individually, and/or in the aggregate, in the
opinion of the Required Banks, has had, or could reasonably be expected to have,
a material adverse effect upon the business, operations, condition (financial
or otherwise) or prospects of Holdings or any Subsidiary of Holdings; or
10.07 Security Documents. At any time after the execution and
------------------
delivery thereof, any of the Security Documents shall cease to be in full force
and effect or shall cease to give the Collateral Agent for the benefit of the
Secured Creditors the Liens, rights, powers and privileges purported to be
created thereby (including, without limitation, a perfected security interest
in, and Lien on, all of the Collateral), in favor of the Collateral Agent,
superior to and prior to the rights of all third Persons (except as permitted by
Section 7.11), and subject to no other Liens (except as permitted by Section
7.11), or any Credit Party shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to any of the Security Documents and such default shall continue beyond any
grace period specifically applicable thereto pursuant to the terms of such
Security Document; or
10.08 Guaranties. At any time after the execution and delivery
----------
thereof, any Guaranty or any provision thereof shall cease to be in full force
or effect as to any Guarantor, or any Guarantor or any Person acting by or on
behalf of any Guarantor shall deny or disaffirm such Guarantor's obligations
under the respective Guaranty, or any Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to the respective Guaranty and such default shall
continue beyond any grace period specifically applicable thereto; or
10.09 Judgments. One or more judgments or decrees shall be entered
---------
against Holdings or any of its Subsidiaries involving in the aggregate for
Holdings and its
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<PAGE>
Subsidiaries a liability (not paid or fully covered by a reputable insurance
company) in excess of $250,000 for all such judgments and decrees and any such
judgments or decrees shall not be satisfied, vacated, discharged or stayed or
bonded pending appeal for any period of 30 consecutive days; or
10.10 Event Constituting a Material Adverse Change. The occurrence
--------------------------------------------
of an event, fact, circumstance or other matter the occurrence of which could
reasonably be expected to have a materially adverse effect on the performance,
business, assets, nature of assets, liabilities, properties, condition,
(financial or otherwise) or prospects of Holdings and its Subsidiaries taken as
a whole.
10.11 Physician Turnover. The occurrence of greater than 15% of the
------------------
Designated Physicians terminating his or her employment (exclusive of death,
disability or retirement) with Holdings and its Subsidiaries.
10.12 Change in Control. There shall be a Change in Control; then,
-----------------
and in any such event, and at any time thereafter, if any Event of Default shall
then be continuing, the Agent, upon the written request of the Required Banks,
shall by written notice to the Borrower, take any or all of the following
actions, without prejudice to the rights of the Agent, any Bank or the holder of
any Note to enforce its claims against any Credit Party (provided that, if an
--------
Event of Default specified in Section 10.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Agent to the Borrower as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon all Commitments of each Bank shall forthwith
terminate immediately and any Fees shall forthwith become due and payable
without any other notice of any kind; (ii) declare the principal of and any
accrued interest in respect of all Loans and the Notes and all Obligations owing
hereunder and thereunder to be, whereupon the same shall become, forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by each Credit Party; (iii) terminate any Letter
of Credit which may be terminated in accordance with its terms; (iv) direct the
Borrower to pay (and the Borrower agrees that upon receipt of such notice, or
upon the occurrence of an Event of Default specified in Section 10.05, it will
pay) to the Collateral Agent at the Payment Office such additional amount of
cash, to be held as security by the Collateral Agent for the benefit of the
Banks in a cash collateral account established and maintained by the Collateral
Agent pursuant to a cash collateral agreement in form and substance satisfactory
to the Collateral Agent, as is equal to the aggregate Stated Amount of all
Letters of Credit then outstanding; (v) exercise any rights or remedies under
any of the Guaranties; and (vi) enforce, as Collateral Agent, all of the Liens
and security interests created pursuant to the Security Documents.
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Section 11. Definitions and Accounting Terms.
--------------------------------
11.01 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Account Receivable Days" shall mean, as of the last day of any fiscal
quarter, the number of account receivable days determined by multiplying (i) the
quotient obtained by dividing (x) the total face amount of the net account
receivables balance of the Borrower and its Subsidiaries as of such last day by
(y) the net revenues of the Borrower and its Subsidiaries for such quarter by
(ii) 90 days.
"Acknowledgements" shall have the meaning provided in Section 14.10.
"Acquisition Agreements" shall mean each Agreement listed on Schedule
XVII pursuant to which each of the Acquisitions was, is or will be, effected in
each case as the same may be supplemented, modified, amended or restated from
time to time in accordance with Section 9.15.
"Acquisition Documents" shall mean the Acquisition Agreements and all
other documents entered into or delivered in connection with the Acquisitions as
the same may be supplemented, modified, amended or restated from time to time in
accordance with Section 9.15 provided therein.
"Acquisition Loan" shall have the meaning provided in Section 1.01(b).
"Acquisition Loan Commencement Date" shall mean the date on which the
proceeds of Term Loans and Senior Subordinated Notes deposited in the Cash
Collateral Account on the Initial Borrowing Date have been utilized to effect
Post-Closing Acquisitions.
"Acquisition Loan Commitment" shall mean, with respect to each Bank,
the amount set forth opposite such Bank's name in Part A of Schedule I hereto
directly below the column entitled "Acquisition Loan Commitment," as the same
may be (x) reduced or terminated from time to time pursuant to Section 3.03,
4.02 and/or 10 or (y) adjusted from time to time as a result of assignments to
or from such Bank pursuant to Section 1.12 or 14.04.
"Acquisition Loan Facility" shall mean the facility evidenced by the
Total Acquisition Loan Commitment.
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"Acquisition Loan Maturity Date" shall mean the four year and six
month anniversary of the Initial Borrowing Date.
"Acquisition Loan Termination Date" shall mean the second anniversary
of the Initial Borrowing Date.
"Acquisition Notes" shall have the meaning provided in Section
1.05(a)(ii).
"Acquisition TL Percentage" shall mean a fraction (expressed as a
percentage), the numerator of which is equal to the aggregate principal amount
of all Acquisition Loans outstanding at such time and the denominator of which
is equal to the aggregate principal amount of all Term Loans and Acquisition
Loans outstanding at such time.
"Acquisitions" shall mean and include each of the Pre-Closing
Acquisitions, the Contemporaneous Acquisitions and the Post-Closing
Acquisitions.
"Additional Collateral" shall mean all property (whether real or
personal) in which security interests are granted (or purported to be granted)
(and continue to be in effect at the time of determination) pursuant to Section
8.15 or 8.17.
"Additional Security Documents" shall mean all mortgages, pledge
agreements, security agreements and other security documents entered into
pursuant to Section 8.15 or 8.17 with respect to Additional Collateral.
"Adjusted Consolidated Net Income" for any period shall mean
Consolidated Net Income for such period plus the sum of the amount of all net
non-cash charges (including, without limitation, depreciation, amortization,
deferred tax expense, non-cash interest expense and other non-cash charges)
included in arriving at Consolidated Net Income for such period less the sum of
the amount of all net non-cash gains or losses (exclusive of items reflected in
Adjusted Working Capital) and gains or losses from sales of assets (other than
sales of inventory in the ordinary course of business) included in arriving at
Consolidated Net Income for such period.
"Adjusted Working Capital" shall mean Consolidated Current Assets
(excluding cash and Cash Equivalents) minus Consolidated Current Liabilities.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with, such Person; provided, however, that for purposes of Section 5.05
-------- -------
and 9.07, an Affiliate of Holdings shall include any Person that directly or
indirectly (including through limited partner or
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general partner interests) owns more than 5% of any class of the capital stock
of Holdings or any of its Subsidiaries and for all purposes of this Agreement,
neither the Agent, the Collateral Agent, any Bank or any of their respective
Affiliates, shall be considered an Affiliate of Holdings or any of its
Subsidiaries. A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"Affiliate Contracts" shall have the meaning provided in Section 5.05.
"Agent" shall mean Banque Paribas in its capacity as Agent for the
Banks hereunder, and shall include any successor to the Agent appointed pursuant
to Section 12.09.
"Aggregate Unutilized Commitment" with respect to any Bank at any time
shall mean the sum of (i) such Bank's Unutilized Revolving Loan Commitment at
such time, plus (ii) such Bank's Acquisition Loan Commitment at such time plus
(iii) such Bank's Term Loan Commitment at such time.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented or amended from time to time.
"Applicable Margin" shall mean a percentage per annum equal to (i) in
the case of Base Rate Loans, 1 3/4% and (ii) in the case of Eurodollar Loans,
3.00%.
"Bank" shall mean each financial institution listed on Part A of
Schedule I, as well as any institution which becomes a "Bank" hereunder pursuant
to Section 14.04.
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing or to fund
its portion of any unreimbursed payment under Section 2.04(c) or (ii) a Bank
having notified in writing the Borrower and/or the Agent that it does not intend
to comply with its obligations under Section 1.01 or 2, including in either case
as a result of any takeover of such Bank by any regulatory authority or agency.
"Bankruptcy Code" shall have the meaning provided in Section 10.05.
"Banque Paribas" shall mean Banque Paribas, a French banking
organization acting through its New York Branch.
"Base Rate" shall mean the higher of (i) 1/2 of 1% in excess of the
Federal Funds Rate and (ii) the Prime Lending Rate.
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"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) any Loan
designated or deemed designated as such by the Borrower at the time of the
incurrence thereof or conversion thereto.
"Blocked Commitment" shall mean an amount equal to $8,000,000 reduced
by any principal repayment of the DVI Indebtedness.
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrower Common Stock" shall have the meaning provided in Section
7.14.
"Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche from all the Banks having Commitments with respect to such Tranche (or
from the Swingline Bank in the case of Swingline Loans) on a pro rata basis on a
--- ----
given date (or resulting from a conversion or conversions on such date) having
in the case of Eurodollar Loans the same Interest Period; provided that Base
--------
Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the
related Borrowing of Eurodollar Loans.
"Borrowing Base" shall mean, as at any date of which the amount
thereof is being determined, an amount equal to 75% of Eligible Receivables and
60% of Eligible Inventory each as determined from the Borrowing Base Certificate
most recently delivered pursuant to Section 8.01(k).
"Borrowing Base Certificate" shall have the meaning provided in
Section 8.01(k).
"Borrowing Base Deficiency" shall mean, at any time, the amount, if
any, by which (A) the sum of (x) the aggregate principal amount of outstanding
Revolving Loans and Swingline Loans at such time and (y) the total Letter of
Credit Outstandings at such time exceeds (B) the Borrowing Base.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New York City a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close and (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and
between banks in the New York interbank Eurodollar market.
"Calculation Period" shall have the meaning provided in Section
8.15(a).
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"Capital Expenditures" shall have the meaning provided in Section
9.08.
"Capital Lease," as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with generally accepted accounting principles, is accounted for as a
capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations under Capital Leases, in each case taken at the amount thereof
accounted for as Indebtedness in accordance with such principles.
"Cash Collateral Account" shall mean a cash collateral account
maintained with Banque Paribas, as Collateral Agent for the benefit of Secured
Creditors, pursuant to the Cash Collateral Agreement.
"Cash Collateral Agreement" shall mean a Cash Collateral Agreement in
the form of Exhibit M to this Agreement.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
--------
United States is pledged in support thereof) having maturities of not more than
six months from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank organized under the laws of the United States,
any State thereof or the District of Columbia having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof, or the District of Columbia having, capital,
surplus and undivided profits aggregating in excess of $200,000,000 and having a
long-term unsecured debt rating of at least "A" or the equivalent thereof from
Standard & Poor's Corporation ("S&P") or "A2" or the equivalent thereof from
Moody's Investors Service, Inc. ("Moody's"), with maturities of not more than
six months from the date of acquisition by such Person, (iii) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clause (i) above entered into with any bank meeting
the qualifications specified in clause (ii) above, (iv) commercial paper issued
by any Person incorporated in the United States rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's
and in each case maturing not more than six months after the date of acquisition
by such Person, (v) investments in money market funds substantially all of whose
assets are comprised of securities of the types described in clauses (i) through
(iv) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. (S) 9601 et seq.
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"Change in Control" means the occurrence of one or more of the
following: (i) any Person, entity or "group" (within the meaning of Section
13(d) and 14(d) of the Securities Exchange Act) (other than the Investor Group)
obtains the power to elect a majority of the Board of Directors of Holdings,
(ii) either Weston and its Affiliates, Sarah Garvin or the Investor Group shall
cease to have record and beneficial ownership of at least 75% of the number of
shares of Holdings Common Stock owned by such Persons on the Effective Date,
(iii) any Person, entity or "group" (within the meaning of Section 13(d) and
14(d) of the Securities Exchange Act) (other than the Investor Group) shall
become the "beneficial owner" (as defined in Rules 13(d) and 13(d)-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time) of 20%
or more of any outstanding class of capital stock of Holdings having ordinary
voting power in the election of directors of Holdings, (iv) the Board of
Directors of Holdings shall cease to consist of a majority of Continuing
Directors, or (v) Sarah Garvin shall cease to serve (except in the cases of
death or disability) as President and Chief Executive Officer of Holdings,
except if any time after an initial public offering of Holdings Common Stock,
Holdings shall replace Sarah Garvin within 180 days of her ceasing to serve as
President and Chief Executive Officer of Holdings with an individual approved by
the Agent.
"Claims" shall have the meaning provided in the definition of
"Environmental Claims."
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement, and to any subsequent provision of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purport to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, all Additional
Collateral and all cash and Cash Equivalents delivered as collateral pursuant to
this Agreement or any other Credit Document.
"Collateral Agent" shall mean the Agent acting as collateral agent for
the Secured Creditors pursuant to the Security Documents.
"Collective Bargaining Agreements" shall have the meaning provided in
Section 5.05.
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"Commitment" shall mean, with respect to each Bank, such Bank's Term
Loan Commitment, Acquisition Loan Commitment and Revolving Loan Commitment, if
any.
"Commitment Commission" shall have the meaning provided in Section
3.01(a).
"Companies" means each of the Companies identified on Schedule XVII.
"Company Metroplex Note" shall mean the Promissory Note dated June 16,
1997 in the original principal amount of $6,460,000 from Holdings payable to
Metroplex Hematology/Oncology Associates, L.L.P.
"Concentration Account" shall mean a separate account which shall be
established and maintained with the Concentration Account Bank for the benefit
of the Secured Creditors by Holdings and each of its Subsidiaries and in which
the Collateral Agent has a security interest pursuant to the Concentration
Account Consent Letter.
"Concentration Account Bank" shall mean NationsBank or such other bank
that may become a Concentration Account Bank in accordance with the provisions
of the Security Agreement.
"Concentration Account Consent Letter" shall have the meaning provided
in Section 8.18.
"Consolidated Current Assets" shall mean the consolidated current
assets of Holdings and its Subsidiaries.
"Consolidated Current Liabilities" shall mean the consolidated current
liabilities of Holdings and its Subsidiaries, but excluding the current portion
of any long-term Indebtedness which would otherwise be included therein.
"Consolidated EBIT" shall mean, for any period, the Consolidated Net
Income before interest income, Consolidated Interest Expense and provision for
taxes and without giving effect to any extraordinary gains or losses, gains or
losses from sales of assets (other than inventory sold in the ordinary course of
business) or unrealized foreign exchange gains or losses.
"Consolidated EBITDA" for any period shall mean Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation that were deducted in arriving at Consolidated Net Income for such
period; provided that for purposes of Section 9.11 and Section 8.15(viii), to
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the extent Consolidated EBITDA is
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being determined, for any period of less than four consecutive fiscal quarters,
the amount of Consolidated EBITDA to be used for purposes of calculations being
made pursuant to such Section for the period of determination shall be equal to
the product of the amount of Consolidated EBITDA for such period and a fraction,
the numerator of which is 365 and the denominator of which is the number of days
elapsed during such period and to the extent Consolidated EBITDA includes
companies acquired during the immediately preceding twelve month period for
which such financial covenants are being calculated, the Consolidated EBITDA
shall be calculated in accordance with Section 8.15 (xvii) for that portion of
such twelve month period occurring prior to the date of such acquisition and
actual results shall be used for that portion of such twelve month period
occurring after the date of such acquisition.
"Consolidated Indebtedness" shall mean, at any time, all Indebtedness
of Holdings and its Subsidiaries determined on a consolidated basis (excluding
the Promissory Note dated June 16, 1997 in the original principal amount of
$6,200,000 from MHOA Texas I, L.L.C. payable to Metroplex Hematology/Oncology
Associates, L.L.P. so long as the obligations of the shareholders of PHC under
the Equity Call Agreement are in full force and effect and no shareholder is in
breach thereof and all Indebtedness of the type described in clause (vii) of the
definition thereof, except to the extent amounts are owing with respect thereto
upon the termination of the respective agreement constituting such Indebtedness)
plus any original issue discount attributable to such Indebtedness less the
amount of cash and Cash Equivalents in the Cash Collateral Account.
"Consolidated Interest Expense" shall mean, for any period, the total
consolidated interest expense of Holdings and its Subsidiaries for such period
(calculated without regard to any limitations on the payment thereof) payable
during such period in respect of all Indebtedness of Holdings and its
Subsidiaries, on a consolidated basis, for such period (including, without
duplication, that portion of Capitalized Lease Obligations of Holdings and its
Subsidiaries representing the interest factor for such period).
"Consolidated Net Income" shall mean, for any period, net income of
Holdings and its Subsidiaries for such period determined on a consolidated basis
(after provision for taxes); provided, however, (a) the net income of any
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Subsidiary of Holdings, which is not a Wholly-Owned Subsidiary, shall have its
net income included in the Consolidated Net Income of Holdings and its
Subsidiaries only to the extent of the ownership interest of Holdings and its
Wholly-Owned Subsidiaries in such non-Wholly-Owned Subsidiaries and only so long
as such Subsidiary is not party to any contract or other agreement of the type
described in Section 9.16, except in the case of MHOA Texas, L.L.C., the DVI
Debt Documents and (b) the net income of any Immaterial Subsidiary and of the
Designated Companies shall not be included in the Consolidated Net Income of
Holdings and its Subsidiaries.
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"Consolidated Net Worth" shall mean, as to any Person, the sum of its
capital stock, capital in excess of par or stated value of shares of its capital
stock, retained earnings and any other account which, in accordance with
generally accepted accounting principles in the United States, constitutes
stockholders equity.
"Consolidated Senior Indebtedness" shall mean, at any time, an amount
equal to the amount of all Consolidated Indebtedness at such time less the
outstanding principal amount of Senior Subordinated Notes at such time and less
the outstanding principal amount of all other subordinated Indebtedness of
Holdings.
"Contemporaneous Acquisitions" shall have the meaning provided in
Section 7.30.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the holder
of such primary obligation against loss in respect thereof; provided, however,
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that the term Contingent Obligation should not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Continuing Directors" shall mean, with respect to Holdings, the
directors of Holdings on the Initial Borrowing Date and each other director, if
such other director's nomination for election to the board of directors of
Holdings is recommended by a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, each Note, each Notice
of Borrowing, each Notice of Conversion, each Letter of Credit, each Letter of
Credit Request, the Subsidiaries Guaranty and each Security Document.
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"Credit Event" shall mean the making of any Loan or the issuance of
any Letter of Credit.
"Credit Party" shall mean Holdings and each of its Subsidiaries.
"Debt Agreements" shall have the meaning provided in Section 5.05.
"Debt Termination Documents" shall have the meaning provided in
Section 5.16(c).
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is then in effect.
"Designated Agreements" shall mean the (i) Practice Repurchase
Agreement by and among the Borrower, Mark Williams, M.D., Kenneth R. Feuer,
M.D., Robert T. Baker, M.D., Robert F. Stonerock, Jr., M.D., Thomas C. Marbury,
M.D., C. Raymond Cottrell, M.D., Lionel C. Abbott, M.D., Antonio Caos, M.D.,
Timothy L. Prince, M.D., Alex Menendez, M.D., and Jeffrey M. Cohen, M.D.
pertaining to the Designated Assets of Internal Medicine Specialists, Inc.; (ii)
Practice Repurchase Agreement by and among the Borrower, Don Buswell-Charkow,
M.D., Allen R. Costello, M.D., John Cappleman, M.D., Christopher Edwards, M.D.,
and Thomas Wentzell, M.D. pertaining to the Designated Assets of Primary Care
Specialists, Inc.; (iii) and Practice Repurchase Agreement by and among the
Borrower and Sergio W. Larach, M.D., Paul R. Williamson, M.D., and Andrea
Ferrara, M.D. pertaining to the Designated Assets of Larach, Williamson &
Ferrara, Inc, as each such agreement is in effect on the Effective Date.
"Designated Assets" shall mean the assets of the Designated Companies
defined and described as the "Company Assets" in the Designated Agreements as
initially executed.
"Designated Companies" shall mean each of Primary Care Specialists,
Inc., Internal Medicine Specialists, Inc. and Larach Williamson & Ferrara, Inc.
"Designated Physicians" shall mean the physicians set forth on a
Schedule to be delivered to the Agent within 30 days of the Initial Borrowing
Date which are the physicians employed directly or indirectly (including through
a Practice Management Agreement or similar agreement) who received any
consideration in the form of cash payment, stock or seller note in connection
with the Acquisitions.
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"Dividend" with respect to any Person shall mean that such Person has
declared or paid a dividend or returned any equity capital to its stockholders
or authorized or made any other distribution, payment or delivery of property
(other than common stock of such Person) or cash to its stockholders in their
capacity as stockholders, or redeemed, retired, purchased or otherwise acquired,
directly or indirectly, for a consideration any shares of any class of its
capital stock outstanding on or after the Effective Date (or any options or
warrants issued by such Person with respect to its capital stock), or set aside
any funds for any of the foregoing purposes, or shall have permitted any of its
Subsidiaries to purchase or otherwise acquire for a consideration any shares of
any class of the capital stock of such Person outstanding on or after the
Effective Date (or any options or warrants issued by such Person with respect to
its capital stock). Without limiting the foregoing, "Dividends" with respect to
any Person shall also include all cash payments made or required to be made by
such Person with respect to any stock appreciation rights, equity incentive
plans or any similar plans or setting aside of any funds for the foregoing
purposes.
"Documents" shall mean the Credit Documents, the Acquisition
Documents, the Debt Termination Documents, the Equity Amendments, the Senior
Subordinated Loan Documents, the Subordinated Debt Amendments and the
Acknowledgements.
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"Drawing" shall have the meaning provided in Section 2.05(b).
"DVI Debt Documents" shall mean Loan and Security Agreement No. 1
among MHOA Texas I, L.L.C., as Borrower, Physician Health Corporation, as
Guarantor, and DVI Financial Services Inc., as Lender, dated as of June 16,
1997, the Loan and Security Agreement No. 2 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI Financial Services
Inc., as Lender, dated as of June 16, 1997, the Loan and Security Agreement No.
3 among MHOA Texas I, L.L.C., as Borrower, Physician Health Corporation, as
Guarantor, and DVI Financial Services Inc., as Lender, dated as of June 16,
1997, the Loan and Security Agreement No. 4 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI Financial Services
Inc., as Lender, dated as of June 16, 1997, the Loan and Security Agreement No.
5 among MHOA Texas I, L.L.C., as Borrower, Physician Health Corporation, as
Guarantor, and DVI Financial Services Inc., as Lender, dated as of June 16,
1997, the Loan and Security Agreement No. 6 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI Financial Services
Inc., as Lender, dated as of June 16, 1997, and all documents related to any of
the foregoing, including, without limitation, guarantees, security agreements
and pledge agreements, as such agreements are in effect on the Effective Date
hereof.
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"DVI Indebtedness" shall mean indebtedness of MHOA Texas I, L.L.C.
owing to DVI Financial Services Inc. in an amount not to exceed $8,000,000 under
the DVI Debt Documents.
"DVI Payment Date" shall mean the single date on which all then
outstanding DVI Indebtedness is repaid in full.
"DVI Revolver" shall mean the indebtedness incurred pursuant to the
Loan and Security Agreement among MHOA Texas I, L.L.C. and DVI Business Credit
Corporation, dated as of June 16, 1997.
"Effective Date" shall have the meaning provided in Section 14.10.
"Eligible Inventory" shall mean the gross dollar value (valued at the
lower of cost (determined on a first in first out basis) or market value) of the
inventory of the Borrower and its Subsidiaries, which conforms to the
representations and warranties contained in the Security Agreement and at all
times continues to be acceptable to the Collateral Agent in its reasonable
judgment, less (i) any supplies (other than raw materials) spare parts, goods
returned or rejected (except to the extent that such returned or rejected goods
continue to conform to the representations and warranties contained in the
Security Agreement and continue to be acceptable to the Collateral Agent in its
reasonable judgment) by customers and goods returned to suppliers, (ii) any
advance payments made by customers with respect to inventory of the Borrower and
its Subsidiaries, (iii) inventory subject to any Lien other than Liens created
under the Security Agreement, (iv) any market reserves maintained by the
Borrower and its Subsidiaries and (v) any reserves required by the Collateral
Agent in its reasonable judgment for a special order of goods, market value
declines and bill and hold (deferred shipments) sales.
"Eligible Receivables" shall mean the total face amount of the
receivables of the Borrower and its Subsidiaries and other Subsidiaries of
Holdings arising in the ordinary course of business (including, without
limitation, all receivables owing to the Borrower or any of its Subsidiaries
pursuant to practice management agreements) which conform to the representations
and warranties contained in the Security Agreement (including, without
limitation, that the Collateral Agent shall have and maintain a first priority
perfected security interest in all such receivables) and at all times continue
to be acceptable to the Collateral Agent in its reasonable judgment less any
returns, discounts, claims, credit and allowances of any nature (whether issued,
owing, granted or outstanding) and less all allowances (including contractual
allowances) on the books of the Borrower and its Subsidiaries and less reserves
for any other matter affecting the creditworthiness of account debtors owing the
receivables and excluding (i) bill and hold (deferred shipment) and consignment
transactions, (ii) contracts or sales to any Affiliate, (iii) all receivables
which are not due by their terms or have not been paid in full within 120 days
of the
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invoice date thereof or which have been disputed or made subject to set-off,
(iv) all receivables from departments or instrumentalities or from any party
subject to any bankruptcy, receivership insolvency or like proceedings by the
account debtor, and (v) sales to account debtors outside the United States.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution, other "accredited investor" (as defined in Regulation D
of the Securities Act) other than individuals, or a "qualified institutional
buyer" as defined in Rule 144A of the Securities Act.
"Employee Benefit Plans" shall have the meaning provided in Section
5.05.
"Employment Agreements" shall have the meaning provided in Section
5.05.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations or proceedings relating in
any way to any violation of, or liability under, any Environmental Law or any
permit issued, or any approval given, under any such Environmental Law
(hereafter, "Claims"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, policy and rule of common law
now or hereafter in effect (including, without limitation, the EPA guidance on
asbestos abatement and removal) and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. (S) 1251 et seq.; the Toxic
-- ----
Substances Control Act, 15 U.S.C. (S) 7401 et seq.; the Clean Air Act, 42 U.S.C.
-- ----
(S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S) 3803 et seq.; the
-- ---- -- ----
Oil Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq.; the Occupational Safety
-- ----
and Health Act, 29 U.S.C. (S) 651 et seq.; and any applicable state and local or
-- ----
foreign counterparts or equivalents.
"Equity Amendments" shall have the meaning provided in Section 5.20.
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"Equity Call Agreement" shall mean the Equity Call Agreement dated as
of June 16, 1997 among the Company, Metroplex Hematology/Oncology Associates,
L.L.P. and Weston and the other investors party thereto as in effect on the date
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement, and to any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with Holdings or a Subsidiary of Holdings would be
deemed to be a "single employer" (i) within the meaning of Section 414(b), (c),
(m) or (o) of the Code or (ii) as a result of Holdings or a Subsidiary of
Holdings being or having been a general partner of such person.
"Eurodollar Loan" shall mean each Loan designated as such by the
Borrower at the time of the incurrence thereof or conversion thereto.
"Event of Default" shall have the meaning provided in Section 10.
"Excess Cash Flow" shall mean, for any period, the remainder of (i)
the sum of (a) Adjusted Consolidated Net Income for such period, and (b) the
decrease, if any, in Adjusted Working Capital from the first day to the last day
of such period, minus (ii) the sum of (a) the amount of cash Capital
Expenditures (to the extent not financed with Indebtedness and excluding
Permitted Acquisitions) but not in excess of the amounts permitted pursuant to
Section 9.08 and the amount of cash expended on Permitted Acquisitions (to the
extent not financed with Indebtedness or equity), made by the Borrower on a
consolidated basis during such period, (b) the amount of permanent principal
payments of Indebtedness for borrowed money of the Borrower (other than
repayments of Loans); provided that repayments of Loans shall be deducted in
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determining Excess Cash Flow if such repayments were applied to Scheduled
Repayments required to be made during such period, were made as a voluntary
prepayment with internally generated funds (but in the case of a voluntary
prepayment of Revolving Loans or Swingline Loans, only to the extent accompanied
by a voluntary reduction to the Total Revolving Loan Commitment) during such
period, and (c) the increase, if any, in Adjusted Working Capital from the first
day to the last day of such period. In making the foregoing determinations
under clause (i)(b) or (ii)(c) of the immediately preceding sentence, the amount
of the Adjusted Working Capital acquired as a result of each Permitted
Acquisition which occurred during the respective period for which Excess Cash
Flow is being determined shall have been deemed to have been acquired on the
first day of such period.
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"Excess Cash Flow Payment Period" shall mean each fiscal year of
Holdings.
"Excluded Public Offering Proceeds" shall mean (i) proceeds from the
issuance of common equity by Holdings in the initial public offering of common
equity of Holdings used to repurchase up to 40,000 shares of common stock (or
warrants exercisable into 40,000 shares of common stock) at a purchase price per
share not to exceed the initial public offering price and (ii) 100% of all
proceeds from the initial public offering of common equity of Holdings up to an
aggregate of $40 million.
"Existing Indebtedness" shall have the meaning provided in Section
7.22.
"Facility" shall mean any of the credit facilities established under
this Agreement, i.e., the Term Loan Facility, the Acquisition Loan Facility or
----
the Revolving Loan Facility.
"Facing Fee" shall have the meaning provided in Section 3.01(b).
"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds Brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 3.01.
"Fixed Charge Coverage Ratio" for any period shall mean the ratio of
(x) Consolidated EBITDA for such period less Capital Expenditures made by
Holdings and its Subsidiaries during such period to (y) Fixed Charges for such
period.
"Fixed Charges" for any period shall mean the sum of (i) Consolidated
Interest Expense for such period, (ii) the aggregate principal amount of all
scheduled payments of Indebtedness (including the principal portion of rentals
under Capitalized Lease Obligations but excluding repayment of Revolving Loans
and Swingline Loans not accompanied by a permanent reduction to the Total
Revolving Loan Commitment) required to be made during such period, (iii)
payments on Holdings Preferred Stock and (iv) taxes paid by Holdings and its
Subsidiaries for such period.
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"Guaranties" shall mean and include each of the Subsidiary Guaranties
executed by the Subsidiaries of Holdings (other than the Borrower and the
Immaterial Subsidiaries) and the Holdings Guaranty.
"Guarantor" shall mean Holdings and each Subsidiary of Holdings (other
than the Immaterial Subsidiaries).
"Hazardous Materials" means (a) petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain,
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous waste," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," "toxic substances,"
"toxic pollutants," "contaminants," or "pollutants," or words of similar meaning
and regulatory effect, under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated under applicable Environmental Laws.
"Holdings" shall have the meaning provided in the first paragraph of
this Agreement.
"Holdings Additional Convertible Securities" shall have the meaning
provided in Section 7.14.
"Holdings Common Stock" shall have the meaning provided in Section
7.14.
"Holdings Guaranty" shall mean the guaranty of Holdings contained in
Section 13 hereof.
"Holdings Preferred Stock" shall have the meaning provided in Section
7.14.
"Holdings Prime Stock" shall have the meaning provided in Section
7.14.
"Immaterial Subsidiaries" shall mean Subsidiaries of Holdings which
have assets with a book value and fair market value of less than $20,000 (and
the aggregate amount of assets of all such Subsidiaries does not exceed
$100,000) and are not party to any material contracts and Central Florida
Medical Management Services Organization as long as it continues in its present
business and does not enter into any other business.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services other than trade payables
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and accrued expenses arising in the ordinary course of business, (ii) the
maximum amount available to be drawn under all letters of credit issued for the
account of such Person and all unpaid drawings in respect of such letters of
credit, (iii) all Indebtedness of the types described in clause (i), (ii), (iv),
(v), (vi) or (vii) of this definition secured by any Lien on any property owned
by such Person, whether or not such Indebtedness has been assumed by such
Person, (iv) all Capitalized Lease Obligations of such Person, (v) all
obligations of such person to pay a specified purchase price for goods or
services, whether or not delivered or accepted, i.e., take-or-pay and similar
----
obligations, (vi) all Contingent Obligations of such Person and (vii) all
obligations under any Interest Rate Protection or Other Hedging Agreement or
under any similar type of agreement entered into with a Person not a Bank.
"Indemnified Matters" shall have the meaning provided in Section
14.01.
"Indemnitees" shall have the meaning provided in Section 14.01.
"Initial Borrowing Date" shall mean the date on which the initial
Credit Event occurs.
"Intellectual Property" shall have the meaning provided in Section
7.21.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection or Other Hedging Agreements" shall have the
meaning provided in the Security Documents.
"Investor Group" shall mean Weston Presidio Capital II, L.P.; Mercury
Asset Management plc, on behalf of Rowan Nominees Limited; NatWest Ventures
Investments Limited c/o EGL Holdings; St. Paul Venture Capital IV, LLC; Partech
U.S. Partners III C.V.; U.S. Growth Fund Partners C.V.; Axa U.S. Growth Fund
LLC; Double Black Diamond II LLC; Almanori Limited; Multinvest Limited;
BancBoston Investments Inc.; National City Venture Corporation; Larry Gerdes;
William Easton; Edward H. Bowman, Jr.; Martin Lamaison; Orville R. Gordon;
Howard F. Elkins; Richard V. Lawry; Guaranty & Trust Co. c/o David O. Ellis
KEOGH (No. 410-66530-1-9-390); Kathleen E. J. Ellis; Jeremy Ellis; Karen Ellis;
Gemma Ellis; Rowan Nominees c/o Mercury Asset Management Ltd.; and Natwest
Ventures, Ltd.
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"Issuing Bank" shall mean Banque Paribas and any Bank which at the
request of the Borrower agrees, in such Bank's sole discretion, to become an
Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2.
The sole Issuing Bank on the Initial Borrowing Date is Banque Paribas.
"L/C Supportable Indebtedness" shall mean (i) obligations of the
Borrower or any of its Subsidiaries incurred in the ordinary course of business
with respect to workers compensation, surety bonds and other similar statutory
obligations and (ii) such other obligations of the Borrower or any of its
Subsidiaries as are reasonably acceptable to the Issuing Bank and otherwise
permitted to exist pursuant to the terms of this Agreement.
"Leaseholds" of any Person means all the right, title and interest of
such Person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Cash Collateral Account" shall have the meaning
provided in Section 4.02(A)(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(c).
"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in Section
2.03(a).
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Term Loan, each Revolving Loan, each Swingline
Loan and each Acquisition Loan.
"Management Agreements" shall have the meaning provided in Section
5.05.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(e).
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"Margin Stock" shall have the meaning provided in Regulation U.
"Material Contracts" shall have the meaning provided in Section 5.05.
"Maturity Date" with respect to a Tranche shall mean either the Term
Loan Maturity Date, the Acquisition Loan Maturity Date, the Revolving Loan
Maturity Date or the Swingline Expiry Date, as the case may be.
"Maximum Swingline Amount" shall mean $2,000,000.
"Minimum Borrowing Amount" shall mean (i) with respect to the Term
Loan Facility (other than Term Loans incurred after the Initial Borrowing Date),
$5,000,000, (ii) with respect to Term Loans incurred after the Initial Borrowing
Date, zero, (iii) with respect to the Acquisition Loan Facility, $500,000 and
(iv) with respect to the Revolving Loan Facility (other than Swingline Loans),
$1,000,000 and for Swingline Loans, $250,000.
"Net Sale Proceeds" shall mean for any sale of assets, the gross cash
proceeds (including any cash received by way of deferred payment pursuant to a
promissory note, receivable or otherwise, but only as and when received)
received from such sale, net of reasonable transaction costs (including, without
limitation, attorneys' fees), the amount of such gross cash proceeds required to
be used to permanently repay any Indebtedness which is secured by the respective
assets which were sold, and the estimated marginal increase in income taxes
which will be payable by Holdings' consolidated group as a result of such sale.
"New Bank" shall mean each Bank which is not an Original Bank.
"Note" shall mean each Term Note, each Acquisition Note, each
Revolving Note and the Swingline Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Agent located at 227 West
Monroe Street, Suite 3300, Chicago, Illinois 60606, Attn: Mark Radzik and
Rowena Festin or such other office as the Agent may hereafter designate in
writing as such to the other parties hereto.
"Obligations" shall mean all amounts owing to the Agent, the
Collateral Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document.
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"Original Bank" shall mean Banque Paribas who is the only bank under
the Original Credit Agreement immediately prior to the Restatement Effective
Date.
"Original Credit Agreement" shall have the meaning provided in the
first WHEREAS clause.
"Other Subordinated Debt" shall have the meaning provided in Section
5.21.
"Participant" shall have the meaning provided in Section 2.04(a).
"Payment Office" shall mean the office of the Agent located at 227
West Monroe Street, Suite 3300, Chicago, Illinois 60606, Attn: Mark Radzik,
Rowena Festin or such other office as the Agent may hereafter designate in
writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" of any Bank at any time shall mean a fraction (expressed
as a percentage) the numerator of which is the Revolving Loan Commitment of such
Bank at such time and the denominator of which is the Total Revolving Loan
Commitment at such time; provided that if the Percentage of any Bank is to be
--------
determined after the Total Revolving Loan Commitment has been terminated, then
the Percentages of the Banks shall be determined immediately prior (and without
giving effect) to such termination.
"Permitted Acquisition" shall mean the acquisition by the Borrower or
any of its Subsidiaries of assets constituting all or substantially all of a
business, business unit, division or product line of any Person not already a
Subsidiary of the Borrower or 100% of the capital stock of any such Person,
although any such acquisition shall only be a Permitted Acquisition so long as
(A) the consideration therefor consists solely of the proceeds of Acquisition
Loans, Permitted Equity Issuances, Permitted Seller Notes and Permitted Earn-Out
Debt; (B) the assets acquired, or the business of the Person whose stock is
acquired, shall be in a Permitted Business; (C) those acquisitions that are
structured as asset acquisitions shall be consummated by the Borrower through a
new United States Subsidiary formed by the Borrower, which shall be a Wholly-
Owned Subsidiary of the Borrower, to effect such acquisition and (D) those
acquisitions that are structured as stock acquisitions shall be effected through
a purchase of 100% of the capital stock of such Person by the Borrower or
through a merger between such Person and a newly-formed direct Wholly-Owned
Subsidiary of the Borrower, as the case may be, so that after giving effect to
such merger 100% of the capital stock of the surviving corporation of such
merger is owned by the Borrower; provided, however, a Subsidiary of Holdings may
effect the Permitted Acquisition so long as the stock of such Subsidiary is
transferred to the Borrower within
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three Business Day of the acquisition thereof. Notwithstanding anything to the
contrary contained in the immediately preceding sentence, an acquisition shall
be a Permitted Acquisition only if all requirements of Section 8.15 with respect
to Permitted Acquisitions are met with respect thereto.
"Permitted Acquisition Notice" shall have the meaning provided in
Section 8.15(a).
"Permitted Business" shall mean a line of business in which the
Borrower and its Subsidiaries is engaged on the Initial Borrowing Date and
reasonably related extensions thereof.
"Permitted Earn-Out Debt" shall mean Indebtedness of Holdings incurred
in connection with a Permitted Acquisition and in accordance with Section 8.15,
which Indebtedness is not secured by any assets of Holdings or any of its
Subsidiaries (including, without limitation, the assets so acquired) and is only
payable by Holdings upon the passage of time (e.g., non-compete payments) or in
----
the event certain future performance goals are achieved with respect to the
assets acquired; provided that such Indebtedness shall only constitute Permitted
--------
Earn-Out Debt to the extent the terms of such Indebtedness expressly limit the
maximum potential liability of Holdings with respect thereto and all such other
terms shall be in form and substance reasonably satisfactory to the Agent.
"Permitted Equity Issuances" shall mean issuances of Holdings Common
Stock or Holdings Prime Stock by Holdings as consideration in Permitted
Acquisitions, but only to the extent permitted pursuant to Section 8.15.
"Permitted Liens" shall have the meaning provided in Section 9.01.
"Permitted Seller Notes" shall mean notes issued by Holdings to
sellers of stock or assets in a Permitted Acquisition and issued in accordance
with Section 8.15, which notes shall be unsecured and unguaranteed, and shall
otherwise be in form and substance reasonably satisfactory to the Agent.
"Person" shall mean any individual, partnership, joint venture, firm,
coporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Personal Guarantees" shall have the meaning provided in Section 7.24.
"Plan" shall mean any pension plan, as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) Holdings, a Subsidiary of Holdings or an ERISA
Affiliate, and each such plan for the
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five year period immediately following the latest date on which Holdings, a
Subsidiary of Holdings or an ERISA Affiliate maintained, contributed to or had
an obligation to contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section 5.07.
"Pledge Agreement Collateral" shall mean all "Collateral" as defined
in the Pledge Agreement.
"Pledged Securities" shall have the meaning assigned that term in the
Pledge Agreement.
"Pledged Stock" shall have the meaning assigned that term in the
Pledge Agreement.
"Post-Closing Acquisitions" shall have the meaning proved in Section
7.31.
"Pre-Closing Acquisitions" shall mean the acquisitions set forth on
Schedule XIII.
"Prime Lending Rate" shall mean the rate which The Chase Manhattan
Bank announces from time to time as its prime lending rate, the Prime Lending
Rate to change when and as such prime lending rate changes. The Prime Lending
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually charged to any customer by Banque Paribas or The Chase Manhattan
Bank, who may make commercial loans or other loans at rates of interest at,
above or below the Prime Lending Rate.
"Pro Forma Basis" shall mean, with respect to any Permitted
Acquisition or repayment of DVI Indebtedness, the calculation of the
consolidated results of Holdings and its Subsidiaries otherwise determined in
accordance with this Agreement as if the respective Permitted Acquisition or
repayment of DVI Indebtedness (and all other Permitted Acquisitions and
repayments consummated during the respective Calculation Period or thereafter
and prior to the date of determination pursuant to Section 8.15 or other
applicable provision of this Agreement) had been effected on the first day of
the respective Calculation Period; provided that all calculations shall take
--------
into account the following assumptions:
(i) with respect to Consolidated Interest Expense or Consolidated
Indebtedness, if any Indebtedness is incurred pursuant to the respective
Permitted Acquisition or repayment of DVI Indebtedness (or was incurred in
any other Permitted Acquisition or other repayment of DVI Indebtedness
which occurred during the relevant Calculation Period or thereafter and
prior to the date of determination) then all such Indebtedness shall be
deemed to have been outstanding
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from the first day of the respective Calculation Period (and the interest
expense associated with such Indebtedness, shall be determined at the
actual rates applicable thereto or which would have been applicable had
such debt been outstanding for the whole such period and shall be included
in determining Consolidated Interest Expense on such Pro Forma Basis) and
all Indebtedness that was outstanding during the Calculation Period or
thereafter and prior to the date of the Permitted Acquisition or repayment
of DVI Indebtedness but not outstanding on the date of the Permitted
Acquisition or repayment of DVI Indebtedness shall be deemed to have been
repaid in full on the first day of the Calculation Period; and
(ii) if all or any portion of the respective Calculation Period
occurs before November 1, 1997, then compliance with Section 8.15(a) and
Sections 9.09 through 9.13, inclusive on a Pro Forma Basis, shall only be
required to be established for the period beginning on the Initial
Borrowing Date and ending on the last day of the respective Calculation
Period; provided that to the extent a financial covenant calculation
--------
compares a balance sheet item to an income statement item, all calculations
relating to the financial results of the Person or business, division or
product line being acquired pursuant to the Permitted Acquisition shall, to
the extent that such results relate to income statement items, be
multiplied by a fraction (x) the numerator of which shall be the number of
days from the Initial Borrowing Date to the end of the Calculation Period
and (y) the denominator of which shall be the number of days in the
Calculation Period without giving effect to this clause (iii) which
provides that the Calculation Period commences on the Initial Borrowing
Date (and is therefore less than four fiscal quarters).
"Projections" shall have the meaning provided in Section 5.15.
"Purchase Price" shall mean the aggregate purchase price for each
Acquisition and the amount and form of each type of consideration payable with
respect thereto as set forth on Schedule XVII hereto and the applicable
Acquisition Documents.
"Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December of each calendar year.
"Quoted Rate" shall mean (a) the offered quotation to first-class
banks in the New York interbank Eurodollar market by the Agent for U.S. dollar
deposits of amounts in immediately available funds comparable to the outstanding
principal amount of the Eurodollar Loan of the Agent for which an interest rate
is then being determined with maturities comparable to the Interest Period
applicable to such Eurodollar Loan determined as of 10:00 A.M. (New York time)
on the date which is two Business Days prior to the commencement of such
Interest Period, divided (and rounded upward to the next whole multiple of 1/16
of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate of
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all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of Eurocurrency funding or
liabilities as defined in Regulation D (or any successor category of liabilities
under Regulation D).
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. (S) 6901 et seq.
-- ----
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by Holdings or any Subsidiary
of Holdings of any cash insurance proceeds payable by reason of theft, physical
destruction or damage or any other similar event with respect to any properties
or assets of Holdings or any Subsidiary of Holdings (including, without
limitation, business interruption insurance).
"Refinanced Indebtedness" shall have the meaning provided in Section
5.16(b).
"Register" shall have its meaning provided in Section 8.16.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
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"Related Fund" shall mean, with respect to any Bank that is a fund
that invests in loans and is managed by the same investment advisor as such Bank
or by an Affiliate of such investment advisor.
"Release" means disposing, discharging, injecting, spilling, pumping,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing,
pouring and the like, into or upon any land or water or air, or otherwise
entering into the environment.
"Replaced Bank" shall have the meaning provided in Section 1.12.
"Replacement Bank" shall have the meaning provided in Section 1.12.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required Acquisition Facility Banks" shall mean Banks the sum of
whose Acquisition Loan Commitments and Acquisition Loans represent an amount
greater than 50% of the Total Acquisition Loan Commitment and Acquisition Loans
of all Banks.
"Required Banks" shall mean Banks the sum of whose outstanding Term
Loans, Term Loan Commitments, Acquisition Loan Commitments, outstanding
Acquisition Loans and Revolving Loan Commitments (or after the termination
thereof, the sum of outstanding Revolving Loans and Percentages of Swingline
Loans and Letter of Credit Outstandings), represent an amount greater than 50%
of the sum of all outstanding Term Loans, the Total Term Loan Commitments, the
Total Acquisition Loan Commitment, all outstanding Acquisition Loans and the
Total Revolving Loan Commitment (or after the termination thereof, the sum of
the then total outstanding Revolving Loans and the aggregate Swingline Loans and
Letter of Credit Outstandings).
"Required Term Facility Banks" shall mean Banks the sum of whose
outstanding Term Loans represent an amount greater than 50% of all outstanding
Term Loans of all Banks.
"Restatement Effective Date" shall have the meaning provided in
Section 14.10.
"Returns" shall have the meaning provided in Section 7.09.
"Revolving Loan Commitment" shall mean, for each Bank, the amount set
forth opposite such Bank's name on Part A of Schedule I hereto directly below
the column
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entitled "Revolving Loan Commitment," as same may be (x) reduced or terminated
from time to time pursuant to Section 3.02, 3.03, 4.02 and/or 10 or (y) adjusted
from time to time as a result of assignments to or from such Bank pursuant to
Section 1.12 or 14.04.
"Revolving Loan Facility" shall mean the Facility evidenced by the
Total Revolving Loan Commitment.
"Revolving Loan Maturity Date" shall mean the four year and six month
anniversary of the Initial Borrowing Date.
"Revolving Loans" shall have the meaning provided in Section 1.01(c).
"Revolving Notes" shall have the meaning provided in Section
1.05(a)(iii).
"Scheduled Acquisition Loan Repayment" shall have the meaning provided
in Section 4.02(A)(d).
"Scheduled Repayment" shall have the meaning provided in Section
4.02(A)(d).
"Scheduled Term Loan Repayment" shall have the meaning provided in
Section 4.02(A)(c).
"SEC" shall have the meaning provided in Section 8.01(h).
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b)(ii).
"Secured Creditors" shall mean (x) the Banks, the Agent, the
Collateral Agent and (y) any Bank which on the date hereof is, or subsequently
becomes, party to any Interest Rate Protection or Other Hedging Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement, dated as of June 16, 1997 among the Company, Weston and certain other
investors.
"Security Agreement" shall have the meaning provided in Section 5.08.
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"Security Agreement Collateral" shall mean all "Collateral" as defined
in the Security Agreement.
"Security Documents" shall mean the Pledge Agreement, the Security
Agreement, the Cash Collateral Agreement, the Concentration Account Consent
Letter and each Additional Security Document.
"Senior Subordinated Loan Agreement" shall mean the Senior
Subordinated Loan Agreement, dated as of October 27, 1997, among the Borrower,
Paribas Capital Funding, as agent, and the lenders listed on the signature pages
thereof.
"Senior Subordinated Loan Documents" shall mean and include each of
the documents and other agreements entered into in connection with the issuance
by the Borrower of the Senior Subordinated Notes (including, without limitation,
the Senior Subordinated Loan Agreement and all guarantees related thereto), as
in effect on the Initial Borrowing Date and as the same may be entered into,
modified, supplemented or amended from time to time pursuant to the terms hereof
and thereof.
"Senior Subordinated Notes" shall mean the Borrower's unsecured Senior
Subordinated Notes due 2005, as in effect on the Initial Borrowing Date and as
the same may be modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof, including Senior Subordinated
Notes issued after the Initial Borrowing Date in accordance with the terms
hereof and thereof.
"Shareholders' Agreements" shall have the meaning provided in Section
5.05.
"Stated Amount" of each Letter of Credit shall, at any time, mean the
maximum amount available to be drawn thereunder at such time (in each case
determined without regard to whether any conditions to drawing could then be
met).
"Subordinated Debt Amendments" shall have the meaning provided in
Section 5.21.
"Subsidiaries Guaranty" shall have the meaning provided in Section
5.09.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association,
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joint venture or other entity in which such Person and/or one or more
Subsidiaries of such Person has more than a 50% equity interest at the time.
"Subsidiary Metroplex Note" shall mean the Promissory Note dated June
16, 1997 in the original amount of $6,210,000 from Physicians Health Corporation
payable to Metroplex Hematology Oncology Associates, L.L.P. which Note was
assumed by MHOA Texas I, LLC.
"Swingline Bank" shall mean Banque Paribas, in its capacity as the
maker of Swingline Loans.
"Swingline Expiry Date" shall mean the date which is two Business Days
prior to the Revolving Loan Maturity Date.
"Swingline Loans" shall have the meaning provided in Section 1.01(d).
"Swingline Note" shall have the meaning provided in Section
1.05(a)(iv).
"Syndication Termination Date" shall mean the earlier of (x) 180 days
after the Initial Borrowing Date or (y) the date on which the Agent, in its sole
discretion, determines (and notifies the Borrower) that the primary syndication
(and the resultant addition of institutions as Banks pursuant to Section 14.04)
has been completed.
"Tax Sharing Agreements" shall have the meaning provided in Section
5.05.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan" shall have the meaning provided in Section 1.01(a).
"Term Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Part A of Schedule I directly
below the column entitled "Tranche Term Loan Commitment," as the same may be (x)
reduced or terminated pursuant to Section 3.03, 4.02 and/or 10 or (y) adjusted
from time to time as a result of assignments to or from such Bank pursuant to
Section 1.12 or 14.04.
"Term Loan Commitment Percentage" shall mean, with respect to each
Bank, a fraction (expressed as a percentage), the numerator of which is equal to
the Term Loan Commitment of such Bank at such time and the denominator of which
is equal to the Term Loan Commitments of all Banks at such time.
"Term Loan Commitment Termination Date" shall mean the four year and
six month anniversary of the Initial Borrowing Date.
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"Term Loan Facility" shall mean the facility evidenced by Total Term
Loan Commitment.
"Term Loan Maturity Date" shall mean the four year and six month
anniversary of the Initial Borrowing Date.
"Term Note" shall have the meaning provided in Section 1.05(a)(i).
"Term TL Percentage" shall mean, at any time, a fraction (expressed as
a percentage), the numerator of which is equal to the aggregate principal amount
of all Term Loans outstanding at such time, and the denominator of which is
equal to the aggregate principal amount of all Term Loans outstanding at such
time and the aggregate principal amount of all Acquisition Loans outstanding at
such time.
"Total Acquisition Loan Commitment" shall mean, at any time, the sum
of the Acquisition Loan Commitments of each of the Banks.
"Total Commitment" shall mean, at any time, the sum of the Commitments
of each of the Banks.
"Total Revolving Loan Commitment" shall mean, at any time, the sum of
the Revolving Loan Commitments of each of the Banks.
"Total Term Loan Commitment" shall mean, at any time, the sum of the
Term Loan Commitment of each of the Banks.
"Tranche" shall mean the respective facility and commitments utilized
in making Loans hereunder, with there being four separate Tranches, i.e.,
----
whether Term Loans, Acquisition Loans, Revolving Loans or Swingline Loans.
"Transaction" shall mean collectively, (i) the incurrence of Loans
hereunder on the Initial Borrowing Date, (ii) the consummation of the
Acquisitions, (iii) the issuance of the Senior Subordinated Notes, (iv) the
issuance of capital stock of Holdings in connection with the transactions
contemplated hereby, (v) the repayment of all Refinanced Indebtedness, together
with all accrued interest, premiums, fees, commissions and expenses owing in
connection therewith, and the termination of all commitments thereunder, (vi)
the payment of the Transaction Fees and Expenses in connection therewith, and
(vii) the entering into of the Equity Amendments and the Subordinated Debt
Amendments.
"Transaction Fees and Expenses" shall mean all fees and expenses
incurred in connection with and arising out of the Transaction and the
transactions contemplated
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thereby and hereby; provided, however, that the aggregate amount of such fees
-------- -------
and expenses shall not exceed $2.0 million in the aggregate.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
----
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year exceeds the fair market
value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan.
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided for in Section
2.05(a).
"Unutilized Revolving Loan Commitment" for any Bank, at any time,
shall mean the Revolving Loan Commitment of such Bank at such time less the sum
of (i) the aggregate principal amount of Revolving Loans made by such Bank and
then outstanding and (ii) such Bank's Percentage of the Letter of Credit
Outstandings.
"Weston" shall mean Weston Presidio Capital Partners II, L.P.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person
and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity
interest at such time.
Section 12. The Agent.
---------
12.01 Appointment. The Banks hereby designate Banque Paribas as
-----------
Agent (for purposes of this Section 12, the term "Agent" shall include Banque
Paribas in its capacity as Collateral Agent pursuant to the Security Documents)
to act as specified herein and in the other Credit Documents. Each Bank hereby
irrevocably authorizes, and each holder of any Note by the acceptance of such
Note shall be deemed irrevocably to authorize, the Agent to take such action on
its behalf under the provisions of this Agreement, the
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other Credit Documents and any other instruments and agreements referred to
herein or therein and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of the
Agent by the terms hereof and thereof and such other powers as are reasonably
incidental thereto. The Agent may perform any of its duties hereunder by or
through its officers, directors, agents or employees.
12.02 Nature of Duties. The Agent shall have no duties or
----------------
responsibilities except those expressly set forth in this Agreement and the
Security Documents. Neither the Agent nor any of its officers, directors,
agents or employees shall be liable for any action taken or omitted by it or
them hereunder or under any other Credit Document or in connection herewith or
therewith, unless caused by its or their gross negligence or willful misconduct.
The duties of the Agent shall be mechanical and administrative in nature; the
Agent shall not have by reason of this Agreement or any other Credit Document a
fiduciary relationship in respect of any Bank or the holder of any Note; and
nothing in this Agreement or any other Credit Document, expressed or implied,
is intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Agreement or any other Credit Document except as
expressly set forth herein.
12.03 Lack of Reliance on the Agent. Independently and without
-----------------------------
reliance upon the Agent, each Bank and the holder of each Note, to the extent it
deems appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of Holdings and its
Subsidiaries in connection with the making and the continuance of the Loans and
the participation in Letters of Credit and the taking or not taking of any
action in connection herewith and (ii) its own appraisal of the creditworthiness
of Holdings and its Subsidiaries and, except as expressly provided in this
Agreement, the Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Bank or the holder of any Note with any
credit or other information with respect thereto, whether coming into its
possession before the making of the Loans, the participation in the Letters of
Credit or at any time or times thereafter. The Agent shall not be responsible
to any Bank or the holder of any Note for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, priority or sufficiency of
this Agreement or any other Credit Document or the financial condition of
Holdings or its Subsidiaries or be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement or any other Credit Document, or the financial
condition of Holdings or its Subsidiaries or the existence or possible existence
of any Default or Event of Default. In no event shall the Agent be required in
contravention of applicable law or if such action would cause it, in its sole
determination, to incur any risk or liability for which it is not adequately
indemnified for to its satisfaction.
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12.04 Certain Rights of the Agent. If the Agent shall request
---------------------------
instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, the Agent shall be entitled to refrain from such act or taking such
action unless and until the Agent shall have received instructions from the
Required Banks; and the Agent shall not incur liability to any Person by reason
of so refraining. Without limiting the foregoing, no Bank or the holder of any
Note shall have any right of action whatsoever against the Agent as a result of
the Agent acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Required Banks.
12.05 Reliance. The Agent shall be entitled to rely, and shall be
--------
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or facsimile message, cablegram,
radiogram, legal opinion, order or other document or telephone message signed,
sent or made by any Person that the Agent believed to be the proper Person, and,
with respect to all legal matters pertaining to this Agreement and any other
Credit Document and its duties hereunder and thereunder, upon advice of counsel
selected by it.
12.06 Indemnification. (a) To the extent the Agent is not
---------------
reimbursed and indemnified by the Borrower, the Banks will reimburse and
indemnify the Agent, in proportion to their respective "percentages" as used in
determining the Required Banks, for and against any and all liabilities,
obligations, losses, damages, penalties, claims, actions, judgments, suits,
costs, expenses or disbursements of whatsoever kind or nature which may be
imposed on, asserted against or incurred by the Agent in performing its duties
hereunder or under any other Credit Document, in any way relating to or arising
out of this Agreement or any other Credit Document; provided that no Bank shall
--------
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct.
(b) The Agent shall be fully justified in failing or refusing to take
any action hereunder and under any other Credit Document (except actions
expressly required to be taken by it hereunder or under the Credit Documents)
unless it shall first be indemnified to its satisfaction by the Banks pro rata
--- ----
against any and all liability, cost and expense that it may incur by reason of
taking or continuing to take any such action.
12.07 The Agent in Its Individual Capacity. With respect to its
------------------------------------
obligation to make Loans under this Agreement, the Agent shall have the rights
and powers specified herein for a "Bank" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Banks," "Required Banks," "holders of Notes" or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to,
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and generally engage in any kind of banking, trust or other business with any
Credit Party or any Affiliate of any Credit Party as if it were not performing
the duties specified herein, may hold equity interests in the Borrower or any of
its Affiliates and may accept fees and other consideration from the Borrower or
any other Credit Party for services in connection with this Agreement and
otherwise without having any liability to, and without having to account for the
same to, the Banks.
12.08 Holders. The Agent may deem and treat the payee of any Note as
-------
the owner thereof for all purposes hereof unless and until a written notice of
the assignment, transfer or endorsement thereof, as the case may be, shall have
been filed with the Agent. Any request, authority or consent of any Person who,
at the time of making such request or giving such authority or consent, is the
holder of any Note shall be conclusive and binding on any subsequent holder,
transferee, assignee or indorsee, as the case may be, of such Note or of any
Note or Notes issued in exchange therefor.
12.09 Resignation by the Agent. (a) The Agent may resign from the
------------------------
performance of all its functions and duties hereunder and/or under the other
Credit Documents at any time by giving 15 Business Days' prior written notice to
the Borrower and the Banks. Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks shall
appoint a successor Agent hereunder or thereunder who shall be a commercial bank
or trust company reasonably acceptable to the Borrower.
(c) If a successor Agent shall not have been so appointed within such
15 Business Day period, the Agent, with the consent of the Borrower, shall then
appoint a successor Agent who shall serve as Agent hereunder or thereunder
until such time, if any, as the Banks appoint a successor Agent as provided
above.
(d) If no successor Agent has been appointed pursuant to clause (b)
or (c) above by the 30th Business Day after the date such notice of resignation
was given by the Agent, the Agent's resignation shall become effective and the
Banks shall thereafter perform all the duties of the Agent hereunder and/or
under any other Credit Document until such time, if any, as the Banks appoint a
successor Agent as provided above.
Section 13. Guaranty.
--------
13.01 The Guaranty. In order to induce the Banks to enter into this
------------
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Holdings from the proceeds of the Loans and the
issuance of the Letters of
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Credit, Holdings hereby agrees with the Banks as follows: Holdings hereby
unconditionally and irrevocably guarantees as primary obligor and not merely as
surety the full and prompt payment when due, whether upon maturity, by
acceleration or otherwise, of any and all indebtedness of the Borrower to the
Banks under this Agreement and the other Credit Documents and under each
Interest Rate Protection or Other Hedging Agreement entered into by a Bank or an
affiliate of a Bank with the Borrower. If any or all of the indebtedness of the
Borrower to the Banks becomes due and payable hereunder or under such other
Credit Documents or Interest Rate Protection or Other Hedging Agreements,
Holdings unconditionally promises to pay such indebtedness to the Banks, or
order, on demand, together with any and all expenses which may be incurred by
the Agent or the Banks in collecting any of the indebtedness. The word
"indebtedness" is used in this Section 13 in its most comprehensive sense and
means any and all advances, debts, obligations and liabilities of the Borrower
arising in connection with this Agreement or any other Credit Documents or under
any Interest Rate Protection or Other Hedging Agreement with a Bank or an
affiliate of the Bank, in each case, heretofore, now, or hereafter made,
incurred or created, whether voluntarily or involuntarily, absolute or
contingent, liquidated or unliquidated, determined or undetermined, whether or
not such indebtedness is from time to time reduced, or extinguished and
thereafter increased or incurred, whether the Borrower may be liable
individually or jointly with others, whether or not recovery upon such
indebtedness may be or hereafter become barred by any statute of limitations,
and whether or not such indebtedness may be or hereafter become otherwise
unenforceable.
13.02 Bankruptcy. Additionally, Holdings unconditionally and
----------
irrevocably guarantees the payment of any and all indebtedness of the Borrower
to the Banks whether or not due or payable by the Borrower upon the occurrence
of any of the events specified in Section 10.05, and unconditionally and
irrevocably promises to pay such indebtedness to the Banks, or order, on demand,
in lawful money of the United States.
13.03 Nature of Liability. The liability of Holdings hereunder is
-------------------
exclusive and independent of any security for or other guaranty of the
indebtedness of the Borrower whether executed by Holdings, any other guarantor
or by any other party, and the liability of Holdings hereunder shall not be
affected or impaired by (a) any direction as to application of payment by the
Borrower or by any other party, or (b) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
indebtedness of the Borrower, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any dissolution, termination or increase,
decrease or change in personnel by the Borrower, or (e) any payment made to the
Agent or the Banks on the indebtedness which the Agent or such Banks repay the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and Holdings waives any right to
the deferral or modification of its obligations hereunder by reason of any such
proceeding.
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13.04 Guaranty Absolute. No invalidity, irregularity or
-----------------
unenforceability of all or any part of the indebtedness guaranteed hereby or of
any security therefor shall affect, impair or be a defense to this Guaranty, and
this Guaranty shall be primary, absolute and unconditional notwithstanding the
occurrence of any event or the existence of any other circumstances which might
constitute a legal or equitable discharge of a surety or guarantor except
payment in full of the indebtedness guaranteed herein.
13.05 Independent Obligation. The obligations of Holdings hereunder
----------------------
are independent of the obligations of any other guarantor or the Borrower, and a
separate action or actions may be brought and prosecuted against Holdings
whether or not action is brought against any other guarantor or the Borrower and
whether or not any other guarantor or the Borrower be joined in any such action
or actions. Holdings waives, to the fullest extent permitted by law, the
benefit of any statue of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by the Borrower or other circumstance which
operates to toll any statute of limitations as to the Borrower shall operate to
toll the statute of limitations as to Holdings.
13.06 Authorization. Holdings authorizes the Agent and the Banks
-------------
without notice or demand to Holdings, and without affecting or impairing its
liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the indebtedness (including any increase or decrease in the rate of
interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the Guaranty herein made
shall apply to the indebtedness as so changed, extended, renewed or
altered;
(b) take and hold security for the payment of the indebtedness and
sell, exchange, release, surrender, realize upon or otherwise deal with in
any manner and in any order any property by whomsoever at any time pledged
or mortgaged to secure, or howsoever securing, the indebtedness or any
liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligors;
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(e) settle or compromise any of the indebtedness, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate
the payment of all or any part thereof to the payment of any liability
(whether due or not) of the Borrower to its creditors other than the Banks;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Banks regardless of what
liability or liabilities of Holdings or the Borrower remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any of the instruments or agreements
referred to herein, or otherwise amend, modify or supplement this Agreement
or any of such other instruments or agreements; and/or
(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
Holdings from its liabilities under this Section 13.
13.07 Reliance. It is not necessary for the Agent or the Banks to
--------
inquire into the capacity or powers of the Borrower or its Subsidiaries or the
officers, directors, partners or agents acting or purporting to act on its
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
13.08 Subordination. Any indebtedness of the Borrower now or
-------------
hereafter held by Holdings is hereby subordinated to the indebtedness of the
Borrower to the Agent and the Banks; and such indebtedness of the Borrower to
Holdings, if the Agent (at the direction of the Required Banks), after an Event
of Default has occurred, so requests, shall be collected, enforced and received
by Holdings as trustee for the Banks and be paid over to the Banks on account of
the indebtedness of the Borrower to the Banks, but without affecting or
impairing in any manner the liability of Holdings under the other provisions of
this Guaranty. Prior to the transfer by Holdings of any note or negotiable
instrument evidencing any indebtedness of the Borrower to Holdings, Holdings
shall mark such note or negotiable instrument with a legend that the same is
subject to this subordination.
13.09 Waiver. (a) Holdings waives any right to require the Agent or
------
the Banks to (i) proceed against the Borrower, any other guarantor or any other
party, (ii) proceed against or exhaust any security held from the Borrower, any
other guarantor or any other party or (iii) pursue any other remedy in the
Agent's or the Banks' power whatsoever. Holdings waives any defense based on or
arising out of any defense of the Borrower, any other guarantor or any other
party other than payment in full of the indebtedness (other than
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payment), including, without limitation, any defense based on or arising out of
the disability of the Borrower, any other guarantor or any other party, or the
unenforceability of the indebtedness or any part thereof from any cause, or the
cessation from any cause of the liability of the Borrower other than to the
extent of payment in full of the indebtedness. The Agent and the Banks may, in
accordance with the Credit Documents, at their election, foreclose on any
security held by the Agent, the Collateral Agent or the Banks by one or more
judicial or nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable (to the extent such sale is permitted by applicable
law), or exercise any other right or remedy the Agent and the Banks may have
against the Borrower or any other party, or any security, without affecting or
impairing in any way the liability of Holdings hereunder except to the extent
the indebtedness has been paid. Holdings waives any defense arising out of any
such election by the Agent and the Borrower, even though such election operates
to impair or extinguish any right of reimbursement or subrogation or other right
or remedy of Holdings against the Borrower or any other party or any security.
(b) Except as otherwise specifically required hereunder, Holdings
waives all presentments, demands for performance, protests and notices,
including, without limitation, notices of nonperformance, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty, and notices of the
existence, creation or incurring of new or additional indebtedness. Holdings
assumes all responsibility for being and keeping itself informed of the
Borrower's financial condition and assets, and of all other circumstances
bearing upon the risk of non-payment of the indebtedness and the nature, scope
and extent of the risks which Holdings assumes and incurs hereunder, and agrees
that the Agent and the Banks shall have no duty to advise Holdings of
information known to them regarding such circumstances or risks.
13.10 Guaranty Continuing. This Guaranty is a continuing one and all
-------------------
liabilities to which it applies or may apply under the terms hereof shall be
conclusively presumed to have been created in reliance hereon. No failure or
delay on the part of any Bank, of any holder of any Note, or issuer of, or
participant in, any Letter of Credit in exercising any right, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein expressly specified are cumulative and not
exclusive of any rights or remedies which any Bank or any subsequent holder of a
Note, or issuer of, or participant in, a Letter of Credit would otherwise have.
No notice to or demand on Holdings in any case shall entitle Holdings to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Bank or any holder, creator or
purchaser to any other or further action in any circumstances without notice or
demand.
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13.11 Binding Nature of Guaranties. This Guaranty shall be binding
----------------------------
upon Holdings and its successors and assigns and shall inure to the benefit of
the Bank and their successors and assigns.
13.12 Judgments Binding. If claim is ever made upon any Bank, any
-----------------
subsequent holder of a Note or issuer of, or participant in, any Letter of
Credit for repayment or recovery of any amount or amounts received in payment or
on account of any of the indebtedness and any of the aforesaid payees repays all
or part of said amount by reason of (a) any judgment, decree or order of any
court or administrative body having jurisdiction over such payee or any of its
property, or (b) any settlement or compromise of any such claim effected by such
payee with any such claimant (including the Borrower) then and in such event
Holdings agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon Holdings, notwithstanding any revocation hereof or the can
cellation of any Note, or other instrument evidencing any liability of the
Borrower, and Holdings shall be and remain liable to the aforesaid payees
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by any such payee.
Section 14. Miscellaneous.
-------------
14.01 Payment of Expenses, etc. Each of Holdings and the Borrower,
-------------------------
jointly and severally, agree to: (i) whether or not the transactions herein
contemplated are consummated, pay all out-of-pocket costs and expenses of the
Agent (including, without limitation, the fees and disbursements of White & Case
and local counsel) in connection with the preparation, execution and delivery of
this Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein and any amendment, waiver or consent relating
hereto or thereto, of the Agent in connection with its syndication efforts with
respect to this Agreement (including, without limitation, the fees and
disbursements of White & Case) and of the Agent and each of the Banks in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the fees and disbursements of counsel for the Agent and for
each of the Banks); (ii) pay and hold each of the Banks harmless from and
against any and all present and future stamp, excise and other similar taxes
with respect to the foregoing matters and save each of the Banks harm less from
and against any and all liabilities with respect to or resulting from any delay
or omission (other than to the extent attributable to such Bank) to pay such
taxes; and (iii) defend, protect, indemnify and hold harmless the Agent and each
Bank, and each of their respective officers, directors, employees,
representatives, attorneys and agents (collectively called the "Indemnitees")
from and against any and all liabilities, obligations (including removal or
remedial actions), losses, damages (including foreseeable and unforeseeable
consequential damages and punitive damages), penalties, claims, actions,
judgments, suits,
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costs, expenses and disbursements (including reasonable attorneys' and
consultants fees and disbursements) of any kind or nature whatsoever that may at
any time be incurred by, imposed on or assessed against the Indemnitees directly
or indirectly based on, or arising or resulting from, or in any way related to,
or by reason of (a) any investigation, litigation or other proceeding (whether
or not the Agent, the Collateral Agent or any Bank is a party thereto and
whether or not any such investigation, litigation or other proceeding is between
or among the Agent, the Collateral Agent, any Bank, Holdings or any third person
or otherwise) related to the entering into and/or performance of this Agreement
or any other Credit Document or the use of any Letter of Credit or the proceeds
of any Loans hereunder or the consummation of any transactions contemplated
herein (including, without limitation, the Transaction) or in any other Credit
Document or the exercise of any of their rights or remedies provided herein or
in the other Credit Documents; or, (b) the actual or alleged generation,
presence or Release of Hazardous Materials on or from, or the transportation of
Hazardous Materials to or from, any Real Property owned or at any time operated
by Holdings or any of its Subsidiaries or; (c) any Environmental Claim relating
to Holdings or any of its Subsidiaries or any Real Property owned or at any time
operated by Holdings or any of its Subsidiaries or; (d) the exercise of the
rights of the Agent and of any Bank under any of the provisions of this
Agreement or any other Credit Document or any Letter of Credit or any Loans
hereunder; or (e) the consummation of any transaction contemplated herein
(including, without limitation, the Transaction) or in any other Credit Document
(the "Indemnified Matters") regardless of when such Indemnified Matter arises;
but excluding any such Indemnified Matter based solely on the gross negligence
or willful misconduct of any Indemnitee.
14.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of each Credit Party against and on account of
the Obligations and liabilities of such Credit Party to such Bank under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by such Bank pursuant to
Section 14.06(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not such Bank shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
14.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic,
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telex, facsimile or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered: if to Holding or the Borrower, at its address
specified opposite its signature below; if to any Bank, at its address specified
opposite its name below; and if to the Agent, at its Notice Office; or, as to
any Credit Party or the Agent, at such other address as shall be designated by
such party in a written notice to the other parties hereto and, as to each Bank,
at such other address as shall be designated by such Bank in a written notice to
each Borrower and the Agent. All such notices and communications shall, when
mailed, telegraphed, telexed, facsimiled, or cabled or sent by overnight
courier, be effective three Business Days after deposited in the mails,
certified, return receipt requested, when delivered to the telegraph company,
cable company or one day following delivery to an overnight courier, as the case
may be, or sent by telex or facsimile device, except that notices and
communications to the Agent shall not be effective until received by the Agent.
14.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided, however, no Credit Party may assign
-------- -------
or transfer any of its rights, obligations or interest hereunder or under any
other Credit Document without the prior written consent of the Banks; and
provided further, that although any Bank may transfer, assign or grant
- ----------------
participations in its rights hereunder, such Bank shall remain a "Bank" for all
purposes hereunder (and may not transfer or assign all or any portion of its
Commitments or Loans hereunder except as provided in Section 14.04(b)) and the
transferee, assignee or participant, as the case may be, shall not constitute a
"Bank" hereunder; and provided further, that no Bank shall transfer or grant any
----------------
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (i) extend the final scheduled
maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is
not extended beyond the Revolving Loan Maturity Date) in which such participant
is participating, or reduce the rate or extend the time of payment of interest
or Fees thereon (except in connection with a waiver of applicability of any
post-default increase in interest rates) or reduce the principal amount thereof,
or increase the Commitments in which such participant is participating over the
amount thereof then in effect (it being understood that a waiver of any Default
or Event of Default or of a mandatory reduction in the Total Commitment shall
not constitute a change in the terms of any Commitment, and that an increase in
any Commitment shall be permitted without the consent of any participant if the
participant's participation is not increased as a result thereof), (ii) consent
to the assignment or transfer by any Credit Party of any of its rights and
obligations under this Agreement or (iii) release all or substantially all of
the Collateral under all of the Security Documents (except as expressly provided
in the Credit Documents) supporting the Loans hereunder in which such
participant is participating. In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by such Bank in
favor of the participant relating thereto) and all
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amounts payable by the Borrower hereunder shall be determined as if such Bank
had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together
with one or more other Banks) may (x) (A) pledge its Loans and/or Notes
hereunder to a Federal Reserve Bank in support of borrowings made by such Bank
from such Federal Reserve Bank or (B) assign all or a portion of its Loans or
Commitments and related outstanding Obligations hereunder to its parent company,
principal office and/or any Affiliate of such Bank which is at least 50% owned
by such Bank or its parent company or to one or more other Banks or to a Related
Fund or (y) assign all or a portion equal to at least $5,000,000, of such Loans
or Commitments and related outstanding Obligations hereunder to one or more
Eligible Transferees each of which assignees shall become a party to this
Agreement as a Bank by execution of an assignment and assumption agreement
substantially in the form of Exhibit L (appropriately completed); provided that:
--------
(i) at such time Part A of Schedule I shall be deemed modified to reflect the
Commitments of such new Bank and of the existing Banks; (ii) new Notes will be
issued to such new Bank and to the assigning Bank upon the request of such new
Bank or assigning Bank, such new Notes to be in conformity with the requirements
of Section 1.05 to the extent needed to reflect the revised Commitments; (iii)
the consent of the Agent, which consent shall not be unreasonably withheld,
shall be required in connection with any assignment (provided, however, that no
-------- -------
such consent shall be required in the case of any assignment to another Bank,
any Bank's Affiliate or a Related Fund); and (iv) the Agent shall receive at the
time of each such assignment, from the assigning Bank, the payment of a non-
refundable assignment fee of $3,000. To the extent of any assignment pursuant
to this Section 14.04(b), the assigning Bank shall be relieved of its
obligations hereunder with respect to its assigned Commitments. No transfer or
assignment under this Section 14.04(b) will be effective until recorded by the
Agent on the Register pursuant to Section 8.16. At the time of each assignment
pursuant to this Section 14.04(b) to a Person which is not already a Bank
hereunder and which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Bank shall provide to Holdings and the Agent the appropriate Internal
Revenue Service Forms (and, if applicable, a Section 4.04(b)(ii) Certificate)
required by Section 4.04(b).
14.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Agent or any Bank or any holder of any Note in exercising any right,
power or privilege hereunder or under any other Credit Document and no course
of dealing between Holdings or any other Credit Party and the Agent or any Bank
or the holder of any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights, powers and remedies herein or in any other Credit Document expressly
provided are cumulative and not exclusive of any rights, powers or remedies
-131-
<PAGE>
which the Agent or any Bank or the holder of any Note would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of the Agent or any Bank or the holder of
any Note to any other or further action in any circumstances without notice or
demand.
14.06 Payments Pro Rata. (a) The Agent agrees that promptly after
-----------------
its receipt of each payment from or on behalf of either Borrower in respect of
any Obligations hereunder, it shall distribute such payment to the Banks pro
---
rata based upon their respective shares, if any, of the Obligations with respect
- ----
to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
of the respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all the Banks in such amount; provided that if all
--------
or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
14.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrower to the
Banks); provided that, except as otherwise specifically provided herein, all
--------
computations of Excess Cash Flow and all computations determining compliance
with Sections 9.04 and 9.08 through 9.13, inclusive, including the definitions
used therein, shall utilize accounting principles and policies in conformity
with those used to prepare the historical financial statements delivered to the
Banks pursuant to Section 5.15.
(b) All computations of interest and Fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or Fees are payable.
14.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
-----------------------------------------------------------
JURY TRIAL. (A) THIS AGREEMENT AND THE OTHER
- ----------
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<PAGE>
CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND,
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF HOLDINGS AND THE BORROWER
HEREBY IRREVOCABLY ACCEPT FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH
OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY DESIGNATE, APPOINT AND EMPOWER
CT CORPORATION SYSTEM WITH OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW
YORK, NEW YORK 10019, AS THEIR DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT
AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE
OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED
IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE
AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, AND EACH OF HOLDINGS AND
THE BORROWER AGREE TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT ON THE TERMS
AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT UNDER THIS
AGREEMENT. EACH OF HOLDINGS AND THE BORROWER FURTHER IRREVOCABLY CONSENT TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO HOLDINGS OR THE BORROWER AT ITS ADDRESS SET FORTH OPPOSITE
ITS SIGNATURES BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH
MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT UNDER THIS
AGREEMENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHER WISE PROCEED
AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION.
(B) EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY WAIVE ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (A) ABOVE AND HEREBY FURTHER
-133-
<PAGE>
IRREVOCABLY WAIVE AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(C) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
14.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Agent.
14.10 Effectiveness. (a) This Agreement shall become effective on
-------------
the date (the "Restatement Effective Date") on which (i) each of Holdings, the
Borrower, each of the Original Banks and each New Bank shall have signed a copy
hereof (whether the same or different copies) and shall have delivered the same
to the Agent at its Notice Office or, in the case of the Original Banks and each
New Bank, shall have given to the Agent telephonic (confirmed in writing),
written or facsimile transmission notice (actually received) at such office that
the same has been signed and mailed to it and (ii) the conditions contained in
Section 6 (to the extent applicable) and 14.10(b) are met. Unless the Agent has
received actual notice from any Bank that the conditions described in clause
(ii) of the preceding sentence have not been met to its satisfaction, upon the
satisfaction of the condition described in clause (i) of the immediately
preceding sentence and upon the Agent's determination that the conditions
described in clause (ii) of the immediately preceding sentence have been met and
upon the payment of all amounts required to be paid on the Restatement Effective
Date pursuant to Section 1.01(f), then the Restatement Effective Date shall be
deemed to have occurred, regardless of any subsequent determination that one or
more of the conditions thereto have not been met (although the occurrence of the
Restatement Effective Date shall not release the Borrower from any liability for
failure to satisfy one or more of the applicable conditions contained Sections 6
or 14.10(b).
(b) The occurrence of the Restatement Effective Date is subject to
the satisfaction of the following additional conditions:
(i) the delivery of all Notes by the Borrower to the Agent;
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<PAGE>
(ii) each Credit Party shall have executed and delivered to the Agent
the Acknowledgment;
(iii) Jackson Walker L.L.P. shall have executed and delivered to the
Agent a legal opinion in form and substance satisfactory to the Agent;
(iv) the Senior Subordinated Loan Documents shall have been amended
in a manner satisfactory to the Agent;
(v) all necessary third-party consents to the transaction
contemplated hereby shall have been obtained and all necessary corporate
proceedings to authorize the transactions contemplated hereby shall have
been taken; and
(vi) on the Restatement Effective Date, each Credit Party shall have
duly authorized, executed and delivered an acknowledgement and agreement in
form satisfactory to the Agent (the "Acknowledgements"), which
acknowledgment and agreement, among other things, (i) acknowledges this
Agreement and the transactions contemplated hereby, (ii) acknowledges and
agrees that, after giving effect to the Restatement Effective Date, all
Documents executed by such party shall remain in full force and effect in
accordance with the terms thereof and (iii) acknowledges and agrees that
the term Obligations (when used in any Document to which such Credit Party
is a party including, without limitation, the Security Documents and the
Guaranties) includes all of the Obligations under this Agreement after
giving effect to the Restatement Effective Date and any increase in the
amounts owing to the Banks or the Agent under this Agreement.
14.11 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
14.12 Amendment or Waiver. (a) Neither this Agreement nor any other
-------------------
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Banks; provided that no such change, waiver, discharge or termination
--------
shall, without the consent of each Bank (with Obligations of the respective
types being directly affected thereby): (i) extend the final scheduled maturity
of any Loan or Note or extend the stated maturity of any Letter of Credit or
Unpaid Drawing beyond the Revolving Loan Maturity Date, or reduce the rate or
extend the time of payment of interest or Fees thereon (except in connection
with a waiver of applicability of any post-default increase in interest rates),
or reduce the principal amount thereof, or increase the Commitments of any Bank
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a
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<PAGE>
mandatory reduction in the Total Commitment or a mandatory prepayment shall not
constitute an increase of the Commitment of any Bank, and that an increase in
the available portion of any Commitment of any Bank shall not constitute an
increase in the Commitment of such Bank); (ii) release all or substantially all
of the Collateral (except as expressly provided in the relevant Credit
Documents); (iii) amend, modify or waive any provision of this Section 14.12;
(iv) reduce the percentage specified in, or otherwise modify, the definition of
Required Banks (it being understood that, with the consent of the Required
Banks, additional extensions of credit pursuant to this Agreement may be
included in the determination of the Required Banks on substantially the same
basis as the extensions of Term Loans, Acquisition Loans, Acquisition Loan
Commitments and Revolving Loan Commitments are included on the Effective Date);
or (v) consent to the assignment or transfer by the Borrower of any of its
rights and obligations under this Agreement; provided further, that no such
----------------
change, waiver, discharge or termination shall: (s) without the consent of the
Swingline Bank, amend, modify or waive any provision relating to Swingline Loans
or the rights or obligations of the Swingline Bank; or (t) increase the
Commitments of any Bank over the amount thereof then in effect (it being
understood that a waiver of any conditions precedent, covenants, Defaults or
Events of Default or of a mandatory reduction in the Total Commitment or of a
mandatory prepayment shall not constitute an increase of the Commitment of any
Bank, and that an increase in the available portion of any Commitment of any
Bank shall not constitute an increase in the Commitment of such Bank) without
the consent of such Bank; or (u) without the consent of the Issuing Bank, amend,
modify or waive any provision of Section 2 or alter its rights or obligations
with respect to Letters of Credit; or (v) without the consent of the Agent,
amend, modify or waive any provision of Section 12 or any other provision
relating to the rights or obligations of the Agent; or (w) without the consent
of the Collateral Agent, amend, modify or waive any provision of Section 12 or
any other provision relating to the rights or obligations of the Collateral
Agent; or (x) without the consent of the Required Term Facility Banks (A) amend,
modify or waive any of the terms contained in (I) Sections 4.01(iv), 4.01(v),
4.01(vi), 4.02(B)(a)(i) or the definitions of Term TL Percentage or Acquisition
TL Percentage to the extent that, in any such case, such amendment, modification
or waiver would alter the application of prepayments or repayments as between
Term Loans and Acquisition Loans in a manner adverse to the Term Loans or (II)
Section 4.02(A)(c) or the definition of Required Term Facility Banks; or (y)
without the consent of the Required Acquisition Facility Banks (A) amend, modify
or waive any of the terms contained in (I) Section 4.01(iv), 4.01(v), 4.01(vi),
4.02(B)(a)(i) or the definitions of Term TL Percentage or Acquisition TL
Percentage to the extent that, in any such case, such amendment, modification or
waiver would alter the application of prepayments or repayments as between Term
Loans and Acquisition Loans in a manner adverse to the Acquisition Loans or (II)
Section 4.02(A)(d), the definition of Required Acquisition Facility Banks or the
definition of Acquisition Loan Termination Date.
-136-
<PAGE>
(b) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by clause
(a)(i) through (v), inclusive, of the first proviso to Section 14.12(a), the
consent of the Required Banks is obtained but the consent of one or more of such
other Banks whose consent is required is not obtained, then the Borrower shall
have the right to replace each such non-consenting Bank or Banks (so long as all
non-consenting Banks are so replaced) with one or more Replacement Banks
pursuant to Section 1.12 so long as at the time of such replacement, each such
Replacement Bank consents to the proposed change, waiver, discharge or
termination, provided that the Borrower shall not have the right to replace a
--------
Bank solely as a result of the exercise of such Bank's rights (and the
withholding of any required consent by such Bank) pursuant to clauses (s)-(y) of
the second proviso to Section 14.12(a).
(c) Notwithstanding anything to the contrary contained above in this
Section 14.12, the Collateral Agent may (i) enter into amendments to the
Subsidiaries Guaranty and the Security Documents for the purpose of adding
additional Subsidiaries of Holdings (or other Credit Parties) as parties thereto
and (ii) enter into security documents to satisfy the requirements of Sections
8.15 and 8.17, in each case without the consent of the Required Banks.
14.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Sections 1.10, 1.11, 2.06, 4.04, 12.06 and 14.01 shall survive
the execution and delivery of this Agreement and the Notes and the making and
repayment of the Loans.
14.14 Domicile of Loans. Each Bank may transfer and carry its Loans
-----------------
at, to or for the account of any office, Subsidiary or Affiliate of such Bank.
14.15 Post-Closing Obligations. The Borrower hereby acknowledge that
------------------------
in connection with certain assignments hereof, the Agent or any of the Banks may
be required to obtain a rating of the Obligations and Commitments hereunder of
the Borrower and the Borrower hereby consent to such Agent or Bank providing to
the respective rating agency such information regarding the Obligations and
creditworthiness of the Borrower as is customary practice of such rating agency.
14.16 Addition of New Banks; Original Notes. (a) On and as of the
-------------------------------------
occurrence of the Restatement Effective Date, in accordance with Section 14.10
hereof, each New Bank shall become a "Bank" under, and for all purposes of, this
Agreement and the other Credit Documents.
(b) On the Restatement Effective Date, immediately after giving
effect thereto, all outstanding Notes (as defined in the Original Credit
Agreement) issued by the Borrower to Banque Paribas under the Original Credit
Agreement shall be deemed cancelled.
-137-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address:
- -------
990 Hammond Drive, #300 PHYSICIAN HEALTH CORPORATION
Atlanta, GA 30328
Telephone: (770) 673-1974
Facsimile: (770) 673-1079
By:___________________________________
Title:
990 Hammond Drive, #330 PHC HOLDING CORPORATION
Atlanta, GA 30328
Telephone: (770) 673-1974
Facsimile: (770) 673-1970
By:___________________________________
Title:
227 West Monroe Street BANQUE PARIBAS,
Suite 3300 Individually and as Agent
Chicago, IL 60606
Attention: Mark Radzik
Rowena Festin By:___________________________________
Telephone: (312) 853-6000 Title:
Facsimile: (312) 853-6020
By:___________________________________
Title:
Two Ravina Drive CREDITANSTALT
Suite 1680
Atlanta, GA 30346
Attention: Carl Drake
Telephone: (770) 390-1852 By:___________________________________
Facsimile: (770) 390-1851 Title:
-138-
<PAGE>
Healthcare Financial Division FINOVA CAPITAL CORPORATION
311 S. Wacker Drive
Suite 4400
Chicago, IL 60606-6618
Attention: Michael Keller By:___________________________________
Telephone: (312) 322-3546 Title:
Facsimile: (312) 322-3553
225 Franklin Street IMPERIAL BANK
29th Floor
Boston, MA 02110
Attention: Oscar C. Jazdowski By:___________________________________
Telephone: (617) 521-9406 Title:
Facsimile: (617) 521-9410
c/o ING Capital Advisors, Inc. ARCHIMEDES FUNDING, L.L.C.
333 S. Grand Avenue
Suite 4250 By: ING Capital Advisors, Inc.
Los Angeles, CA 90071
Attention: Kathleen Lenarcic
Telephone: (213) 346-3971 By:___________________________________
Facsimile: (213) 346-3995 Title:
2301 S. Kingshighway SOUTHWEST BANK OF ST.LOUIS
St. Louis, MO 63110-3498
Attention: Lansden Mclandless, III
Telephone: (314) 776-5200
Facsimile: (314) 776-2146 By:___________________________________
Title:
1900 Fifth Avenue North AMSOUTH BANK
Birmingham, AL 35203
Attention: Keith Law
Telephone: (205) 801-0103
Facsimile: (205) 326-4790 By:___________________________________
Title:
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<PAGE>
EXHIBIT 10.45
================================================================================
$15,000,000
SENIOR SUBORDINATED LOAN AGREEMENT
among
PHYSICIAN HEALTH CORPORATION
PHC HOLDING CORPORATION
_________________________
THE LENDERS PARTY HERETO
and
PARIBAS CAPITAL FUNDING LLC
as Agent
_________________________________
Dated as of October 27, 1997
_________________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 1. Amount and Terms of Loans.............................................................................. 1
1.01 The Loans........................................................................................... 1
1.02 Interest............................................................................................ 2
1.03 Fees................................................................................................ 3
1.04 Mandatory Reduction and Termination of
Subsequent Commitment............................................................................... 3
Section 2. Repayment; Prepayments; Payments; Taxes................................................................ 3
2.01 Payment of Loan..................................................................................... 3
2.02 Mandatory and Voluntary Prepayments................................................................. 3
2.03 Method and Place of Payment......................................................................... 7
2.04 Net Payments........................................................................................ 7
Section 3. Conditions Precedent to Loans.......................................................................... 9
3.01 Conditions Precedent to Loans on the Initial Funding Date........................................... 9
3.02 Conditions Precedent to All Loans................................................................... 16
Section 4. Representations, Warranties and Agreements............................................................. 17
4.01 Corporate Status.................................................................................... 17
4.02 Corporate Power and Authority....................................................................... 18
4.03 No Violation........................................................................................ 18
4.04 Governmental Approvals.............................................................................. 18
4.05 Financial Statements; Financial Condition;
Undisclosed Liabilities; Projections; Etc........................................................... 18
4.06 Litigation.......................................................................................... 20
4.07 True and Complete Disclosure........................................................................ 20
4.08 Use of Proceeds; Margin Regulations................................................................. 20
4.09 Tax Returns and Payments............................................................................ 21
4.10 Compliance with ERISA............................................................................... 21
4.11 Representations and Warranties in Documents......................................................... 22
4.12 Properties.......................................................................................... 22
4.13 Capitalization...................................................................................... 23
4.14 Subsidiaries........................................................................................ 23
4.15 Compliance with Statutes, Etc....................................................................... 23
4.16 Investment Company Act.............................................................................. 24
4.17 Public Utility Holding Company Act.................................................................. 24
4.18 Environmental Matters............................................................................... 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.19 Labor Relations..................................................................................... 25
4.20 Patents, Licenses, Franchises and Formulas.......................................................... 25
4.21 Indebtedness........................................................................................ 25
4.22 Restrictions on or Relating to Subsidiaries......................................................... 25
4.23 The Transaction..................................................................................... 26
4.24 Defaults............................................................................................ 26
4.25 Material Contracts.................................................................................. 26
4.26 Unwind Provisions................................................................................... 27
4.27 Practice Management Agreements...................................................................... 27
4.28 Contemporaneous Acquisitions........................................................................ 27
4.29 Post-Closing Acquisitions........................................................................... 27
4.30 Repurchase Obligations.............................................................................. 27
Section 5. Affirmative Covenants.................................................................................. 27
5.01 Information Covenants............................................................................... 27
5.02 Books, Records and Inspections...................................................................... 31
5.03 Maintenance of Property, Insurance.................................................................. 31
5.04 Corporate Franchises................................................................................ 31
5.05 Compliance with Statutes, Etc....................................................................... 31
5.06 Compliance with Environmental Laws.................................................................. 32
5.07 ERISA............................................................................................... 32
5.08 End of Fiscal Years; Fiscal Quarters................................................................ 33
5.09 Payment of Taxes.................................................................................... 33
5.10 Use of Proceeds..................................................................................... 33
5.11 Intellectual Property Rights........................................................................ 34
5.12 Register............................................................................................ 34
5.13 Ownership of Subsidiaries........................................................................... 35
5.14 Observation of Board of Directors................................................................... 35
5.15 Permitted Acquisitions.............................................................................. 35
5.16 Subsidiary Metroplex Note........................................................................... 39
5.17. Default on Metroplex Note........................................................................... 39
5.18. Corporate Separateness.............................................................................. 39
Section 6. Negative Covenants..................................................................................... 39
6.01 Liens............................................................................................... 39
6.02 Consolidation, Merger, Purchase or Sale of Assets, Etc.............................................. 41
6.03 Dividends, Etc...................................................................................... 43
6.04 Indebtedness........................................................................................ 44
6.05 Transactions with Affiliates........................................................................ 44
6.06 Interest Coverage Ratio............................................................................. 45
6.07 Consolidated Indebtedness to Consolidated EBITDA.................................................... 46
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6.08 Minimum EBITDA...................................................................................... 47
6.09 Capital Expenditures................................................................................ 49
6.10 Restrictions on Additional Subordinated Indebtedness................................................ 50
6.11 Limitation on Voluntary Payments and Modifications of
Indebtedness; Modifications of Certificate of
Incorporation, By-Laws and Certain Other Agreements; Etc............................................ 50
6.12 Limitation on Certain Restrictions on Subsidiaries.................................................. 51
6.13 Limitation on Issuance of Capital Stock............................................................. 51
6.14 Business............................................................................................ 51
6.15 Limitation on Creation of Subsidiaries.............................................................. 52
6.16 Amendments with Respect to Senior Debt.............................................................. 52
6.17 No Further Negative Pledges......................................................................... 52
6.18 Leases.............................................................................................. 52
6.19 Unwind Provisions................................................................................... 52
Section 7. Events of Default...................................................................................... 53
7.01 Payments............................................................................................ 53
7.02 Representations, Etc................................................................................ 53
7.03 Covenants........................................................................................... 53
7.04 Default Under Other Agreements...................................................................... 53
7.05 Bankruptcy, Etc..................................................................................... 53
7.06 ERISA............................................................................................... 54
7.07 Judgments........................................................................................... 55
7.08 Physician Turnover.................................................................................. 55
7.09 Ownership........................................................................................... 55
7.10 Subordinated Guaranties............................................................................. 55
Section 8. Definitions and Accounting Terms....................................................................... 55
8.01 Defined Terms....................................................................................... 55
Section 9. The Agent.............................................................................................. 76
9.01 Appointment......................................................................................... 76
9.02 Nature of Duties.................................................................................... 76
9.03 Lack of Reliance on the Agent....................................................................... 77
9.04 Certain Rights of the Agent......................................................................... 77
9.05 Reliance............................................................................................ 77
9.06 Indemnification..................................................................................... 78
9.07 The Agent in Its Individual Capacity................................................................ 78
9.08 Holders............................................................................................. 78
9.09 Resignation by the Agent............................................................................ 78
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 10. Subordinated Guaranty of Holdings..................................................................... 79
10.01 The Guaranty........................................................................................ 79
10.02 Bankruptcy.......................................................................................... 79
10.03 Nature of Liability................................................................................. 80
10.04 Guaranty Subordinate to Senior Indebtedness......................................................... 80
10.05 Guaranty Absolute................................................................................... 80
10.06 Independent Obligation.............................................................................. 80
10.07 Authorization....................................................................................... 81
10.08 Reliance............................................................................................ 82
10.09 Subordination....................................................................................... 82
10.10 Waiver.............................................................................................. 82
10.11 Guaranty Continuing................................................................................. 83
10.12 Binding Nature of Guaranties........................................................................ 83
10.13 Judgments Binding................................................................................... 83
Section 11. Subordination......................................................................................... 84
11.01 Notes Subordinate to Senior Indebtedness............................................................ 84
11.02 Payment Over of Proceeds Upon Dissolution........................................................... 84
11.03 No Payment in Certain Circumstances................................................................. 86
11.04 Acceleration Rights; Remedies....................................................................... 86
11.05 Payment Otherwise Permitted......................................................................... 87
11.06 Subrogation to Rights of Holders of Senior Indebtedness............................................. 87
11.07 Provisions Solely to Define Relative Rights......................................................... 87
11.08 No Waiver of Subordination Provisions; Amendment.................................................... 88
11.09 Reliance on Judicial Order or Certificate of
Liquidating Agent................................................................................... 88
11.10 Turnover; Miscellaneous Subordination Provisions.................................................... 88
Section 12. Miscellaneous....................................................................................... 90
12.01 Payment of Expenses, Etc............................................................................ 90
12.02 Right of Setoff..................................................................................... 91
12.03 Notices............................................................................................. 91
12.04 Benefit of Agreement................................................................................ 92
12.05 No Waiver; Remedies Cumulative...................................................................... 93
12.06 Payments Pro Rata................................................................................... 93
12.07 Calculations; Computations.......................................................................... 94
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION;
VENUE; WAIVER OF JURY TRIAL......................................................................... 94
12.09 Counterparts........................................................................................ 95
12.10 Effectiveness....................................................................................... 96
12.11 Headings Descriptive................................................................................ 96
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
12.12 Amendment or Waiver................................................................................. 96
12.13 Survival............................................................................................ 96
12.14 Domicile of Loans................................................................................... 96
</TABLE>
(v)
<PAGE>
Schedules and Exhibits
----------------------
SCHEDULE I Commitments
SCHEDULE II Insurance Policies
SCHEDULE III [Intentionally Omitted]
SCHEDULE IV Loans, Advances and Commitments
SCHEDULE V [Intentionally Omitted]
SCHEDULE VI Subsidiaries
SCHEDULE VII Existing Liens
SCHEDULE VIII Existing Indebtedness
SCHEDULE IX Retained Indebtedness
SCHEDULE X Financial Statements
SCHEDULE XI Material Contracts
SCHEDULE XII Capitalization
SCHEDULE XIII Acquisitions
SCHEDULE XIV Unwind Provisions and Mandatory Distributions
SCHEDULE XV Pre-closing Acquisitions
SCHEDULE XVI Contemporaneous Acquisitions
SCHEDULE XVII Post-closing Acquisitions
SCHEDULE XVIII Dividend Restrictions
SCHEDULE XIX ERISA
SCHEDULE XX Practice Management Agreements
SCHEDULE XXI Exclusions From Other Subordinated Debt
SCHEDULE XXII Personal Guarantees
SCHEDULE XXIII Outstanding Indebtedness Evidenced by Capital Lease Obligations
EXHIBIT A Form of Note
EXHIBIT B Section 2.04(b)(ii) Certificate
EXHIBIT C Form of Opinion of Jackson Walker L.L.P.
EXHIBIT D Form of Officer's Certificate of each Loan Party
EXHIBIT E Form of Registration Rights Agreement
EXHIBIT F Form of Warrant
EXHIBIT G Form of Warrant Agreement
EXHIBIT H Form of Warrant Purchase Agreement
EXHIBIT I Form of Consent Letter
EXHIBIT J Form of Assignment and Assumption Agreement
EXHIBIT K Form of Subordinated Guaranty
EXHIBIT L Solvency Certificate
(vi)
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SENIOR SUBORDINATED LOAN AGREEMENT, dated as of October 27, 1997,
among Physician Health Corporation, a corporation organized and existing under
the laws of the State of Delaware ("Holdings"), PHC Holding Corporation, a
corporation organized and existing under the laws of the State of Georgia and a
wholly-owned Subsidiary of Holdings (the "Borrower"), the financial institutions
party hereto from time to time (each a "Lender" and, collectively, the
"Lenders"), and Paribas Capital Funding LLC ("PCF"), as agent (in such capacity,
the "Agent") for the Lenders. Unless otherwise defined herein, all capitalized
terms used herein and defined in Section 8 are used herein as therein defined.
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Lenders lend to the
Borrower $15,000,000 for the purposes specified herein; and
WHEREAS, subject to and upon the terms and conditions herein set
forth, the Lenders are willing to make loans to the Borrower in an aggregate
amount of $15,000,000;
NOW, THEREFORE, IT IS AGREED:
Section 1. Amount and Terms of Loans.
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1.01 The Loans. (a) Subject to and upon the terms and conditions set
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forth herein, each Lender severally agrees to make, on the Initial Funding Date
and on the Subsequent Funding Date, a loan in Dollars (each a "Loan" and,
collectively, the "Loans") to the Borrower in a principal amount equal to such
Lender's Initial Commitment and Subsequent Commitment, respectively. Any amount
of any Loan prepaid or repaid may not be reborrowed. The Loans shall be made on
notice given by the Borrower to the Agent at its Notice Office no later than
1:00 P.M. (New York time) on the Business Day preceding the applicable Funding
Date, which notice shall be in writing and shall be irrevocable and shall
specify the Funding Date (which shall be a Business Day). The Agent shall
promptly give each Lender notice of the Agent's receipt from the Borrower of
such written notice.
(b) No later than 12:00 noon (New York time) on the applicable
Funding Date, each Lender will make available at the Payment Office of the Agent
the amount of the Loan to be made by it, in immediately available funds, and the
Agent will make available to the Borrower at the Payment Office the aggregate of
the amounts so made available by the Lenders. Unless the Agent shall have been
notified by any Lender prior
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to such Funding Date that such Lender does not intend to make available to the
Agent on such Funding Date funds in the amount of such Lender's Commitment, the
Agent may assume that such Lender has made such amount available to the Agent
and the Agent may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Agent by such Lender, the Agent shall be entitled to
recover such corresponding amount on demand from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent shall promptly notify the Borrower and the Borrower shall
immediately pay such corresponding amount to the Agent. The Agent shall also be
entitled to recover on demand from such Lender or the Borrower, as the case may
be, interest on such corresponding amount in respect of each day from the date
such corresponding amount was made available by the Agent to the Borrower until
the date such corresponding amount is recovered by the Agent, at a rate per
annum equal to (i) if recovered from such Lender, the cost to the Agent of
acquiring overnight federal funds and (ii) if recovered from the Borrower, the
rate of interest applicable to the Loans, as determined pursuant to Section
1.02. Nothing in this subsection (b) shall be deemed to relieve any Lender from
its obligation to make its Loan hereunder or to prejudice any rights which the
Borrower may have against any Lender as a result of any failure by such Lender
to make its Loan hereunder. It is understood that no Lender shall be responsible
for any default by any other Lender of its obligation to make its Loan hereunder
and that each Lender shall be obligated to make its Loan provided to be made by
it hereunder regardless of the failure of any other Lender to make its Loan
hereunder.
(c) The Borrower's obligation to pay the principal of, and interest
on, the Loans made by each Lender shall be evidenced by a promissory note to the
order of such Lender, in substantially in the form of Exhibit A, duly executed
and delivered by the Borrower on the Initial Funding Date or the Subsequent
Funding Date, as the case may be (each a "Note" and, collectively, the "Notes"),
and in a stated principal amount equal to the Commitment of such Lender in
respect of such Funding Date.
1.02 Interest. (a) The Borrower agrees to pay interest in respect of
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the unpaid principal amount of each Loan from the date such Loan is made until
the maturity thereof (whether by acceleration or otherwise), at a rate which (i)
shall at all times be equal to 12% per annum with respect to Loans made on the
Initial Funding Date and (ii) shall be the rate that is, on the Subsequent
Funding Date, the greater of 12% per annum or the rate per annum for 5 year U.S.
Treasuries (as determined by the Agent) plus 6%; with respect to Loans made on
the Subsequent Funding Date.
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and any other overdue amount payable hereunder
shall, in each case, bear interest at a rate per annum equal to the then
applicable interest rate plus 2%, in each case with such interest to be payable
on demand.
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(c) Accrued and unpaid interest shall be payable quarterly in arrears
on each Quarterly Payment Date, on any repayment (on the amount repaid), at
maturity (whether by acceleration or otherwise) and, after such maturity, on
demand.
1.03 Fees. The Borrower agrees to pay to the Agent for distribution to
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each Lender, quarterly in arrears on each Quarterly Payment Date and on the date
of each reduction or termination of the Subsequent Commitment, a fee (the
"Unused Commitment Fee") computed at a rate for each day equal to .50% per annum
of the Subsequent Commitment of such Lender.
1.04 Mandatory Reduction and Termination of Subsequent Commitment. (a)
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The Subsequent Commitment of each Lender shall automatically be reduced as of
the date of any payment (including scheduled payments) of the principal of the
Metroplex Note by an amount equal to the amount of such payment; and
(b) The Subsequent Commitment shall terminate upon the earliest to
occur of (i) repayment in full of the outstanding Loans, (ii) the thirtieth day
after the delivery by Holdings or the Borrower of a report pursuant to Section
5.01 which evidences that a Credit Event Date has occurred, (iii) the fifth day
after the consummation of a Qualified IPO or (iv) April 1, 2002.
Section 2. Repayment; Prepayments; Payments; Taxes.
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2.01 Payment of Loan. The unpaid principal amount of each Loan plus
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all accrued and unpaid interest thereon and all other amounts owed hereunder
with respect thereto shall be paid in full in cash on the Maturity Date.
2.02 Mandatory and Voluntary Prepayments. (a) The Borrower may, upon
-----------------------------------
not less than two Business Days' and not more than five Business Days' prior
written notice to the Lenders (which notice shall be irrevocable), at any time
and from time to time, prepay the Loans, in whole; provided, however, that no
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such prepayment shall be made unless (x) there is no Senior Debt outstanding and
all commitments under the Senior Credit Agreement have been terminated or (y)
the Senior Credit Agreement expressly permits such payments or the required
Banks thereunder have consented to such payment. In connection with any
voluntary prepayment in whole, the Borrower shall prepay the Loan at the
prepayment price set forth below (plus all accrued interest):
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% of Principal
Prepayment Date During the Period Being Paid
- --------------------------------- --------------
From the Initial Funding Date to 105%
but not including the first
anniversary of the Initial Funding Date
From the first anniversary of the Initial Funding 104%
Date to but not including the second
anniversary of the Initial Funding Date
From the second anniversary of the Initial Funding 103%
Date to but not including the third
anniversary of the Initial Funding Date
From the third anniversary of the Initial Funding 102%
Date to but not including the fourth
anniversary of the Initial Funding Date
From the fourth anniversary of the Initial Funding 101%
Date to but not including the fifth
anniversary of the Initial Funding Date
From the fifth anniversary of the Initial Funding 100%
Date and at any time thereafter
(b) The Borrower shall notify the Bank Agent of any prepayment to be
made pursuant to Section 2.02(a) at least five Business Days prior to such
prepayment (unless shorter notice is satisfactory to the Bank Agent).
Notwithstanding the foregoing or the provisions of Section 2.02(d) below, the
Lenders and the Borrower agree and acknowledge that the Senior Credit Agreement
prohibits any payments that would otherwise be made to the Lenders under Section
2.02(a) or (d) and, as a result thereof, no payment shall be made to the Lenders
under Section 2.02(a) or (d) unless and only to the extent the Senior Credit
Agreement is amended or modified to provide that such amounts may be paid to the
Lenders.
(c) All prepayments (whether voluntary or mandatory) shall include
payment of accrued interest on the principal amount of the Loans so prepaid and
shall be applied to payment of accrued interest before application to principal.
Mandatory prepayments under Section 2.02(d) made on or before November 5, 1999
shall not include any prepayment premiums. Any mandatory prepayment made after
November 5, 1999 shall include a prepayment premium equal to 103% of the
principal being paid. Any
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payment of the Loans as a result of an Event of Default resulting from a Change
of Control shall be deemed a voluntary prepayment for the purposes of this
Section 2 and shall be paid at the payment price specified in Section 2.02(a) as
if such payment had been voluntary. All prepayments which are applied to
principal will be applied on a pro rata basis to all Loans.
--- ----
(d) The Borrower will apply, or cause its applicable Subsidiaries to
apply, the following amounts first to the permanent reduction of the then
-----
outstanding Senior Debt and any commitments thereunder to make revolving loans,
acquisition loans or issue letters of credit (if required under the terms of the
Senior Debt) and next, to the extent not used to prepay the Senior Debt in
----
permanent reduction thereof or to permanently reduce the commitments therefor,
to the Obligations in the manner set forth in Section 2.02(c):
(i) on the date of the receipt thereof by Holdings or any Subsidiary
of Holdings, the Borrower shall repay, in accordance with Section 2.02(c),
an amount equal to (A) 100% of the cash proceeds (net of underwriting
discounts and commissions and all other reasonable costs associated with
such transaction) from any sale or issuance after the Effective Date of
equity of Holdings or any Subsidiary of Holdings, other than proceeds of
(v) equity issued on the Initial Funding Date and after the Initial Funding
Date as consideration to be paid for Post-Closing Acquisitions, (w) the
equity issued under the Equity Call Agreement, (x) Permitted Equity
Issuances (as defined in the Senior Credit Agreement), (y) equity issued to
the Bank Agent or an Affiliate thereof in connection with its investment of
up to an aggregate of $3,000,000 in Holdings and (z) Excluded Public
Offering Proceeds; provided that, with respect to any proceeds of equity
sold or issued to officers or employees of Holdings or the Borrower
("Employee Stock Proceeds"), such Employee Stock Proceeds shall only be
required to be paid at such time or times that the aggregate amount thereof
not previously applied to the Loans equals or exceeds $100,000, and
provided further that from and after April 30, 1998, Holdings shall not use
or permit to be used any Excluded Public Offering Proceeds to make any
voluntary prepayment of any Indebtedness (other than Senior Debt or the
Loans); and (B) 100% of the cash proceeds (net of underwriting discounts
and commissions, loan fees and all other reasonable costs associated with
such transaction) from any incurrence of any Indebtedness by Holdings or
any Subsidiary of Holdings (other than Indebtedness permitted to be
incurred pursuant to Section 6.04 as said Section is in effect on the
Effective Date);
(ii) on each date after the Effective Date on which Holdings or any
Subsidiary of Holdings receives Net Sale Proceeds from any sale or other
disposition of assets (including capital stock and securities other than
capital stock or securities the proceeds from the sale of which are
recaptured pursuant to Section 2.02(d)(i)(A) or would be recaptured under
Section 2.02(d)(i)(A) but for the proviso
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contained therein), an amount equal to 100% of such Net Sale Proceeds
excluding Net Sale Proceeds of (A) sales of inventory in the ordinary
course of business, (B) other sales of assets the proceeds of which are
used, or irrevocably committed to be used, to purchase, within 180 days
from the date of sale, properties or assets to be used in the business of
Holdings or its Subsidiaries, provided that the aggregate amount of Net
Sale Proceeds excluded pursuant to this clause (B) shall not exceed
$600,000 in the aggregate in any one fiscal year, and (C) other sales of
assets the Net Sale Proceeds of which do not exceed, in the aggregate,
$100,000 in any one fiscal year;
(iii) on each date after the Effective Date on which Holdings or any
Subsidiary of Holdings receives cash proceeds of any Recovery Event, an
amount equal to 100% of such cash proceeds of such Recovery Event (net of
reasonable costs incurred in connection with such Recovery Event, including
the estimated marginal increase in income taxes which will be payable as a
result of such Recovery Event by Holdings or any Subsidiary of Holdings and
repayments of Indebtedness which are required to be made with the proceeds
of such Recovery Event); provided, however, that, so long as no Default or
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Event of Default then exists and (A) such proceeds are not in excess of
$500,000 for any one occurrence and $1,500,000 for all occurrences after
the Effective Date, such proceeds shall not be required to be so repaid on
such date to the extent that Holdings delivers a certificate to the Agent
on or prior to such date stating that such proceeds shall be used to
replace or restore any properties or assets in respect of which such
proceeds were paid within a period specified in such certificate not to
exceed one hundred eighty (180) days after the date of receipt of such
proceeds (which certificate shall set forth estimates of the proceeds to be
so expended); (B)(x) if the amount of such proceeds from any such Recovery
Event exceeds $500,000, the entire amount of proceeds from such Recovery
Event shall be repaid and if the amount of such proceeds from any such
Recovery Event, when aggregated with the total amount of all such proceeds
from all Recovery Events occurring after the Effective Date, exceeds
$1,500,000 (excluding any amounts from any Recovery Events previously
repaid pursuant to this Section 2.02(d)(iii)), the amount by which the
amount of proceeds from all Recovery Events (including the Recovery Event
for which the determination is being made) exceeds $500,000 shall be
repaid, and (y) if all or any portion of such proceeds not so repaid
pursuant to this Section 2.02(d)(iii) are not so used within the period
specified in the relevant certificate furnished pursuant to the preceding
clause (A), such remaining portion shall be repaid on the last day of such
specified period; and (C) if the amount of such proceeds from any Recovery
Event which, when aggregated with all other proceeds of Recovery Events
(excluding any amounts from any Recovery Events previously repaid pursuant
to this Section 2.02(d)(iii), or excluded pursuant to clauses (A) and (B)
hereof) during any fiscal year do not exceed $25,000, such proceeds shall
not be included in the
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calculation of the $1,500,000 threshold amount pursuant to clauses (A) and
(B); and provided, further, that to the extent cash proceeds of any
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Recovery Event relate to property leased (rather than owned) by Holdings or
a Subsidiary of Holdings and pursuant to the terms of such lease Holdings
or such Subsidiary is required to pay such proceeds to the lessor or use
such proceeds to replace the leased equipment, then such proceeds shall not
be required to be repaid pursuant to the provisions of this Section
2.02(d)(iii) so long as such proceeds are in fact paid to the lessor or
used to replace the leased equipment; and
(iv) on each date after the Effective Date upon which Holdings or any
of its Subsidiaries receives cash proceeds from any physician or physician
practice group pursuant to the termination of personal guarantees, the
leaving of or termination of employment or any unwind agreement of the type
described in Section 4.26, an amount equal to 100% of such proceeds (net of
reasonable expenses incurred in connection with obtaining such proceeds).
(e) If Holdings has not consummated an initial public offering of
Holdings capital stock on or before the date that is eighteen months after the
date hereof, then the entire outstanding principal amount of the Loans shall be
due and payable, and shall be repaid, in full on December 31, 2002.
2.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement or any Note shall be made to
the Agent for the account of the Lenders not later than 12:00 noon (New York
time) on the date when due and shall be made in Dollars and in immediately
available funds at the Payment Office of the Agent. Whenever any payment to be
made hereunder or under any Note shall be stated to be due on a day which is not
a Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension.
2.04 Net Payments. (a) All payments made by Holdings or the Borrower
------------
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 2.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income of a Lender pursuant to the laws of the
jurisdiction or any political subdivision or taxing authority thereof or therein
in which the principal office or applicable lending office of such Lender is
located) and all interest, penalties or similar liabilities with respect thereto
(collectively, "Taxes"). If any Taxes are so levied or imposed, the Borrower
and Holdings jointly and severally agree to
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pay the full amount of such Taxes, and such additional amounts as may be
necessary so that every payment of all amounts due hereunder or under any Note,
after withholding or deduction for or on account of any Taxes, will not be less
than the amount provided for herein or in such Note. If any amounts are payable
in respect of Taxes pursuant to the preceding sentence, then Holdings and the
Borrower jointly and severally shall be obligated to reimburse each Lender, upon
the written request of such Lender, for taxes imposed on or measured by the net
income of such Lender pursuant to the laws of the jurisdiction or any political
subdivision or taxing authority thereof or therein in which the principal office
or applicable lending office of such Lender is located as such Lender shall
determine are payable by such Lender in respect of such amounts so paid to or on
behalf of such Lender pursuant to the preceding sentence and in respect of any
amounts paid to or on behalf of such Lender pursuant to this sentence. The
Borrower or Holdings, as the case may be, will furnish to the Agent within 45
days after the date of the payment of any Taxes due pursuant to applicable law
certified copies of tax receipts evidencing such payment by the Borrower or
Holdings. The Borrower and Holdings jointly and severally agree to indemnify and
hold harmless each Lender, and reimburse such Lender upon its written request,
for the amount of any Taxes so levied or imposed and paid by such Lender.
(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Agent on or prior to the Effective Date, or in the case of a Lender that
is an assignee or transferee of an interest under this Agreement pursuant to
Section 12.04 (unless the respective Lender was already a Lender hereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Lender, (i) two accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms)
certifying to such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments to be made under this Agreement
and under any Note, or (ii) if the Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 4224 or 1001 pursuant to clause (i) above, (x) a certificate
substantially in the form of Exhibit B (any such certificate, a "Section
2.04(b)(ii) Certificate") and (y) two accurate and complete original signed
copies of Internal Revenue Service Form W-8 (or successor form) certifying to
such Lender's entitlement to a complete exemption from United States withholding
tax with respect to payments of interest to be made under this Agreement and
under any Note. In addition, each Lender agrees that from time to time after the
Effective Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to the Borrower and the Agent two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a
Section 2.04(b)(ii) Certificate, as the case may be, and such other forms as may
be required in order to confirm or establish the entitlement of such Lender to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement and any Note, or it shall immediately
notify the Borrower and the
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Agent of its inability to deliver any such Form or Certificate, in which case
such Lender shall not be required to deliver any such Form or Certificate
pursuant to this Section 2.04(b). Notwithstanding anything to the contrary
contained in Section 2.04(a), but subject to the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, fees or other amounts payable hereunder for the account of any
Lender that is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that
such Lender has not provided to the Borrower U.S. Internal Revenue Service Forms
that establish a complete exemption from such deduction or withholding and (y)
the Borrower shall not be obligated pursuant to Section 2.04(a) hereof to gross-
up payments to be made to a Lender in respect of income or similar taxes imposed
by the United States if (I) such Lender has not provided to the Borrower the
Internal Revenue Service Forms required to be provided to the Borrower pursuant
to this Section 2.04(b) or (II) in the case of a payment, other than interest,
to a Bank described in clause (ii) above, to the extent that such forms do not
establish a complete exemption from withholding of such taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 2.04, the Borrower agrees to pay additional amounts and to
indemnify each Lender in the manner set forth in Section 2.04(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any amounts deducted or withheld by it as described in the
immediately preceding sentence as a result of any changes after the Effective
Date in any applicable law, treaty, governmental rule, regulation, guideline or
order, or in the interpretation thereof, relating to the deducting or
withholding of income or similar Taxes.
Section 3. Conditions Precedent to Loans.
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3.01 Conditions Precedent to Loans on the Initial Funding Date. The
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obligation of each Lender to make its Loan on the Initial Funding Date is
subject to (a) the condition precedent that the Effective Date shall have
occurred and (b) the satisfaction of the following additional conditions
precedent:
(a) Notes. On the Initial Funding Date, there shall have been
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delivered to the Agent for the account of each Lender the appropriate Note, in
each case executed by the Borrower to the order of such Lender.
(b) Officers' Certificate. On the Initial Funding Date, the Agent
---------------------
shall have received a certificate dated the Initial Funding Date signed on
behalf of each Loan Party by the President, any Executive Vice President or any
Vice President of such Loan Party and which certificate, in the case of Holdings
and the Borrower, shall state that all of the conditions specified in Sections
3.01(g), (h), (j), (n), (o), (p), (q), (r) and (s) have been satisfied on such
date. Each such certificate shall be in the form of Exhibit D with
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appropriate insertions, together with all exhibits referred to in such
certificate, and the foregoing shall be acceptable to the Agent and the Lenders.
(c) Opinions of Counsel. On the Initial Funding Date, the Agent shall
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have received (i) from Jackson Walker L.L.P., counsel to Holdings and the
Borrower, an opinion addressed to the Agent and each of the Lenders and dated
the Initial Funding Date covering the matters set forth in Exhibit C and such
other matters incident to the transactions contemplated herein and in the
Warrant Documents as the Agent may request and (ii) from counsel rendering such
opinions, reliance letters addressed to the Agent and each of the Lenders and
dated the Initial Funding Date with respect to all legal opinions delivered in
connection with the Transaction, with such legal opinions to be in form and
substance satisfactory to the Agent and the Lenders.
(d) Corporate Documents; Proceedings. All corporate and legal
--------------------------------
proceedings and all instruments and agreements relating to the transactions
contemplated by this Agreement, the other Loan Documents, the Warrant Documents
and the other Documents shall be satisfactory in form and substance to the Agent
and the Lenders, and the Agent shall have received all information and copies of
all documents and papers, including records of corporate proceedings,
governmental approvals, good standing certificates and bring-down telegrams, if
any, which the Agent or the Lenders may have requested in connection therewith,
such documents and papers where appropriate to be certified by proper corporate
or governmental authorities.
(e) Subordinated Guaranties. The Agent shall have received a
-----------------------
Subordinated Guaranty, duly executed by each Subordinated Guarantor, each of
which Subordinated Guaranties shall be dated the Initial Funding Date.
(f) Capitalization. On the Initial Funding Date, after giving effect
--------------
to the Transaction, the ownership and capital structure (including, without
limitation, the terms of the capital stock, options, warrants or other
securities issued or to be issued by Holdings and the Subsidiaries of Holdings)
shall be in form and substance satisfactory to the Agent and the Lenders.
(g) Senior Credit Agreement. On or prior to the Initial Funding Date,
-----------------------
there shall have been delivered to the Agent and the Lenders true and complete
copies of the Senior Credit Agreement and all schedules, annexes and exhibits
thereto (certified as such by an appropriate officer of Holdings or the
Borrower), in each case in form and substance satisfactory to the Agent and the
Lenders. All conditions precedent to the making of the initial loans thereunder
shall have been satisfied or waived by the parties thereto, and all
representations and warrants set forth in the Senior Credit Agreement shall be
true and complete in all material respects as if made on and as of the Initial
Funding Date.
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(h) Litigation. On the Initial Funding Date, no litigation by any
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entity (private or governmental) shall be pending or threatened with respect to
this Agreement, any other Document or any documentation executed in connection
herewith or with respect to the Transaction, or which the Agent or Lenders shall
determine could reasonably be expected to have a materially adverse effect on
the Transaction or on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of Holdings and the Subsidiaries of Holdings taken as a whole (after
giving effect to the Transaction).
(i) Fees, etc. On the Initial Funding Date, the Borrower shall have
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paid in full to the Agent and the Lenders all costs, fees and expenses
(including, without limitation, all legal fees and expenses) payable to the
Agent and the Lenders to the extent then due pursuant hereto or as otherwise
agreed between the Borrower and the Agent.
(j) Approvals. All necessary governmental and third party approvals
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in connection with the Transaction and the transactions contemplated by the
Documents and otherwise referred to herein or therein (including, but not
limited to, those approvals required in respect of existing permits, landlord
consents and transfers of contract rights) shall have been obtained and remain
in effect, and all applicable waiting periods shall have expired without any
action being taken by any competent authority which restrains, prevents or
imposes, in the sole judgment of the Agent or the Lenders, adverse conditions
upon the consummation of the Transaction or the other transactions contemplated
by the Documents and otherwise referred to herein or therein. There shall not
exist any judgment, order, injunction or other restraint issued or filed or a
hearing seeking injunction relief or other restraint pending or notified
prohibiting or imposing materially adverse conditions upon the consummation of
the Transaction, the transactions contemplated by the Documents, or the making
of the Loans.
(k) Warrant Documents. On or prior to the Initial Funding Date, PCF
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shall have received duly executed copies of the Warrant, the Warrant Purchase
Agreement, the Warrant Agreement and Registration Rights Agreement and all other
documents related thereto.
(l) Financial Statements; Projections; Management Letters. (A) On or
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prior to the Initial Funding Date, the Lenders shall have received:
(i) the consolidated balance sheets of Holdings as at December 31,
1996 and June 30, 1997 and the related consolidated statements of operations and
cash flows of Holdings for the fiscal year or six month period, as the case may
be, ended as of such dates and consolidated balance sheet of each of the
companies listed on Schedule X hereto as at the respective dates set forth on
such Schedule X and the related statements of earnings and stockholders' equity
and cash flows of each of such companies (or similar financial
11
<PAGE>
statements as specified on such Schedule), as applicable for the fiscal periods
ended as of the dates specified in such Schedule, which, in the case of the
annual statements, have been audited by Arthur Andersen L.L.P., in the case of
the financial statements of Holdings and have been examined or reviewed by the
independent certified public accountants as specified on such Schedule in the
case of the other financial statements, who delivered unqualified opinions in
respect thereto except as specified on such Schedule; and
(ii) the pro forma (after giving effect to the Transaction and the
related financing thereof) consolidated balance sheet of Holdings as at the
Initial Funding Date;
all of which financial statements in clauses (i) and (ii) shall be prepared in
accordance with generally accepted accounting principles consistent with past
practices and shall be in form and substance satisfactory to the Agent and the
Required Lenders, and shall not disclose any material adverse differences in the
business, properties, assets, liabilities, results of operations, condition
(financial or otherwise) or prospects of Holdings and its Subsidiaries taken as
a whole from that previously disclosed to the Agent and the Required Lenders.
(B) On the Initial Funding Date, the Lenders shall have received
detailed consolidated financial projections, certified by the Chief Financial
Officer of Holdings, for Holdings and its Subsidiaries, which include the
projected results of the Borrower, after giving effect to the Transaction and
the other transactions contemplated herein, for the period commencing on the
Initial Funding Date and ending after the fifth anniversary of the Initial
Funding Date (the "Projections"), which Projections, and the supporting
assumptions and explanations thereto, and the accounting practices and
procedures to be utilized by Holdings following the Initial Funding Date, shall
be satisfactory in form and substance to the Agent and the Required Lenders.
(C) On or prior to the Initial Funding Date, the Lenders shall have
received a copy of any "management letter" received by Holdings or any of its
Subsidiaries from its certified public accountants.
(m) Consent Letter. The Agent shall have received a letter from CT
--------------
Corporation Systems, 1633 Broadway, New York, New York 10019 substantially in
the form of Exhibit I hereto, indicating its consent to its continued
appointment by Holdings and the Borrower as its agent to receive service of
process as specified in Section 12.08 of this Agreement.
(n) Material Adverse Change, etc. Since June 30, 1997, nothing shall
----------------------------
have occurred (and the Lenders shall have become aware of no facts or conditions
not previously known) which the Agent or the Lenders shall determine (i) could
reasonably be expected to have a material adverse effect on the rights or
remedies of the Lenders or the Agent, or
12
<PAGE>
on the ability of any Loan Party to perform its obligations to the Agent and the
Lenders under this Agreement or any other Loan Document, (ii) could reasonably
be expected to have a material adverse effect on the performance, business,
assets, nature of assets, liabilities, operations, properties, condition
(financial or otherwise) or prospects of any Loan Party and its Subsidiaries
taken as a whole (after giving effect to the Transaction) or (iii) reasonably
indicates the inaccuracy in any material respect of the information previously
provided to the Agent or any Lender in connection with their analysis of the
transactions contemplated hereby or reasonably indicates that the information
previously provided omitted to disclose any material information.
(o) Plans; Shareholders' Agreements; Management Agreements;
-------------------------------------------------------
Employment Agreements; Collective Bargaining Agreements; Debt Agreements;
- -------------------------------------------------------------------------
Affiliate Contracts; Tax Sharing Agreements and Material Contracts. On or prior
- ------------------------------------------------------------------
to the Initial Funding Date, there shall have been delivered to the Agent true
and correct copies, certified as true and complete by an appropriate officer of
Holdings or the Borrower of:
(i) all Plans (and for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information) required by the
Agent, and for each such Plan that is a "single-employer plan," as defined
in Section 4001(a)(15) of ERISA, the most recently prepared actuarial
valuation therefor) and any other "employee benefit plans," as defined in
Section 3(3) of ERISA, and any other material agreements, plans or
arrangements, with or for the benefit of current or former employees of
Holdings or any of its Subsidiaries or any ERISA Affiliate (provided that
the foregoing shall apply in the case of any multiemployer plan, as defined
in 4001(a)(3) of ERISA, only to the extent that any document described
therein is in the possession of Holdings or any Subsidiary of Holdings or
any ERISA Affiliate or reasonably available thereto from the sponsor or
trustee of any such plan) (collectively, the "Employee Benefit Plans");
(ii) all agreements entered into by Holdings or any Subsidiary of
Holdings governing the terms and relative rights of its capital stock and
any agreements entered into by shareholders relating to any such entity
with respect to their capital stock (collectively, the "Shareholders'
Agreements");
(iii) all agreements with members of, or with respect to the,
management of Holdings or any Subsidiary of Holdings other than Employment
Agreements (collectively, the "Management Agreements");
13
<PAGE>
(iv) any employment agreements entered into by Holdings or any
Subsidiary of Holdings with any physician or with any officer or director
of Holdings, or any Subsidiary of Holdings (collectively, the "Employment
Agreements");
(v) all collective bargaining agreements applying or relating to
any employee of Holdings or any Subsidiary of Holdings (collectively, the
"Collective Bargaining Agreements");
(vi) all agreements evidencing or relating to Indebtedness of
Holdings or any Subsidiary of Holdings whether or not such agreement is to
remain outstanding after giving effect to the incurrence of Loans on the
Funding Date (collectively, the "Debt Agreements");
(vii) all tax sharing, tax allocation and other similar agreements
entered into by Holdings or any Subsidiary of Holdings (collectively, the
"Tax Sharing Agreements");
(viii) all contracts, agreements or understandings entered into
between Holdings or any of its Subsidiaries on the one hand, and any of its
Affiliates, on the other hand (collectively, the "Affiliate Contracts");
and
(ix) all material contracts and licenses of Holdings or any of its
Subsidiaries that are to remain in effect after giving effect to the
consummation of the Transaction, including, without limitation, all
material management service contracts, practice management agreements and
all personal guarantees from physicians guaranteeing the revenues of their
practices and all material securities purchase agreements (collectively,
the "Material Contracts") as set forth on Schedule XI hereto;
all of which Employee Benefit Plans, Shareholders' Agreements, Management
Agreements, Employment Agreements, Collective Bargaining Agreements, Debt
Agreements, Tax Sharing Agreements, Affiliate Contracts and Material Contracts
shall be in form and substance satisfactory to the Agent and the Required
Lenders and shall be in full force and effect on the Initial Funding Date.
(p) Consummation of the Acquisitions. (i) On or prior to the Initial
--------------------------------
Funding Date, there shall have been delivered to the Agent true and correct
copies of all Acquisition Documents pertaining to Pre-Closing and
Contemporaneous Acquisitions and all Acquisition Documents to the extent
available for Post-Closing Acquisitions and all terms and provisions of such
Acquisition Documents shall be in form and substance satisfactory to the Agent
and shall not have been amended without the consent of the Agent;
14
<PAGE>
provided, however, in the case of the Acquisition Documents relating to Post-
Closing Acquisitions, there shall have been delivered to the Agent true and
correct copies of substantially final forms of the Acquisition Documents and the
final forms of such Acquisition Documents shall not vary materially therefrom.
Each Acquisition, including all of the terms and conditions thereof, shall have
been duly approved by the board of directors and (if required by applicable law)
the shareholders of the parties thereto prior to the closing of such
Acquisition, and all Acquisition Documents shall have been duly executed and
delivered by the parties thereto and shall be in full force and effect. The
representations and warranties set forth in the Acquisition Documents shall be
true and correct in all material respects as if made on and as of the Initial
Funding Date. Each of the conditions precedent to Holdings' and the Borrower's
obligations to con summate each Pre-Closing Acquisition and each Contemporaneous
Acquisition as set forth in the applicable Acquisition Documents shall have been
satisfied to the satisfaction of the Agent and the Required Lenders or waived
with the consent of the Agent and the Required Lenders, and each Pre-Closing
Acquisition and each Contemporaneous Acquisition shall have been consummated in
accordance with all applicable law and the respective Acquisition Documents and
the consideration payable in connection therewith shall not exceed the Purchase
Price for such Acquisition.
(ii) On the Initial Funding Date after giving effect to the
Transaction (to the extent consummated on such date), the ownership and capital
structure (including, without limitation, the terms of any capital stock,
options, warrants or other securities issued or to be issued by Holdings or any
of its Subsidiaries) as of the Initial Funding Date and management of Holdings
and its Subsidiaries shall be in form and substance satisfactory to the Agent
and the Required Lenders.
(q) Solvency Certificate; Insurance Analyses. On the Initial Funding
----------------------------------------
Date, Holdings shall cause to be delivered to the Agent and the Lenders: (i) a
solvency certificate from the Chief Financial Officer of Holdings, in the form
of Exhibit L hereto, which shall be addressed to the Agent and each of the
Lenders and dated the Initial Funding Date and in form and substance
satisfactory to the Agent and the Required Lenders, setting forth the conclusion
that, after giving effect to the Transaction and the incurrence of all
financings contemplated hereby, each of Holdings and its Subsidiaries (on a
consolidated basis) and the Borrower and its Subsidiaries (on a consolidated
basis), are not insolvent and will not be rendered insolvent by the Indebtedness
incurred in connection herewith and the Senior Credit Agreement, will not be
left with unreasonably small capital with which to engage in their respective
businesses and will not have incurred debts beyond their ability to pay such
debts as they mature and become due, and (ii) evidence (including, without
limitation, certificates with respect to each insurance policy listed on
Schedule II) of insurance, complying with the requirements of Section 5.03, with
respect to the business and properties of Holdings and its Subsidiaries, in
scope, form and substance satisfactory to the Agent and the Required Lenders.
15
<PAGE>
(r) Equity Amendments. Holdings shall obtain amendments to the terms
-----------------
of its capital stock (the "Equity Amendments"), in form and substance
satisfactory to the Agent and the Required Lenders, subordinating any put
rights, mandatory redemption provisions or similar provisions which require the
payment by Holdings or any of its Subsidiaries of any amounts with respect to
such capital stock while any "senior debt" (to be defined in a manner acceptable
to the Agent) remains outstanding and such other amendments as may be reasonably
requested by the Agent.
(s) Subordinated Debt. All indebtedness of any subsidiary of Holdings
-----------------
required by the Agent to be subordinated to the Loans (the "Other Subordinated
Debt") shall have been amended (the "Subordinated Debt Amendments") to provide
that such Subsidiary shall be released from all of its obligations under such
indebtedness and such indebtedness is assumed by Holdings and shall be
subordinated to all indebtedness under this Agreement and refinancings thereof
with such subordination provisions to be in form and substance satisfactory to
the Required Lenders; provided, however, that notwithstanding the foregoing,
-------- -------
Other Debt shall not include such indebtedness as set forth on Schedule XXI.
3.02 Conditions Precedent to All Loans. The obligation of each Lender
---------------------------------
to make its Loan on any Funding Date (including the Initial Funding Date) is
subject at the time to the satisfaction of the following conditions:
(a) Notes. On such Funding Date, there shall have been delivered to
-----
the Agent for the account of each Lender the appropriate Note, in each case
executed by the Borrower to the order of such Lender.
(b) No Default; Representations and Warranties. At the time of each
------------------------------------------
such Loan and also after giving effect thereto (i) there shall exist no Default
or Event of Default and (ii) all representations and warranties contained herein
shall be true and complete in all material respects with the same effect as
though such representations and warranties had been made on such Funding Date
except for representations and warranties expressly stated to relate to a
specific earlier date, which shall be true and correct in all material respects
as of such date.
(c) Material Adverse Change, etc. Since June 30, 1997, nothing shall
----------------------------
have occurred (and the Lenders shall have become aware of no facts or conditions
not previously known) which the Agent or the Lenders shall determine (i) could
reasonably be expected to have a material adverse effect on the rights or
remedies of the Lenders or the Agent, or on the ability of any Loan Party to
perform its obligations to the Agent and the Lenders under this Agreement or any
other Loan Document, (ii) could reasonably be expected to have a materially
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of any Loan Party and its Subsidiaries taken as a whole or (iii)
reasonably indicates the
16
<PAGE>
inaccuracy in any material respect of the information previously provided to the
Agent or any Lender in connection with their analysis of the transactions
contemplated hereby or reasonably indicates that the information previously
provided omitted to disclose any material information.
(d) Litigation. On such Funding Date, no litigation by any entity
----------
(private or governmental) shall be pending or threatened with respect to this
Agreement, any other Document or any documentation executed in connection
herewith, or which the Agent or Lenders shall determine could reasonably be
expected to have a material adverse effect on the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.
(e) Notice from Borrower. Prior to the making of a Loan, the Agent
--------------------
shall have received a notice from the Borrower pursuant to Section 1.01.
(f) Metroplex Note. Unless a Credit Event Date or a Qualified IPO
--------------
shall have occurred on or prior to the Subsequent Funding Date, the Agent shall
have consented to the making of the loans on the Subsequent Funding Date and the
proceeds of the Loans made on the Subsequent Funding Date shall only be used to
pay the Metroplex Note in full.
Section 4. Representations, Warranties and Agreements. In order to
------------------------------------------
induce the Lenders to enter into this Agreement and to make the Loans, each of
Holdings and the Borrower makes the following representations, warranties and
agreements as to itself and its Subsidiaries on and as of the Initial Funding
Date and on and as of the Subsequent Funding Date, all of which representations,
warranties and agreements shall survive the execution and delivery of this
Agreement and the other Loan Documents and the Subsequent Funding Date, with the
occurrence of the Subsequent Funding Date being deemed to constitute a
representation and warranty that the matters specified in this Section 4 are
true and correct on and as of such date:
4.01 Corporate Status. Each Loan Party and its Subsidiaries (other
----------------
than Physician Network of Brevard Inc., a Florida Corporation) (i) is a duly
organized and validly existing corporation (or a limited liability company or
partnership, as applicable) in good standing under the laws of the jurisdiction
of its organization, (ii) has the power and authority to own its property and
assets and to transact the business in which it is engaged and presently
proposes to engage and (iii) is duly qualified and is authorized to do business
and is in good standing in each jurisdiction where the ownership, leasing or
operation of property or the conduct of its business requires such
qualifications except for failures to be so qualified which, in the aggregate,
could not reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
17
<PAGE>
properties, condition (financial or otherwise) or prospects of such Loan Party
and its Subsidiaries taken as a whole.
4.02 Corporate Power and Authority. Each Loan Party and its
-----------------------------
Subsidiaries has the corporate power to execute, deliver and perform the terms
and provisions of each of the Documents to which it is party and has taken all
necessary corporate action (or limited liability company or partnership action
if applicable) to authorize the execution, delivery and performance by it of
each of such Documents. Each Loan Party and its Subsidiaries has duly executed
and delivered each of the Documents to which it is party, and each of such
Documents constitutes its legal, valid and binding obligation enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by general equitable principles
(regardless of whether the issue of enforceability is considered in a proceeding
in equity or at law).
4.03 No Violation. Neither the execution, delivery or performance by
------------
any Loan Party of the Documents to which it is a party, nor compliance by it
with the terms and provisions thereof, (i) will contravene any provision of any
applicable law, statute, rule or regulation or any order, writ, injunction or
decree of any court or governmental instrumentality applicable to it, (ii) will
conflict with or result in any breach of any of the terms, covenants, conditions
or provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any Lien (except pursuant
to the Senior Credit Agreement) upon any of the property or assets of any Loan
Party or its Subsidiaries pursuant to the terms of any indenture, mortgage, deed
of trust, credit agreement or loan agreement, or any other agreement, contract
or instrument to which any of them are a party or by which any of their property
or assets is bound or to which any of them may be subject or (iii) will violate
any provision of the Certificate of Incorporation or By-Laws (or similar
organizational documents) of any Loan Party or its Subsidiaries.
4.04 Governmental Approvals. No order, consent, approval, license,
----------------------
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made on or prior to the Initial Funding Date
and are in full force and effect), or exemption by, any governmental or public
body or authority, or any subdivision thereof, is required to authorize, or is
required in connection with, (i) the execution, delivery and performance of any
Document, (ii) the legality, validity, binding effect or enforceability of any
such Document or (iii) the Transaction.
4.05 Financial Statements; Financial Condition; Undisclosed
------------------------------------------------------
Liabilities; Projections; Etc. (i) The audited consolidated balance sheets of
- -----------------------------
Holdings as at December 31, 1996 and June 30, 1997 and the related consolidated
statements of operations and cash flows of Holdings for the fiscal year or six
month period, as the case may be, ended as of such dates, and the financial
statements of each company listed on Schedule X
18
<PAGE>
at the dates listed on Schedule X and for the fiscal periods ended as of the
dates listed on Schedule X, which, in the case of the annual statements, have
been audited by Arthur Andersen L.L.P., in the case of the financial statements
of Holdings and have been examined or reviewed by the independent certified
public accountants listed on Schedule X, in the case of the other financial
statements, who delivered unqualified opinions in respect thereto and (ii) the
pro forma (after giving effect to the Transaction and the related financing
thereof) consolidated balance sheet of Holdings and the Borrower as at the
Initial Funding Date, copies of all of which financial statements referred to in
the pre ceding clauses (i) and (ii) have heretofore been furnished to the Agent,
present fairly the financial position of the respective entities at the dates of
said statements and the results of operations for the period covered thereby
(or, in the case of the pro forma balance sheet, present a good faith estimate
of the pro forma finan cial condition of Holdings and its Subsidiaries (after
giving effect to the Transaction) on a consolidated basis at the date thereof).
All such financial statements have been prepared in accordance with generally
accepted accounting principles and practices consistently applied except to the
extent provided in the notes to said financial statements and with respect to
interim financial statements, subject to normal year end adjustments. Since June
30, 1997, there has been no material adverse change in the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole.
(b) On and as of the Initial Funding Date, on a pro forma basis after
giving effect to the Transaction and all other transactions contemplated by the
Documents as of such date and to all Indebted ness (including, without
limitation, the Loans) being incurred in connection with the Transaction, and
Liens created, and to be created, by each Loan Party in connection therewith:
(a) the sum of the assets (including all contribution and subrogation rights and
other intangible assets), at a fair valuation, of each Loan Party will exceed
its debts; (b) no Loan Party has incurred or intends to, or believes that it
will, incur debts beyond its ability to pay such debts as such debts mature; and
(c) each Loan Party will have sufficient capital with which to conduct its
business. For purposes of this Section 4.05(b) "debt" means any liability on a
claim, and "claim" means (i) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, subordinated, disputed,
undisputed, secured or unsecured.
(c) Except as fully reflected in the financial statements and the
notes related thereto described in Section 4.05(a), there were as of the Initial
Funding Date (and after giving effect to the Transaction and the other
transactions contemplated hereby and by the Documents) no liabilities or
obligations with respect to Holdings or any of its Subsidiaries of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether
19
<PAGE>
or not due) which, either individually or in aggregate, could reasonably be
expected to be material to Holdings and its Subsidiaries taken as a whole. As of
the Initial Funding Date, neither Holdings nor any of its Subsidiaries knows of
any basis for the assertion against Holdings or any of its Subsidiaries of any
liability or obligation of any nature whatsoever that is not fully reflected in
the financial statements and the notes related thereto described in Section
4.05(a) which, either individually or in the aggregate, could reasonably be
expected to be material to Holdings and its Subsidi aries taken as a whole. As
of the Initial Funding Date (and after giving effect to the Transaction) none of
Holdings or any of its Subsidiaries will have any outstanding Indebtedness or
preferred stock other than (i) the Loans, (ii) the Senior Debt, (iii) the
Existing Indebtedness and (iv) Holdings Preferred Stock.
(d) On and as of the Initial Funding Date, the Projections have been
prepared in good faith by Holdings and there are no statements or conclusions in
any of the Projections which are based upon or include information known to
Holdings to be misleading or which fail to take into account material infor
mation regarding the matters reported therein. On the Initial Funding Date,
each of Holdings and the Borrower believes that the Projections were reasonable
and attainable (although actual results may differ from the Projections and no
representation is made that the Projections will in fact be attained).
4.06 Litigation. There are no actions, suits or proceedings pending
----------
or, to the best knowledge of each Loan Party and its Subsidiaries, threatened
(i) with respect to any Document or the transactions contemplated thereby, or
(ii) that are reasonably likely to materially and adversely affect the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of the Loan Parties
and their Subsidiaries taken as a whole.
4.07 True and Complete Disclosure. All factual information (taken as a
----------------------------
whole) heretofore or contemporaneously furnished by or on behalf of any of the
Loan Parties or their Subsidiaries in writing to any Lender (including, without
limitation, all information contained in the Documents) for purposes of or in
connection with this Agreement, the other Loan Documents or Warrant Documents or
any transaction contemplated herein is, and all other such factual information
(taken as a whole) hereafter furnished by or on behalf of any of the Loan
Parties and their Subsidiaries in writing to any Lender or the Agent will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact.
4.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the
-----------------------------------
Loans shall be used by the Borrower to (i) finance, in part, the consummation of
the Transaction and (ii) pay Transaction Fees and Expenses; provided, however,
-------- -------
that the proceeds of Loans
20
<PAGE>
made on a Subsequent Funding Date occurring after June 30, 1998 may only be used
to pay in full the Metroplex Note.
(b) No part of the proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.
4.09 Tax Returns and Payments. Each of the Loan Parties and each of
------------------------
their Subsidiaries has timely filed or caused to be timely filed (including
pursuant to any valid extensions of time for filing) with the appropriate taxing
authority, all material returns, statements, forms and reports for taxes (the
"Returns") required to be filed by or with respect to the income, properties or
operations of such Loan Party or such Subsidiary. The Returns accurately reflect
in all material respects all liability for taxes of such Loan Party or such
Subsidiary as a whole for the periods covered thereby. Each of the Loan Parties
and each of their Subsidiaries has paid all material taxes payable by it which
have become due other than those contested in good faith and for which adequate
reserves have been established in accordance with generally accepted accounting
principles. There is no material action, suit, proceeding, investigation, audit,
or claim now pending or, to the best knowledge of any of the Loan Parties and
each of their Subsidiaries, threatened by any authority regarding any taxes
relating to any Loan Party or any of its Subsidiaries. As of the Initial Funding
Date, none of the Loan Parties or their Subsidiaries has entered into an
agreement or waiver or has been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
taxes of any of the Loan Parties or their Subsidiaries, or is aware of any
circumstances that would cause the taxable years or other taxable periods of any
of the Loan Parties or their Subsidiaries not to be subject to the normally
applicable statute of limitations. None of the Loan Parties or their
Subsidiaries has provided, with respect to themselves or property held by them,
any consent under Section 341 of the Code. None of the Loan Parties or their
Subsidiaries has incurred, or will incur, any material tax liability in
connection with the Transaction or any other transactions contemplated hereby
(it being understood that the representation contained in this sentence does not
cover any future tax liabilities of Holdings or any of its Subsidiaries arising
as a result of the operation of their businesses in the ordinary course of
business).
4.10 Compliance with ERISA. Schedule XIX sets forth each Plan; each
---------------------
Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its terms and with all applicable laws, including, without
limitation, ERISA and the Code; each Plan (and each related trust, if any) which
is intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to the effect that it
meets the requirements of Sections 401(a) and 501(a) of the Code; no
21
<PAGE>
Reportable Event has occurred; no Plan which is a multiemployer plan (as defined
in Section 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has
an Unfunded Current Liability; no Plan which is subject to Section 412 of the
Code or Section 302 of ERISA has an accumulated funding deficiency, within the
meaning of such sections of the Code or ERISA, or has applied for or received a
waiver of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 or 304 of
ERISA; all contributions required to be made with respect to a Plan have been
timely made; neither Holdings nor any Subsidiary of Holdings nor any ERISA
Affiliate has incurred any material liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any
such liability under any of the foregoing sections with respect to any Plan; no
condition exists which presents a material risk to Holdings or any Subsidiary of
Holdings or any ERISA Affiliate of incurring a liability to or on account of a
Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings
have been instituted to terminate or appoint a trustee to administer any Plan
which is subject to Title IV of ERISA; no action, suit, proceeding, hearing,
audit or investigation with respect to the administration, operation or the
investment of assets of any Plan (other than routine claims for benefits) is
pending, expected or threatened; using actuarial assumptions and computation
methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of Holdings and its Subsidiaries and its ERISA Affiliates to all
Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA)
in the event of a complete withdrawal therefrom, as of the close of the most
recent fiscal year of each such Plan ended prior to the date of the most recent
Credit Event Date, would not exceed $100,000; each group health plan (as defined
in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or
has covered employees or former employees of the Borrower, any Subsidiary of the
Borrower, or any ERISA Affiliate has at all times been operated in compliance
with the provisions of Part 6 of subtitle B of Title I of ERISA and Section
4980B of the Code; no lien imposed under the Code or ERISA on the assets of
Holdings or any Subsidiary of Holdings or any ERISA Affiliate exists or is
likely to arise on account of any Plan; and Holdings and its Subsidiaries may
cease contributions to or terminate any employee benefit plan maintained by any
of them without incurring any material liability.
4.11 Representations and Warranties in Documents. All
-------------------------------------------
representations and warranties set forth in the Documents and their
corresponding annexes, exhibits and schedules are true in all material respects
at the time as of which such representations and warranties were made and on the
Initial Funding Date.
4.12 Properties. Each of the Loan Parties and each of their
----------
Subsidiaries has good and merchantable title to all properties owned by it,
including all property reflected in the consolidated pro forma balance sheet
(after giving effect to the Transactions)
22
<PAGE>
referred to in Section 4.05(a) (except as sold or otherwise disposed of since
the date of such balance sheet in the ordinary course of business or as
permitted by Section 6.02), free and clear of all Liens, other than (i) as
referred to in such consolidated balance sheet or in the notes thereto or in the
pro forma balance sheet or (ii) as otherwise permitted by Section 6.01.
4.13 Capitalization. On the Initial Funding Date, after giving
--------------
effect to the Transaction, the authorized capital stock of Holdings consists of
(i) 100,000,000 shares of common stock, $.0025 par value per share ("Holdings
Common Stock"), 4,968,572 of which shares are issued and outstanding, (ii)
40,000,000 shares of Non-Voting Common Stock, $.0025 par value, of which no
shares are issued and outstanding, (iii) 20,000,000 shares of Prime Common
Stock, $.0025 par value per share (the "Holdings Prime Stock"), of which
4,955,904 shares are issued and outstanding; (iv) 500,000 shares of Class A
Stock $.01 par value of which 200,000 shares are issued and outstanding; and (v)
18,000,000 shares of preferred stock, $.01 per value per share ("Holdings
Preferred Stock") of which 9,000,000 shares consists of Series B Convertible
Preferred Stock of which 3,460,362 shares are issued and outstanding, and of
which 6,000,000 shares consist of Series B non-voting Convertible Preferred
Stock of which 917,814 shares are issued and outstanding. On the Initial
Funding Date, the authorized capital stock of the Borrower consists of 10,000
shares of common stock $.01 par value per share ("Borrower Common Stock") of
which 1,000 shares are issued and outstanding and are owned solely by Holdings.
All of the issued and outstanding shares of each Loan Party have been duly and
validly issued, are fully paid and nonassessable and, except as set forth on
Schedule XII, have not been issued in violation of any preemptive rights.
Except as set forth on Schedules VI, XI, XII, (limited only to documents
indicated by an asterisk) and XIV on the Effective Date, none of the Loan
Parties or their Subsidiaries has outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing the
issuance (contingent or otherwise) of, or any calls, commitments or claims of
any character relating to, its capital stock.
4.14 Subsidiaries. On the Initial Funding Date, the corporations,
------------
limited liability companies and partnerships listed on Schedule VI are the only
Subsidiaries of Holdings. Schedule VI correctly sets forth, as of the Initial
Funding Date, the percentage ownership (direct and indirect) of Holdings and the
Borrower in each class of capital stock (or other equity interests) of such
Subsidiaries and also identifies the direct owner thereof.
4.15 Compliance with Statutes, Etc. Each of the Loan Parties and
------------------------------
each of its Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls
23
<PAGE>
and relating to the prohibition on the corporate practice of medicine), except
with respect to each of the foregoing such noncompliance as could not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Loan Parties and their Subsidiaries taken as a whole.
4.16 Investment Company Act. None of the Loan Parties or any of
----------------------
their Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
4.17 Public Utility Holding Company Act. None of the Loan Parties or
----------------------------------
any of their Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
4.18 Environmental Matters. (a) Holdings and each of its
---------------------
Subsidiaries is in compliance with, in all respects, all applicable
Environmental Laws and the requirements of any permits issued under such
Environmental Laws except such noncompliances which, in the aggregate, could not
reasonably be expected to have a material adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole. There are no past, pending or, to the best knowledge of
Holdings, threatened material Environmental Claims against Holdings or any of
its Subsidiaries or any Real Property currently owned or operated by Holdings or
any of its Subsidiaries. There are no facts, circumstances, conditions or
occurrences concerning the business or operations of Holdings or any of its
Subsidiaries or any Real Property owned or operated at any time by Holdings or
any of its Subsidiaries or, to the knowledge of Holdings any property adjoining
any such Real Property that could reasonably be expected (i) to form the basis
of an Environmental Claim against Holdings or any of its Subsidiaries or any
Real Property owned or operated by Holdings or any of its Subsidiaries or (ii)
to cause such Real Property to be subject to any restrictions on the ownership,
occupancy, use or transferability of such Real Property under any Environ
mental Law except such Environmental Claims and restrictions which individually
or in the aggregate could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.
(b) Neither Holdings nor any of its Subsidiaries has, at any time,
generated, used, treated, stored, transported or released Hazardous Materials
on, to or from any Real Property at any time owned, leased or at any time
operated by Holdings or any of its Subsidiaries; except for such Hazardous
Material of a type and in a quantity used in the
24
<PAGE>
normal course of business of Holdings or its Subsidiaries, which Hazardous
Material is being held, used, stored and disposed of in compliance with
applicable Environmental Laws.
4.19 Labor Relations. Neither Holdings nor any of its Subsidiaries
---------------
is engaged in any unfair labor practice that could reasonably be expected to
have a material adverse effect on Holdings and its Subsidiaries taken as a
whole. There is (i) no significant unfair labor practice complaint pending
against Holdings or any of its Subsidiaries or, to the best knowledge of
Holdings or the Borrower, threatened against any of them, before the National
Labor Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is so
pending against Holdings or any of its Subsidiaries or, to the best knowledge of
Holdings or the Borrower, threatened against any of them and (ii) no significant
strike, labor dispute, slowdown or stoppage pending against Holdings or any of
its Subsidiaries or, to the best knowledge of Holdings or the Borrower,
threatened against Holdings or any of its Subsidiaries.
4.20 Patents, Licenses, Franchises and Formulas. Holdings, together
------------------------------------------
with its Subsidiaries, has a license to use or otherwise has the right to use,
free and clear of pending or threatened Liens, all the material patents, patent
applications, trademarks, service marks, trade names, trade secrets, copyrights,
proprietary information, computer programs, data bases, licenses, franchises and
formulas, or rights with respect to the foregoing (collectively, "Intellectual
Property"), and has obtained all licenses and other rights of whatever nature,
necessary for the present conduct of its business, without any known conflict
with the rights of others which, or the failure to obtain which, as the case may
be, could reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
4.21 Indebtedness. Schedule IX sets forth a true and complete list
------------
of all Indebtedness (other than the Loans and the Senior Debt under the Senior
Credit Agreement) of the Loan Parties and each of their Subsidiaries as of the
Funding Date after giving effect to the Transaction and the other transactions
contemplated hereby (the "Retained Indebtedness"), in each case showing the
aggregate amount thereof, which in the case of all such Retained Indebtedness
shall not exceed $26,565,002 in the aggregate, and the name of the respective
obligor and any other entity which directly or indirectly guaranteed such debt.
None of the Retained Indebtedness was incurred in connection with, or in
contemplation of, the Transaction.
4.22 Restrictions on or Relating to Subsidiaries. There does not
-------------------------------------------
exist any encumbrance or restriction on the ability of (i) any Loan Party or any
Subsidiary thereof to pay dividends or make any other distributions on its
capital stock or any other interest or participation in its profits, or to pay
any Indebtedness, (ii) any Loan Party or any
25
<PAGE>
Subsidiary thereof to make loans or advances to another Loan Party or any
Subsidiary thereof or (iii) any Loan Party or any Subsidiary thereof to transfer
any of its properties or assets to another Loan Party or any Subsidiary thereof,
except for such encumbrances or restrictions existing under or by reason of (v)
applicable law, (w) this Agreement and the other Loan Documents, (x) the Senior
Credit Agreement and (y) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of any Loan Party or any
Subsidiary thereof.
4.23 The Transaction. All aspects of the Transaction have been
---------------
effected in accordance with the Documents and all applicable law. At the time
of consummation thereof, all consents and approvals of, and filings and
registrations with, and all other actions in respect of, all governmental
agencies, authorities or instrumentalities required in order to consummate the
Transaction shall have been obtained, given, filed or taken and are in full
force and effect (or effective judicial relief with respect thereto has been
obtained). All applicable waiting periods with respect thereto have or, prior
to the time when required, will have, expired without, in all such cases, any
action being taken by any competent authority which restrains, prevents or
imposes material adverse conditions upon the consummation of the Transaction.
Additionally, at the time of consummation thereof, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the consummation of the Transaction, and there does not exist
any judgment, order or injunction prohibiting or imposing any material adverse
condition upon the Loans or the performance by any of the Loan Parties or their
Subsidiaries of their obligations under the Documents. All actions taken by
each of the Loan Parties and their Subsidiaries pursuant to or in furtherance of
the Transaction have been taken in compliance in all material respects with the
respective Documents and all applicable law. The Physician Practice Groups
being acquired pursuant to the Acquisitions have aggregate pro forma Revenues
and EBITDA at least $46.9 million and $6.2 million, respectively. The Purchase
Price (and the components of such Purchase Price) for each Acquisition is as set
forth in Schedules XV through XVIII. The pro forma EBITDA referred to in the
second preceding sentence is personally guaranteed in part by the selling
physicians pursuant to the terms of the Personal Guarantees. Set forth on
Schedule XXII are the names of the individuals providing personal guarantees
(the "Personal Guarantees") and a description of such guarantees. Each of the
Personal Guarantees constitutes the legal, valid and binding obligation of each
of the guarantors enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, reorganization, moratorium
or similar laws relating to creditors' rights generally or by general equitable
principles (regardless of whether the issue of enforceability is considered in a
proceeding in equity or at law).
4.24 Defaults. As of the Initial Funding Date, neither Holdings nor
--------
any of its Subsidiaries is in, nor has Holdings or any of its Subsidiaries
received any notices alleging any, breach or default by Holdings or any of its
Subsidiaries under any contract with a doctor or medical practice group or under
any other Material Contract.
26
<PAGE>
4.25 Material Contracts. All Material Contracts of Holdings and each
------------------
of its Subsidiaries as of the Initial Funding Date are listed on Schedule XI
hereto.
4.26 Unwind Provisions. Except as set forth on Schedule XIV, as of
-----------------
the Initial Funding Date, neither Holdings nor any of its Subsidiaries is party
to an agreement of any nature which allows any party to such agreement, upon the
happening or non-happening of an event, to repurchase the stock or assets it
sold to Holdings or its Subsidiary in the original sale of such party's medical
practice or put such party in the position or a similar position to that the
party maintained prior to entering into such agreement.
4.27 Practice Management Agreements. As of the Initial Funding Date,
------------------------------
all of the practice management agreements or similar agreements with physicians
or physicians entities to which Holdings or its Subsidiaries are directly or
indirectly parties to are set forth on Schedule XX. All of the rights and
interest, including the ability to collect proceeds, of Holdings and its
Subsidiaries under the agreements set forth on Schedule XX are assignable to the
Bank Agent as collateral for the Senior Debt without the consent or approval of
any third party.
4.28 Contemporaneous Acquisitions. All of the Acquisitions that the
----------------------------
Borrower or its Subsidiaries will effect on the Initial Funding Date are set
forth on Schedule XVI (the "Contemporaneous Acquisitions").
4.29 Post-Closing Acquisitions. All of the Acquisitions that the
-------------------------
Borrower or its Subsidiaries will effect after the Initial Funding Date with the
proceeds of the Term Loan portion of the Senior Debt or Notes are set forth on
Schedule XVII (the "Post-Closing Acquisitions").
4.30 Repurchase Obligations. As of the Initial Funding Date, no
----------------------
Material Contract requiring Holdings or any of its Subsidiaries to repurchase,
purchase or otherwise acquire or make distributions with respect to, its capital
stock (or with respect to rights, options or warrants with respect to its
capital stock) other than as set forth on Schedule XIV.
Section 5. Affirmative Covenants. Each of Holdings and the Borrower
---------------------
covenants and agrees that on and after the Effective Date and until the Loans
and Notes, together with interest, and all other Obligations (other than
indemnities and similar Obligations for which no claim has been made), are paid
in full and for so long as the Commitment is outstanding:
5.01 Information Covenants. Holdings or the Borrower shall furnish to
---------------------
the Agent:
27
<PAGE>
(a) Monthly Reports. Within 30 days after the end of each fiscal
---------------
month the consolidated and consolidating balance sheets of Holdings and its
Subsidiaries as at the end of such month and the related consolidated and
consolidating statements of earnings for such month and for the elapsed portion
of the fiscal year ended with the last day of such month, setting forth
comparative figures for the corresponding month and elapsed portion of such
fiscal year for the prior fiscal year and comparable budgeted figures for such
period, all of which shall be certified by the chief financial officer or
controller of Holdings as being fairly stated in all material respects subject
to normal year-end audit adjustments and shall be accompanied by a management
discussion and analysis of the results of operations and financial condition
with respect to such period.
(b) Quarterly Financial Statements. Within 45 days after the close of
------------------------------
each of the first three quarterly accounting periods in each fiscal year of
Holdings (i) the consolidated and consolidating balance sheets of Holdings and
its Subsidiaries as at the end of such quarterly period and the related
consolidated and consolidating statements of earnings and stockholders' equity
and statement of cash flows for such quarter, in each case for such quarterly
period and for the elapsed portion of the fiscal year ended with the last day of
such quarterly period, in each case setting forth comparative figures for the
related periods in the prior fiscal year and comparable budgeted figures for
such period, all of which shall be certified by the chief financial officer or
controller of Holdings, subject to normal year-end audit adjustments and shall
be accompanied by a management discussion and analysis of the results of
operations and financial condition with respect to such period.
(c) Annual Financial Statements. Within 90 days after the close of
---------------------------
each fiscal year of Holdings, the consolidated and consolidating balance sheets
of Holdings and its Subsidiaries as at the end of such fiscal year and the
related consolidated and consolidating statements of earnings and stockholders'
equity and statement of cash flows for such fiscal year and setting forth
comparative figures for the preceding fiscal year and comparable budgeted
figures for such period and certified, (x) in the case of the consolidating
statements by the chief financial officer of Holdings and (y) in the case of the
consolidated financial statements of Holdings and its Subsidiaries, by Arthur
Andersen L.L.P. or any of the other "big six" or other independent certified
public accountants of recognized national standing reasonably acceptable to the
Required Lenders, together with a signed opinion of such accounting firm (which
opinion shall not be qualified in any respect) stating that in the course of its
regular audit of the financial statements of Holdings, which audit was conducted
in accordance with generally accepted auditing standards, such accounting firm
obtained no knowledge of any Default or Event of Default which has occurred and
is continuing or, if in the opinion of such accounting firm such a Default or
Event of Default has occurred and is continuing, a statement as to the nature
thereof and shall be accompanied by a management discussion and analysis of the
results of operations and financial condition with respect to such period.
28
<PAGE>
(d) Management Letters. Promptly after the receipt thereof by
------------------
Holdings or any Subsidiary of the Borrower, a copy of any "management letter"
received by Holdings or such Subsidiary from its certified public accountants.
(e) Budgets. As soon as available but in no event later than 30 days
-------
after the first day of each fiscal year of Holdings, a budget for the Loan
Parties in form reasonably satisfactory to the Agent and the Required Lenders
(including budgeted statements of earnings and sources and uses of cash, cash
flow statements, and balance sheets) prepared by Holdings for each calendar
month of such fiscal year and on an annual basis for the next succeeding fiscal
year prepared in reasonable detail with appropriate presentation and discussion
of the principal assumptions upon which such budgets are based, accompanied by
the statement of the chief financial officer or controller of Holdings to the
effect that, to the best of his or her knowledge, the budget is a reasonable
estimate for the periods covered thereby.
(f) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Section 5.01(a), (b) and (c), a certificate
of the chief financial officer, chief executive officer, president or corporate
controller of Holdings to the effect that no Default or Event of Default has
occurred and is continuing or, if any Default or Event of Default has occurred
and is continuing, specifying the nature and extent thereof, which certificate,
in the case of certificates delivered pursuant to Section 5.01(b) or (c), shall
set forth the calculations required to establish whether Holdings or the
Borrower was in compliance with the provisions of Sections 2.02(d), 6.02, 6.04,
6.06 through 6.09, at the end of such fiscal quarter or year, as the case may
be.
(g) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within three Business Days after an officer of any of the Loan Parties or their
Subsidiaries obtains knowledge thereof, notice of (i) the occurrence of any
event which constitutes a Default or Event of Default, (ii) any litigation or
governmental investigation or proceeding pending (x) against any of the Loan
Parties or their Subsidiaries which could reasonably be expected to materially
and adversely affect the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Loan Parties and their Subsidiaries taken as a whole or (y)
with respect to any Document, (iii) any other event which could reasonably be
expected to materially and adversely affect the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of the Loan Parties and their Subsidiaries taken as a
whole and (iv) any default or breach by Holdings or any of its Subsidiaries
under any contract or agreement with any doctor or medical practice or any other
Material Contract or receipt of any notice of such default or breach received
from any doctor or medical practice or any party to any other Material Contract.
29
<PAGE>
(h) Other Reports and Filings. Promptly upon transmission thereof,
-------------------------
copies of any financial information, proxy materials and other information and
reports, if any, which any of the Loan Parties or their Subsidiaries (x) has
filed with the Securities and Exchange Commission or any successor thereto (the
"SEC") or (y) has delivered to holders of, or any agent or trustee with respect
to, Indebtedness (including the holders of any Senior Debt) of such Loan Party
or such Subsidiary in its capacity as such a holder, agent, or trustee.
(i) Environmental Matters. Promptly upon, and in any event within two
---------------------
Business Days after an officer of any of the Loan Parties or any of their
Subsidiaries obtains knowledge thereof, notice of any of the following
environmental matters: (i) any pending or threatened material Environmental
Claim against any of the Loan Parties, any of their Subsidiaries, any Real
Property owned or operated by any of the Loan Parties or any of their
Subsidiaries; (ii) any condition or occurrence on or arising from any Real
Property owned or operated at any time by any of the Loan Parties or any of
their Subsidiaries that (A) could reasonably be anticipated to result in a
material noncompliance by such Loan Party or Subsidiary with any applicable
Environmental Law, or (B) could reasonably be anticipated to form the basis of a
material Environmental Claim against such Loan Party or Subsidiary or any Real
Property owned or operated by such Loan Party or Subsidiary; (iii) any condition
or occurrence on any Real Property owned or operated by any of the Loan Parties,
any of their Subsidiaries or any property adjoining such Real Property that
could reasonably be anticipated to cause such Real Property to be subject to any
material restrictions on the ownership, occupancy, use or transferability of
such Real Property under any Environmental Law; and (iv) the taking of any
removal or remedial action in response to a material Release or material
threatened Release or the actual or alleged presence of any Hazardous Material
on or from any Real Property owned or operated at any time by any of the Loan
Parties or any of their Subsidiaries in each case as required by any
Environmental Law or any governmental or other administrative agency. All such
notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and such Loan
Party's, such Subsidiary's response thereto. In addition, Borrower will provide
the Lenders with copies of all material non-privileged communications with any
government or governmental agency relating to Environmental Claims, all material
communications with any person relating to material Environmental Claims, and
such detailed reports of any material Environmental Claim as may reasonably be
requested by the Required Lenders.
(j) Annual Meetings with Lenders. Within 120 days after the close of
----------------------------
each fiscal year of Holdings, Holdings shall, at the request of the Agent, hold
a meeting at its offices or other mutually agreed upon site, with all Lenders
who choose to attend such meeting at which meeting shall be reviewed the
financial results of the previous fiscal year and the financial condition of the
Loan Parties and their Subsidiaries and the budgets presented for the current
fiscal year of the Loan Parties and their Subsidiaries.
30
<PAGE>
(k) Other Information. From time to time, such other information or
-----------------
documents (financial or otherwise) with respect to any Loan Party or its
Subsidiaries, as the Agent or the Required Lenders may reasonably request.
5.02 Books, Records and Inspections. Holdings shall, and shall cause
------------------------------
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries, in conformity with United States generally
accepted accounting principles and all requirements of law, shall be made of all
dealings and transactions in relation to its business and activities. Holdings
shall, and shall cause each of its Subsidiaries to, permit officers and
designated representatives of the Agent or any Lender to visit and inspect,
under guidance of officers of Holdings or such Subsidiaries, any of the
properties of such Loan Party or its Subsidiaries, and to examine the books of
account of such Loan Party or its Subsidiaries and discuss the affairs, finances
and accounts of such Loan Party or its Subsidiaries with, and be advised as to
the same by, its and their officers, all at such reasonable times and intervals
and to such reasonable extent as the Agent or such Lender may request.
5.03 Maintenance of Property, Insurance. Schedule II sets forth a
----------------------------------
true and complete listing of all insurance maintained by Holdings and each of
its Subsidiaries as of the Effective Date. Holdings will, and will cause each of
its Subsidiaries to, (i) keep all material property useful and necessary in its
business in good working order and condition (ordinary wear and tear excepted),
(ii) maintain with financially sound and reputable insurance companies insurance
on all its property in at least such amounts and against at least such risks as
are described on Schedule II, and (iii) furnish to each Lender, upon written
request, full information as to the insurance carried.
5.04 Corporate Franchises. Holdings shall, and shall cause each of
--------------------
its Subsidiaries (other than Immaterial Subsidiaries) to, do or cause to be done
all things necessary to preserve and keep in full force and effect its existence
and its material rights, franchises licenses and patents; provided, however,
-------- -------
that nothing in this Section 5.04 shall prevent the withdrawal of any such
Person of its qualification as a foreign corporation in any jurisdiction where
such withdrawal could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
properties, operations, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.
5.05 Compliance with Statutes, Etc. Holdings shall, and shall cause
-----------------------------
each of its Subsidiaries to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property except such noncompliance as could not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the performance, business, assets, nature of assets, liabilities, operations,
31
<PAGE>
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
5.06 Compliance with Environmental Laws. (a) Holdings shall, and
----------------------------------
shall cause each of its Subsidiaries to, comply, in all material respects, with
all Environmental Laws applicable to the ownership or use of all the Real
Property, and shall promptly pay, or cause its Subsidiaries to promptly pay all
costs and expenses incurred in such compliance, and will keep or cause to be
kept Holdings' or its Subsidiaries' interest in all owned Real Properties free
and clear of any Liens imposed pursuant to such Environmental Laws. Holdings
shall not, and shall not permit any of its Subsidiaries to, generate, use,
treat, store, release or dispose of, or permit the generation, use, treatment,
storage, Release or disposal of Hazardous Materials on any Real Property, or
transport or permit the transportation of Hazardous Materials to or from any
Real Property other than in the normal course of business in compliance with
applicable law.
(b) At the request of the Agent or the Required Lenders at any time
and from time to time during the existence of this Agreement: (i) if an Event of
Default exists under this Agreement, (ii) upon the reasonable belief by the
Agent that Holdings or any of its Subsidiaries has breached any representation
or covenant herein with respect to any environmental matters and such breach is
continuing, or (iii) in the event notice is provided under Section 5.01(i)
herein, Holdings shall provide, at its sole cost and expense, an environmental
site assessment report concerning any of its or its Subsidiaries' Real Property,
prepared by an environmental consulting firm approved by the Agent and the
Required Lenders, indicating the presence or Release, if any, of Hazardous
Materials on or from any of the Real Property and the potential cost of any
removal or remedial action required by any Environmental Laws in connection with
any Hazardous Materials on such Real Property. If Holdings fails to provide the
same after 30 days' notice or as soon thereafter as is reasonably possible, the
Agent may order the same, and Holdings shall grant and hereby grants to the
Agent and the Lenders and their agents access to such Real Property and
specifically grants the Agent and the Lenders an irrevocable non-exclusive
license to undertake such an assessment all at Holdings' expense, which
assessments, if obtained, will be provided to Holdings.
5.07 ERISA. As soon as possible and, in any event, within 10 days
-----
after Holdings or any of their Subsidiaries knows or has reason to know of the
occurrence of any of the following, Holdings shall deliver to each of the
Lenders a certificate of the chief financial officer of Holdings setting forth
details as to such occurrence and the action, if any, that Holdings, such
Subsidiary, or the relevant ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be given to or filed with or
by Holdings, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan participant
or the Plan administrator with respect thereto: that a Reportable Event has
occurred; that an accumulated funding deficiency has been incurred or an
application may be or has been
32
<PAGE>
made to the Secretary of the Treasury for a waiver or modification of the
minimum funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code with respect
to a Plan; that a contribution required to be made to a Plan has not been timely
made; that a Plan has been or may be terminated, reorganized, partitioned or
declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current
Liability giving rise to a lien under ERISA or the Code; that proceedings may be
or have been instituted to terminate or appoint a trustee to administer a Plan;
that a proceeding has been instituted pursuant to Section 515 of ERISA to
collect a delinquent contribution to a Plan; that Holdings, any of its
Subsidiaries, or any ERISA Affiliate will or may incur any liability (including
any indirect, contingent, or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29),
4971, 4975 or 4980 of the Code or Section 409, 502(i) or 502(l) of ERISA; or
Holdings or any of its Subsidiaries, may incur any material liability pursuant
to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any employee pension benefit plan (as
defined in Section 3(2) of ERISA). Holdings shall deliver to each of the Lenders
a complete copy of the annual report (Form 5500) of each Plan (including, to the
extent required, the related financial and actuarial statements and opinions and
other supporting statements, certifications, schedules and information) required
to be filed with the Internal Revenue Service. In addition to any certificates
or notices delivered to the Lenders pursuant to the first sentence hereof,
copies of annual reports and any material notices received by, Holdings, any of
its Subsidiaries, or any ERISA Affiliate with respect to any Plan shall be
delivered to the Lenders no later than 10 days after the date such report has
been filed with the Internal Revenue Service or such notice has been received by
Holdings and any of its Subsidiaries, or such ERISA Affiliate, as applicable.
5.08 End of Fiscal Years; Fiscal Quarters. Holdings' and each of its
------------------------------------
Subsidiaries' fiscal years shall end on December 31 and each of its and its
Subsidiaries' first three fiscal quarters shall end on March 31, June 30 and
September 30.
5.09 Payment of Taxes. Holdings shall, and shall cause each of its
----------------
Subsidiaries to, pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties would otherwise
attach thereto, and all lawful claims which, if unpaid, might become a lien or
charge upon any properties of any of its Subsidiaries not otherwise permitted
under Section 6.01; provided, however, that no Loan Party or its Subsidiaries
-------- -------
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper proceedings if it has maintained
adequate reserves with respect thereto in accordance with generally accepted
accounting principles.
33
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5.10 Use of Proceeds. The Borrower shall use all proceeds of the
---------------
Loans as provided in Section 4.08.
5.11 Intellectual Property Rights. Holdings shall, and shall cause
----------------------------
each of its Subsidiaries to make all filings in connection with the transfer of
the Intellectual Property Rights in the Acquisitions. Holdings will and will
cause each of its Subsidiaries to maintain in full force and effect all
Intellectual Property rights necessary or appropriate to the business of
Holdings or any Subsidiary of Holdings and take no action (including, without
limitation, the licensing of Intellectual Property), or fail to take an action,
as the case may be, in connection with such Intellectual Property rights which
could reasonably be expected to result in a material adverse effect on the
performance, business, assets, nature of assets, liabilities, properties,
operations, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole. Holdings shall, and shall cause each of its
Subsidiaries to, diligently prosecute all pending applications filed in
connection with seeking or seeking to perfect the Intellectual Property rights
and take all other reasonable actions necessary for the protection and
maintenance of the Intellectual Property rights necessary or appropriate to the
business of Holdings or any Subsidiary of Holdings at all times from and after
the Funding Date other than any such actions the failure of which, in the
aggregate, could not reasonably be expected to have a material adverse effect on
the performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.
5.12 Register. The Borrower hereby designates the Agent to serve as
--------
the Borrower's agent, solely for purposes of this Section 5.13, to maintain a
register (the "Register") on which it will record the Loans made by each of the
Lenders and each repayment in respect of the principal amount of the Loans of
each Lender. Failure to make any such recordation, or any error in such
recordation shall not affect the Borrower's obligations in respect of such
Loans. With respect to any Lender, the transfer of the rights to the principal
of, and interest on, any Loan shall not be effective until such transfer is
recorded on the Register maintained by the Agent with respect to ownership of
such Loans and prior to such recordation all amounts owing to the transferor
with respect to such Loans shall remain owing to the transferor. The
registration of an assignment or transfer of all or part of any Loans shall be
recorded by the Agent on the Register only upon the acceptance by the Agent of a
properly executed and delivered assignment and assumption agreement pursuant to
Section 12.04(b). Coincident with the delivery of such an assignment and
assumption agreement to the Agent for acceptance and registration of assignment
or transfer of all or part of a Loan, or as soon thereafter as practicable, the
assigning or transferor Lender shall surrender the Note evidencing such Loan,
and thereupon one or more new Notes in the same aggregate principal amount shall
be issued to the assigning or transferor Lender and/or the new Lender. Holdings
and the Borrower jointly and severally agree to indemnify the Agent from and
against any and all losses,
34
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claims, damages and liabilities of whatsoever nature which may be imposed on,
asserted against or incurred by the Agent in performing its duties under this
Section 5.12.
5.13 Ownership of Subsidiaries. The Borrower shall, at all times,
-------------------------
unless otherwise expressly permitted by Section 6.02, indirectly own, except as
set forth on Schedule VI, 100% of the capital stock and stock equivalents of
each of its Subsidiaries (other than Immaterial Subsidiaries and other than as
permitted in Section 5.15) provided that if the Borrower indirectly owns less
than 100% of the capital stock and stock equivalents of any such Subsidiary on
the Effective Date, the Borrower shall maintain, at least, its percentage of the
capital stock and stock equivalents of such Subsidiary as of the Effective Date
as is set forth on Schedule VI.
5.14 Observation of Board of Directors. PCF may designate one
---------------------------------
individual (the "Observer") to attend all meetings of the Board of Directors of
Holdings (and any committees thereof) in a non-voting observer capacity. The
Observer shall be entitled to receive all reports, presentations and materials
as if the Observer were a member of the Board of Directors. Notwithstanding the
foregoing and Section 13(d) of the Warrant Agreement, PCF agrees that PCF and
Paribas Principal Incorporated shall together be entitled to designate only one
observer, as shall be mutually agreed upon by them from time to time.
5.15 Permitted Acquisitions. (a) Subject to the provisions of this
----------------------
Section 5.15 applicable thereto and the requirements contained in the definition
of Permitted Acquisition, the Borrower and its Subsidiaries may from time to
time after the Initial Funding Date effect Permitted Acquisitions, so long as
with respect to each Permitted Acquisition, to the extent provided below:
(i) no Default or Event of Default or default or event of default
under the Senior Debt is in existence at the time of the consummation of
such Permitted Acquisition or would exist after giving effect thereto, all
representations and warranties contained herein and in the other Documents
shall be true and correct in all material respects with the same effect as
though such representations and warranties were made on and as of the date
of such Permitted Acquisition (both before and after giving effect thereto)
and no other agreement, contract or instrument to which the Borrower or any
of its Subsidiaries is a party restricts such Permitted Acquisition;
(ii) the Borrower shall have given the Agent and the Lenders at least
30 days (or ten Business Days in the case of clause (s) below) prior
written notice of any such Permitted Acquisition (each such notice, a
"Permitted Acquisition Notice"), which notice shall (r) contain the
estimated date such Permitted Acquisition is scheduled to be consummated,
(s) attach a true and correct copy of
35
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the draft purchase agreement, letter of intent, description of material
terms or similar agreement entered into or contemplated to be entered into
by the Borrower or one of its Subsidiaries and the seller in connection
with such Permitted Acquisition, (t) contain the estimated aggregate
purchase price of such Permitted Acquisition and the amount of related
costs and expenses and the intended method of financing thereof, (u)
contain the estimated amount of Acquisition Loans required to effect such
Permitted Acquisition, (v) contain a description of any Permitted Earn-Out
Debt or Permitted Seller Notes to be incurred by Holdings in connection
with such Permitted Acquisition an the maximum potential liability of
Holdings with respect thereto, and (w) contain a description of the
Permitted Equity Issuances to be effected by Holdings in connection with
such Permitted Acquisition;
(iii) the Borrower shall have provided the Lenders with all
information provided to its Board of Directors or any of its shareholders
with respect to such Permitted Acquisition, including without limitation,
all information required pursuant to the Securities Purchase Agreement and
such other information related to the Person or business, division or
product line being acquired and the Permitted Acquisition as the Agent
shall reasonably request, including without limitation expert reports
prepared by such accounting, environmental, and/or other experts as the
Agent shall reasonably request;
(iv) (I) as soon as available but not less than three days after the
execution thereof, a copy of the executed purchase agreement and all
related agreements, schedules and exhibits with respect to such Permitted
Acquisition and (II) at the time of delivery of the purchase agreement, a
certification from the Borrower as to the purchase price for the
acquisition and the estimated amount of all related costs, fees and
expenses and that, except as described, there are no other amounts which
will be payable in connection with the respective Permitted Acquisition;
(v) calculations are made by the Borrower of the Consolidated EBITDA
of the Person or business, division or product line being acquired pursuant
to the respective Permitted Acquisition (determined in accordance with the
definition of Consolidated EBITDA contained herein, but treating references
therein and in any other defined terms used in determining Consolidated
EBITDA to "Holdings" to instead be references to the Person or business,
division or product line being acquired pursuant to the respective
Permitted Acquisition), and the amount thereof shall exceed zero for the
period of four consecutive fiscal quarters (taken as one accounting period)
most recently ended prior to the date of the Permitted Acquisition (the
"Calculation Period"); provided, however, in the case of calculations based
-------- -------
on financial statements not audited by a "big-six accounting firm" or other
nationally recognized accounting firm reasonably acceptable to the Agent,
the Agent and the Required Lenders shall be satisfied that the Consolidated
36
<PAGE>
EBITDA of such Person or business, division or product line being acquired
pursuant to the respective Permitted Acquisition exceeds zero for the
Calculation Period;
(vi) the Agent shall be satisfied in its reasonable discretion that
the proposed Permitted Acquisition will not be reasonably likely to result
in materially increased liabilities (contingent or otherwise) of Holdings
or any of its Subsidiaries other than Permitted Seller Notes and Permitted
Earn-Out Debt incurred in accordance with the provisions of this Agreement
(including, without limitation, tax, ERISA or environmental liabilities);
provided, that, so long as the Permitted Acquisition Notice has been given
--------
as required above and so long as Holdings has furnished each Lender,
following request by the Agent, information with respect to liabilities of
the type described in this clause with all information so requested, if the
Agent has not notified the Borrower on or prior to the tenth day prior to
the consummation of the Permitted Acquisition that the Agent has not yet
been satisfied that the proposed Permitted Acquisition would not be
reasonably likely to result in materially increased liabilities of Holdings
or any of its Subsidiaries, such Lender shall be deemed for purposes of
this clause (vii) to be so satisfied;
(vii) after giving effect to any additional indebtedness to be
incurred in the connection therewith and the Consolidated EBITDA of the
Person or business, division or product line being acquired pursuant to the
respective Permitted Acquisition determined in accordance with clause
5.15(a)(vi) above for the Calculation Period, the ratio of Consolidated
Indebtedness on the last day of the Calculation Period to Consolidated
EBITDA of Holdings and its Subsidiaries for the Calculation Period, on a
Pro Forma Basis shall be equal to or less than 3.50:1;
(xii) recalculations are made by the Borrower of compliance with the
covenants contained in Sections 6.06 through 6.09, inclusive, for the
Calculation Period on a Pro Forma Basis, and such recalculations shall show
that all such covenants would have been complied with throughout the
Calculation Period on a Pro Forma Basis;
(ix) the Borrower in good faith believes, on a Pro Forma Basis (as if
the Calculation Period were the one-year period following the date of the
consummation of the respective Permitted Acquisition) that the financial
covenants contained in such Sections 6.06 through 6.09, inclusive, will
continue to be met for the one year period following the date of the
consummation of the respective Permitted Acquisition;
37
<PAGE>
(x) the purchase price for any Permitted Acquisition may not
exceed ten times the Consolidated EBITDA of the Person or business,
division or product line being acquired for the Calculation Period;
(xi) the sum of the items described in clauses (I) - (IV) of
Section 5.15(a)(v) in connection with any single Permitted Acquisition
shall not exceed $10 million and in connection with all Permitted
Acquisitions shall not exceed $30 million in the aggregate;
(xii) the aggregate amount (determined by using the face amount of
the debt or the amount payable at maturity, whichever is greater) of
Permitted Seller Notes and Permitted Earn-Out Debt issued by Holdings after
the date hereof shall not exceed $20,000,000;
(xiii) the Borrower shall only include for any Person or business,
division or product line acquired, 100% of audited financial statement
based Consolidated EBITDA calculated on a Pro Forma Basis and 75% of
personally guaranteed unaudited financial statement based Consolidated
EBITDA calculated on a Pro Forma Basis with respect to calculations made in
connection with the covenants contained in this Section 5.15 and Sections
6.06 through 6.09, inclusive; and
(xiv) prior to the consummation of the respective Permitted
Acquisition, the Borrower shall furnish the Agent and the Lenders an
officer's certificate executed by the chief financial officer of Holdings,
certifying as to compliance with the requirements of the applicable
preceding clauses (i) through (xiii) and containing the calculations
required by preceding clauses (v), (vii), (viii), (x), (xi) and (xii). The
consummation of each Permitted Acquisition shall be deemed to be a
representation and warranty by Holdings that all conditions thereto have
been satisfied and that same is permitted in accordance with the terms of
this Agreement, which representation and warranty shall be deemed to be a
representation and warranty for all purposes hereunder, including, without
limitation, Sections 3.02 and 7.
(b) At the time of each Permitted Acquisition involving the creation
or acquisition of a Subsidiary, not less than 100% of the capital stock of such
Subsidiary shall be directly owned by the Borrower; provided, however, for up to
one Business Day after such Permitted Acquisition, Holdings may own such
Subsidiary; and provided, further, that either Holdings or the Borrower may own
less than 100% (but more than 50%) of the capital stock or other equity or
beneficial ownership interests of Subsidiaries for which the Borrower has paid
(in the aggregate) no more than $5 million in consideration.
(c) The Borrower shall cause each Subsidiary which is formed to
effect, or is acquired pursuant to, a Permitted Acquisition to execute and
deliver, prior to the date of
38
<PAGE>
the respective Permitted Acquisition, the Subsidiaries Guaranty (or an amendment
thereto pursuant to which it shall become a guarantor thereunder) or a
substantially similar guaranty, in either case with the documentation to be in
form and substance satisfactory to the Agent.
5.16 Subsidiary Metroplex Note. In connection with any payment with
-------------------------
respect to the Subsidiary Metroplex Note, Holdings shall make the necessary
requests under the Equity Call Agreement in order to obtain all funds necessary
to make such payment from the shareholders of Holdings party to the Equity Call
Agreement unless the funds necessary to make such payment consist of Excluded
Public Offering Proceeds; provided, however, in the event that neither Holdings
nor the Bank Agent makes the necessary requests under the Equity Call Agreement,
then the Agent shall be entitled to make such request.
5.17. Default on Metroplex Note. Upon the occurrence of a default in
-------------------------
payment by Holdings under the Metroplex Note, the Borrower agrees that, if the
Subsequent Commitment remains outstanding, at the request of the Agent, the
Borrower will borrow an amount equal to the Subsequent Commitment in accordance
with the terms of this Agreement and will use the proceeds of such borrowing to
pay in full the Metroplex Note.
5.18. Corporate Separateness. Holdings and each of its Subsidiaries
----------------------
will take all such action as is necessary to keep the operations of each such
Person separate and apart from those of each such other Person, including,
without limitation, ensuring that all customary corporate formalities, including
the maintenance of corporate records and holding regular meetings of
shareholders and directors are followed. None of Holdings or any of its
Subsidiaries shall take any action, or conduct its affairs in a manner, which is
likely to result in the corporate existence of Holdings or any of its
Subsidiaries being disregarded, or in the assets and liabilities of Holdings or
any of its Subsidiaries being substantively consolidated with those of Holdings
or any of its Subsidiaries in a bankruptcy, reorganization or other insolvency
proceeding.
Section 6. Negative Covenants. Holdings and the Borrower hereby
------------------
covenant that on and after the Effective Date and until the Loans and Notes,
together with interest and all other Obligations (other than indemnities and
similar Obligations for which no claim has been made) incurred hereunder and
thereunder, have been paid in full and the Commitment is no longer outstanding:
6.01 Liens. Holdings shall not, and shall not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any of their respective property or assets (real or personal,
tangible or intangible), whether now owned or hereafter acquired, or sell any
such property or assets subject to an understanding or
39
<PAGE>
agreement, contingent or otherwise, to repurchase such property or assets
(including sales of accounts receivable with recourse to Holdings or any of its
Subsidiaries, or assign any right to receive income or permit the filing of any
financing statement under the UCC or any other similar notice of Lien under any
similar recording or notice statute; provided, however, that the provisions of
-------- -------
this Section 6.01 shall not prevent Holdings or any of its Subsidiaries from
creating, incurring, assuming or permitting the existence of the following
(Liens described below are herein referred to as "Permitted Liens"):
(i) inchoate Liens with respect to Holdings or any Subsidiary of the
Borrower for taxes not yet due or Liens for taxes being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established in accordance with generally accepted accounting principles;
(ii) Liens in respect of property or assets of the Borrower or any
Subsidiary of the Borrower imposed by law, which were incurred in the
ordinary course of business and do not secure Indebtedness for borrowed
money, such as carriers', warehousemen's, materialmen's, mechanics' and
landlords' liens and other similar Liens arising in the ordinary course of
business, and (x) which do not in the aggregate materially detract from the
value of the Borrower's or any of its Subsidiaries' property or assets or
materially impair the use thereof in the operation of the business of the
Borrower or the Subsidiaries of the Borrower or (y) which are being
contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or assets
subject to any such Lien;
(iii) Liens of the Borrower or the Subsidiaries of the Borrower in
existence on the Effective Date which are listed, and the property subject
thereto described, on Schedule VII, but only to the respective date, if
any, set forth in such Schedule VII for the removal and termination of any
such Liens;
(iv) Liens securing Senior Debt and Liens permitted by the Senior
Credit Agreement;
(v) easements, rights-of-way, restrictions, encroachments and other
similar charges or encumbrances on the property of Holdings or any
Subsidiary of Holdings arising in the ordinary course of business and not
materially interfering with the conduct of the business of Holdings or any
Subsidiary of Holdings;
(vi) Liens on property of Holdings and the Subsidiaries of Holdings
subject to, and securing only, Capitalized Lease Obligations to the extent
such Capitalized Lease Obligations are permitted by Section 6.04, provided
--------
that such Liens only serve to secure the payment of Indebtedness arising
under such Capitalized Lease
40
<PAGE>
Obligation and the Lien encumbering the asset giving rise to the
Capitalized Lease Obligation does not encumber any other asset of Holdings
or any Subsidiary of Holdings;
(vii) Liens (other than any Lien imposed by ERISA) on property of
Holdings or any Subsidiary of Holdings incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security or (y) to secure
the performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money), provided that the aggregate
amount of cash and the fair market value of the property encumbered by
Liens described in this clause (vii) shall not exceed $250,000;
(viii) Liens placed upon equipment or machinery used in the ordinary
course of business of Holdings or any Subsidiary of Holdings within sixty
(60) days following the time of purchase thereof by Holdings or any
Subsidiary of Holdings and improvements and accretions thereto to secure
Indebtedness incurred to pay all or a portion of the purchase price thereof
or any Indebtedness incurred to refinance such Indebtedness, provided that
--------
(x) the aggregate principal amount of all Indebtedness secured by Liens
permitted by this clause (viii) does not exceed at any one time outstanding
the amounts permitted under Section 6.04, (iii) with respect to all
machinery and equipment and (y) in all events, the Lien encumbering the
equipment or machinery so acquired and improvements and accretions thereto
does not encumber any other asset of Holdings or any of its Subsidiaries;
(ix) Liens arising from precautionary UCC-1 financing statement
filings regarding operating leases entered into by Holdings or any
Subsidiary of Holdings in the ordinary course of business; and
(x) inchoate Liens (where there has been no execution or levy and
no pledge or delivery of collateral) arising from and out of judgments or
decrees in existence at such time not constituting an Event of Default.
6.02 Consolidation, Merger, Purchase or Sale of Assets, Etc. (a)
------------------------------------------------------
Holdings shall not convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or substantially all of its assets;
and (b) Holdings shall not, and shall not permit any of its Subsidiaries (other
than Immaterial Subsidiaries) to, (i) wind up, liquidate or dissolve its
affairs, (ii) enter into any transaction of merger or consolidation, (iii)
convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing
at any future time) all or any part of its property or assets, including without
limitation assets consisting of capital stock of a Subsidiary and Stock
Equivalents thereof, (iv) enter into any
41
<PAGE>
partnerships, joint ventures or sale-leaseback transactions, or (v) purchase or
otherwise acquire (in one or a series of related transactions) any part of the
property or assets of any Person, or make or maintain any loan or advance to any
Person, or own or purchase or otherwise acquire any capital stock or Stock
Equivalents or equity interests or obligations of or other securities of any
Person, or otherwise make any other investment in any Person (each of the
foregoing in this clause (v) being an "Investment"), except that the following
shall be permitted:
(A) purchases or other acquisitions by Holdings and its Subsidiaries
of inventory, materials and equipment in the ordinary course of business;
(B) Capital Expenditures by Holdings and its Subsidiaries to the
extent permitted by Section 6.09 hereof;
(C) Holdings and its Subsidiaries may sell assets so long as either
(i) the aggregate amount of Net Sale Proceeds from such sales pursuant to
this clause (C) in any one fiscal year does not exceed $250,000 or (ii) the
amount of Net Sale Proceeds from such sales in any one fiscal year does not
exceed $600,000 in the aggregate and such proceeds are used, or irrevocably
committed to be used, to purchase, within 180 days from the date of sale,
assets to be used in the business of Holdings or its Subsidiaries;
(D) to the extent permitted by this Agreement, Holdings and its
Subsidiaries may lease (as lessee) real or personal property;
(E) Holdings and its Subsidiaries (other than Immaterial
Subsidiaries) may make and maintain Investments (1) consisting of
receivables owing to any of them (including, without limitation, through
the indirect acquisition thereof through a security interest), if created
or acquired in the ordinary course of business and payable or dischargeable
in accordance with customary terms, (2) in cash and Cash Equivalents, (3)
in Interest Rate Contracts, (4) contemplated by the Transaction, (5)
consisting of loans and advances in the ordinary course of business and
consistent with past practices to their respective employees for moving,
travel and emergency expenses and other similar expenses, so long as the
aggregate principal amount thereof at any one time outstanding (determined
without regard to any write-downs or write-offs of such loans and advances)
shall not exceed $500,000, (6) consisting of advances to doctors for the
purpose of allowing such doctors to make tax payments, (7) consisting of
purchases or acquisitions of securities of trade creditors or customers
received in any plan of reorganization or similar arrangement on the
bankruptcy or insolvency of such trade creditors or customers or received
in settlement of delinquent obligations of, and other disputes with,
suppliers arising in the ordinary course of business, (8) consisting of
capital stock of Subsidiaries listed
42
<PAGE>
on Schedule VI, (9) loans and advances outstanding or commitments therefor
as of the date hereof and listed on Schedule IV and (10) any other
Investments permitted pursuant to the Senior Credit Agreement as in effect
on the date hereof;
(F) Holdings and its Subsidiaries may sell inventory in the ordinary
course of business;
(G) the Loan Parties may consummate the Transaction in accordance
with the Documents;
(H) Dividends may be paid to the extent permitted by Section 6.03;
(I) each of Holdings and its Subsidiaries may enter into licensing
arrangements with respect to Intellectual Property, in accordance with
customary past practice of Holdings or such Subsidiary (as the case may
be);
(J) other purchases and acquisitions of assets provided that the
aggregate consideration paid for all such purchases or other acquisitions
pursuant to this clause (J) shall not exceed $100,000 in any one fiscal
year;
(K) the sale or transfer of assets by Holdings or any Subsidiary
thereof, excluding any sale or transfer prohibited by subsections (a) or
(b) above, provided that (1) no Default or Event of Default is continuing
or would result therefrom, (2) all Net Sale Proceeds of any such sale or
transfer are applied to the prepayment of the Senior Debt or the
Obligations to the extent required by Section 2.02(d), (3) such sale or
transfer is for cash consideration, payable on the date of consummation of
such sale or transfer, equal to no less than the Fair Market Value of such
assets being sold or transferred, (4) in the case of any sale or transfer
of capital stock or Stock Equivalents of any of Holdings' Subsidiaries, all
of the capital stock and Stock Equivalents of such Subsidiary are
transferred, (5) the aggregate Fair Market Value of any assets sold or
transferred shall not exceed $1,500,000, and (6) the aggregate Fair Market
Value of all assets sold during any fiscal year shall not exceed $250,000;
(L) any acquisition expressly permitted by Section 5.15 hereof; and
(M) the Designated Assets shall be permitted to be resold to the
original sellers thereof pursuant to, and in accordance with, the
repurchase provisions of the Designated Agreements.
6.03 Dividends, Etc. Except as set forth on Schedule XVIII hereto,
---------------
Holdings shall not, and shall not permit its Subsidiaries to, declare or pay any
Dividends,
43
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except that any Subsidiary of Holdings may pay Dividends to Holdings or any
Wholly-Owned Subsidiary of Holdings and the Borrower (other than Immaterial
Subsidiaries) may pay Dividends to Holdings or the Borrower (a) with the
proceeds of Acquisition Loans so long as contemporaneously with its receipt
thereof, Holdings or the Borrower uses such proceeds to effect Permitted
Acquisitions and (b) with the proceeds of the Notes so long as contemporaneously
with its receipt thereof, Holdings uses such proceeds to repay amounts owing
with respect to the Metroplex Note.
6.04 Indebtedness. Holdings shall not, nor shall it permit any of its
------------
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness incurred pursuant to this Agreement and the other
Loan Documents;
(ii) Senior Debt;
(iii) Any Indebtedness expressly permitted pursuant to the terms of
the Senior Credit Agreement as in effect on the date hereof;
(iv) Indebtedness of the Borrower and its Subsidiaries (other than
Indebtedness specified in clauses (i), (ii) and (iii) of this Section 6.04)
as set forth on Schedule XXI;
(v) Indebtedness of Holdings (other than Indebtedness specified in
clauses (i), (ii) or (iii) of this Section 6.04) in an aggregate principal
amount at any time outstanding not in excess of $20,000,000; provided, that
--------
(A) such Indebtedness shall have an average maximum current pay interest of
no more than 8% per annum, with no single item of Indebtedness bearing
interest at a rate greater than 10% per annum, (B) no single item of
Indebtedness shall have a final maturity that is less than two years, (C)
all such Indebtedness shall have an average weighted-life to maturity of
not less than 2.5 years, and (D) such Indebtedness shall be issued only as
consideration for Permitted Acquisition; and
(vi) Indebtedness listed on Schedule VIII hereto.
6.05 Transactions with Affiliates. Holdings shall not, and shall not
----------------------------
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of Holdings or any Affiliate of Holdings' Subsidiaries unless (a)
such transaction or series of related transactions is in writing and on terms
that are no less favorable to Holdings or such Subsidiary, as the case may be,
than those that would be available in a comparable transaction in arm's-length
dealings with an unrelated third party, (b) with respect to any
44
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transaction or series of related transactions involving aggregate value in
excess of $100,000, Holdings delivers an officers' certificate to the Agent
certifying that such transaction or series of related transactions complies with
clause (a) above and such transaction or series of related transactions has been
approved by a majority of the disinterested members of the board of directors of
Holdings and (c) with respect to any transaction or series of related
transactions involving aggregate payments in excess of $600,000, such
transaction or series of related transactions has been approved by the
disinterested directors of Holdings (or in the event there is only one
disinterested director, by such disinterested director) and Holdings delivers to
the Agent a written opinion of an investment banking firm of national standing
or other recognized independent expert with experience appraising the terms and
conditions of the type of transaction or series of related transactions for
which an opinion is required stating that the transaction or series of related
transactions is fair to Holdings or such Subsidiary from a financial point of
view; except that (i) Holdings and its Subsidiaries may effect the Transaction,
and (ii) Holdings and its Subsidiaries may make loans and advances in the
ordinary course of business consistent with past practices to their respective
employees for moving, travel and emergency expenses and other similar expenses
and may make advances to doctors for the purpose of allowing the doctors to make
tax payments, so long as the aggregate principal amount thereof at any one time
outstanding (determined without regard to any write-downs or write-offs of such
loans and advances) shall not exceed $500,000.
6.06 Interest Coverage Ratio. Holdings shall not permit the ratio of
-----------------------
Consolidated EBITDA to Consolidated Interest Expense for any period of four
consecutive fiscal quarters (or, if shorter, the period beginning on November 1,
1997 and ending on the last day of a fiscal quarter of Holdings ended after
November 1, 1997), in each case taken as one accounting period, ending on the
last day of the period set forth below to be less than the ratio set forth
opposite such period:
Fiscal Quarter
Ended Ratio
----------------- -----
December 31, 1997 2.50:1:0
March 31, 1998 2.75:1.0
June 30, 1998 2.75:1.0
September 30, 1998 3.0:1.0
December 31, 1998 3.0:1.0
March 31, 1999 3.50:1.0
June 30, 1999 3.50:1.0
September 30, 1999 3.5:1.0
December 31, 1999 3.50:1.0
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March 31, 2000 3.75:1.0
June 30, 2000 3.75:1:0
September 30, 2000 3.75:1.0
December 31, 2000 3.75:1.0
March 31, 2001 3.75:1.0
June 30, 2001 3.75:1.0
September 30, 2001 3.75:1.0
December 31, 2001 3.75:1.0
March 31, 2002 3.75:1.0
June 30, 2002 3.75:1.0
September 30, 2002 3.75:1.0
December 31, 2002 3.75:1.0
March 31, 2003 3.75:1.0
June 30, 2003 3.75:1.0
September 30, 2003 3.75:1.0
December 31, 2003 3.75:1.0
March 31, 2004 3.75:1.0
June 30, 2004 3.75:1.0
6.07 Consolidated Indebtedness to Consolidated EBITDA. Holdings shall
------------------------------------------------
not permit the ratio of Consolidated Indebtedness as of the last day of any
fiscal quarter ended on a date set forth below to Consolidated EBITDA for any
period of four consecutive fiscal quarters (or, if shorter, the period beginning
on the Initial Funding Date and ending on the last day of a fiscal quarter of
Holdings ended after the Initial Funding Date) then ended, in each case taken as
one accounting period, ending on the last day of the period set forth below to
be greater than the ratio set forth opposite such period below:
Fiscal Quarter
Ended Ratio
----------------- -----
December 31, 1997 5.00:1.0
March 31, 1998 5.00:1.0
June 30, 1998 5.00:1.0
September 30, 1998 5.00:1.0
December 31, 1998 5.00:1.0
March 31, 1999 4.50:1.0
June 30, 1999 4.50:1.0
46
<PAGE>
September 30, 1999 4.50:1.0
December 31, 1999 4.50:1.0
March 31, 2000 4.00:1.0
June 30, 2000 4.00:1.0
September 30, 2000 4.00:1.0
December 31, 2000 4.00:1.0
March 31, 2001 3.75:1.0
June 30, 2001 3.75:1.0
September 30, 2001 3.75:1.0
December 31, 2001 3.75:1.0
March 31, 2002 3.00:1.0
June 30, 2002 3.00:1.0
September 30, 2002 2.50:1.0
December 31, 2002 2.50:1.0
March 31, 2003 2.00:1.0
June 30, 2003 2.00:1.0
September 30, 2003 2.00:1.0
December 31, 2003 2.00:1.0
March 31, 2004 2.00:1.0
June 30, 2004 2.00:1.0
6.08 Minimum EBITDA. Holdings shall not permit its Consolidated
--------------
EBITDA for any period of four consecutive fiscal quarters (or, if shorter, the
period beginning on the Initial Funding Date and ending on the last day of a
fiscal quarter of the Borrower ended after the Initial Funding Date), in each
case taken as one accounting period, to be less than the sum of (x) $5,000,000
and (y) an amount equal to 70% of the Consolidated EBITDA of each company
acquired after the Initial Funding Date for the twelve month period immediately
preceding the date of each such company's acquisition.
6.09 Capital Expenditures. Holdings shall not and shall not permit
--------------------
any of its Subsidiaries to, make any expenditure for fixed or capital assets
(including, without limitation, expenditures for maintenance and repairs which
should be capitalized in accordance with generally accepted accounting
principles and including Capitalized Lease Obligations (collectively, "Capital
Expenditures"), except that (x) during the period (taken as one accounting
period) commencing on November 1, 1997 and ending on December 31, 1997 Holdings
and its Subsidiaries may make Capital Expenditures (other than in connection
with Permitted Acquisitions) so long as the aggregate amount thereof does not
exceed
47
<PAGE>
the greater of (x) the amount permitted pursuant to the Securities Purchase
Agreement and (y) $1,000,000 during such period and (y) during any calendar year
thereafter Holdings and its Subsidiaries may make Capital Expenditures (other
than in connection with Permitted Acquisitions) so long as the aggregate amount
thereof does not exceed the greater of (x) the amount permitted pursuant to the
Securities Purchase Agreement and (y) the amount set forth opposite such fiscal
year below, such amounts set forth below to be adjusted upward for each Post-
Closing Acquisition by $25,000 for each physician employed directly or
indirectly by any company or practice acquired pursuant to a Permitted
Acquisition; provided that 80% of the allowable Capital Expenditures not spent
in 1997 may be carried over into 1998.
Fiscal Year Amount
----------- ------
1998 $5,000,000
1999 $5,000,000
2000 $5,000,000
2001 $5,000,000
2002 $5,000,000
(b) In addition to the Capital Expenditures permitted above, the
Borrower and its Subsidiaries may make Permitted Acquisitions in accordance with
Section 5.15 in an amount not to exceed the amounts permitted thereby.
6.10 Restrictions on Additional Subordinated Indebtedness. Holdings
----------------------------------------------------
will not, nor will it permit any of its Subsidiaries to, create or suffer to
exist any Indebtedness for borrowed money which (i) provides that it is
subordinate in right of payment to any Senior Indebtedness and (ii) is senior in
right of payment to or pari passu with the Loans or other Obligations.
---- -----
6.11 Limitation on Voluntary Payments and Modifications of
-----------------------------------------------------
Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain
- --------------------------------------------------------------------------------
Other Agreements; Etc. Holdings shall not, and shall not permit its
- ----------------------
Subsidiaries to:
(a) make (or give any notice in respect of) any voluntary or optional
payment or prepayment on or redemption or acquisition for value of
(including, without limitation, by way of depositing with the trustee with
respect thereto money or securities before due for the purpose of paying
when due), of any Indebtedness that is not Senior Indebtedness;
48
<PAGE>
(b) amend, modify or change in any manner adverse to the interests
of the Lenders its Certificate of Incorporation (including, without
limitation, by the filing or modification of any certificate of
designation) or its By-Laws;
(c) amend, modify or change or terminate the Stockholders' Agreement
or enter into any other agreement with respect to its capital stock, except
amendments, modifications or changes and new agreements which are not
materially adverse to any Lenders, do not violate or breach, or are not
inconsistent with, any of the terms of this Agreement or any other Loan
Document and which do not, and will not, involve the payment by Holdings or
its Subsidiaries of any material amounts and do not result in Holdings or
its Subsidiaries incurring then or any time in the future any material
liability or monetary obligation.
(d) amend, modify, change or enter into any new Tax Sharing
Agreement; or
(e) amend, modify or change, or enter into any new Management
Agreement, Employee Benefit Plan or Employment Agreement (as such terms are
defined in the Senior Credit Agreement as in effect on the Initial Funding
Date), except if the aggregate cost to Holdings and its Subsidiaries as a
result of such amendments, modifications, changes to such plans and
agreements and new plans and agreements is not reasonably likely to have a
material adverse effect on the performance, business, property, assets,
nature of assets, liabilities, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.
6.12 Limitation on Certain Restrictions on Subsidiaries. Except as
--------------------------------------------------
set forth on Schedule XVIII, Holdings shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Person to (i) pay dividends or make any other distributions on its capital
stock or any other interest or participation in its profits to Holdings or any
other Subsidiary of Holdings, or pay any Indebtedness owed to Holdings or any
other Subsidiary of Holdings, (ii) make loans or advances to Holdings or any
other Subsidiary of Holdings or (iii) transfer any of its properties or assets
to Holdings, except for such encumbrances or restrictions existing under or by
reason of (v) applicable law, (w) this Agreement and the other Loan Documents,
(x) the Senior Credit Agreement or (y) customary provisions restricting
subletting or assignments of any lease governing a leasehold interest of
Holdings or any other Subsidiary of Holdings.
6.13 Limitation on Issuance of Capital Stock. (a) Holdings shall
---------------------------------------
not permit any of its Subsidiaries to issue any capital stock (including by way
of sales of treasury stock) or any options or warrants to purchase, or
securities convertible into, capital
49
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stock, except (i) for transfers and replacements of then outstanding shares,
(ii) for stock splits, stock dividends and similar issuances which do not
decrease the percentage ownership of any Person in any class of the capital
stock of Holdings or such Subsidiary or (iii) upon the formation of any new
Subsidiary as permitted by this Agreement in connection with Permitted
Acquisitions.
(b) Holdings shall not issue any capital stock, except (i) shares of
capital stock issued upon conversion of any stock issued or authorized to be
issued under its Certificate of Incorporation as of the Effective Date, (ii)
shares of capital stock issued upon the exercise of any warrants of Holdings
outstanding as of the Effective Date, (iii) stock dividends, stock splits, and
issuances of capital stock which is capital stock authorized under its
Certificate of Incorporation as of the Effective Date for cash with respect to
which, after giving effect to such issuance pursuant to this clause (iii), the
cash proceeds, if any, therefrom are applied in accordance with Section 2.02 or
(iv) shares of capital stock issued in a public offering registered under the
Securities Act, with minimum net proceeds to the corporation (net of
underwriting discounts and offering expenses) of at least $20 million; provided
that none of the foregoing occurrences in clause (i) through (iv) shall be
permitted if a Change of Control would result therefrom.
6.14 Business. On and after the tenth Business Day following the
--------
Initial Funding Date, Holdings will not conduct any business or own any assets
other than the stock of the Borrower, and for one Business Day after the
acquisition thereof, that of Subsidiaries acquired or formed in connection with
Permitted Acquisitions. The Borrower shall not, and shall not permit any of its
Subsidiaries to, engage, directly or indirectly, in any business other than a
Permitted Business.
6.15 Limitation on Creation of Subsidiaries. Holdings shall not, and
--------------------------------------
shall not permit any Subsidiary to, establish, create or acquire any new
Subsidiary except Subsidiaries of the Borrower may be acquired or formed in
connection with Permitted Acquisitions to the extent otherwise permitted by this
Agreement or the Senior Credit Agreement and direct Subsidiaries of Holdings may
be acquired or formed in connection with Permitted Acquisitions so long as
within one Business Day of the acquisition thereof the stock of such Subsidiary
is transferred to the Borrower.
6.16 Amendments with Respect to Senior Debt. The Borrower shall not
--------------------------------------
amend, modify or restate the terms of Senior Debt if such amendment,
modification or restatement would (i) decrease the average weighted-life to
maturity of the Senior Debt by more than one and one-half (1-1/2) years from
that in effect on the date hereof (calculated as if such amendment was entered
into on the date hereof and taking into account all previous amendments) or (ii)
increase the interest rate of the Senior Debt to a rate in excess of the maximum
interest rates calculated from time to time permitted under Section 1.08
50
<PAGE>
of the Senior Credit Agreement, as such Section 1.08 is in effect on the date
hereof, plus 2%.
----
6.17 No Further Negative Pledges. Except (a) as otherwise permitted
---------------------------
by or under the terms of Existing Debt, this Agreement or the Senior Credit
Agreement, and (b) with respect to specific property encumbered to secure
payment of particular Indebtedness permitted to be incurred by the terms hereof,
Holdings shall not, and shall not permit any of its Subsidiaries to, enter into
any agreement prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired.
6.18 Leases. Except as set forth on Schedule XXIII, neither Holdings
------
nor the Borrower will incur any expense (including, without limitation, any
property taxes paid as additional rent or lease payments) under any agreement to
rent or lease any real or personal property (or any extension or renewal
thereof) (excluding Capitalized Lease Obligations), and Holdings will not permit
the aggregate expense (including, without limitation, any property taxes paid as
additional rent or lease payments) incurred by Holdings and its Subsidiaries on
a consolidated basis under any agreement to rent or lease any real or personal
property (or any extension or renewal thereof) (excluding Capitalized Lease
Obligations) to exceed $4 million for the period commencing on the Initial
Funding Date and ending December 31, 1997 or to exceed $8 million for the fiscal
year 1998, $10 million for fiscal year 1999 $12 million for fiscal year 2000,
and $14 million for any fiscal year thereafter.
6.19 Unwind Provisions. Neither Holdings nor any of its Subsidiaries
-----------------
will enter into any agreement of any nature of the type described in Section
4.26 except for agreements substantially in the same form as the agreements
which are in effect on the Initial Funding Date, so long as any "unwind
provisions" or similar provisions arising in the case of any event other than a
breach under such agreement by Holdings or any of its Subsidiaries shall not be
effective prior to the 65th month anniversary of the Initial Funding Date.
Section 7. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each, an "Event of Default"):
7.01 Payments. Any Loan Party shall (i) default in the payment when
--------
due of any principal of any Loan or any Note or (ii) default, and such default
shall continue unremedied for five or more Business Days, in the payment when
due of any interest on any Loan or Note or any other amounts owing by it
hereunder or under any other Loan Document; or
51
<PAGE>
7.02 Representations, Etc. Any representation, warranty or statement
---------------------
made by any Loan Party herein or in any other Loan Document, or in any
certificate delivered pursuant hereto or thereto, shall prove to be untrue in
any material respect on the date as of which made or deemed made; or
7.03 Covenants. (a) The Borrower or Holdings shall (i) default in the
---------
due performance or observance by it of any term, covenant or agreement contained
in Section 5.01(g)(i), 5.08, 5.10, 5.13, 5.15, 5.17 or 6 and such default shall
continue unremedied for a period of ten days after written notice to the
Borrower and Holdings by the Agent or any Lender or (ii) default in the due
performance or observance by it of any other term, covenant or agreement
contained in this Agreement and such default shall continue unremedied for a
period of 30 days after written notice to the Borrower and Holdings by the Agent
or any Lender; or (b) any Loan Party shall default in the due performance or
observance by it of any term, covenant or agreement contained in any other Loan
Document after any applicable notice provided for therein has been given or any
lapse of time provided for therein has occurred; or
7.04 Default Under Other Agreements. (i) Holdings or any of its
------------------------------
Subsidiaries shall default in any payment of any principal amount of any
Indebtedness (other than the Indebtedness referred to in Section 7.01) beyond
the period of grace on the final maturity thereof if any provided in the
instrument or agreement under which such Indebtedness was created, or (ii) any
Indebtedness shall be declared to be due and payable prior to the final maturity
thereof; provided that it shall not constitute an Event of Default pursuant to
--------
this Section 7.04 unless the aggregate amount of all Indebtedness referred to in
the preceding clauses (i) and (ii) above exceeds $750,000 at any one time; or
7.05 Bankruptcy, Etc. Holdings or any of its Subsidiaries shall
----------------
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto; or an involuntary case is commenced against Holdings or any of its
Subsidiaries and the petition is not controverted within 10 days, or is not
dismissed or discharged, within 60 days, after commencement of the case; or a
custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge
of, all or substantially all of the property of Holdings or any of its
Subsidiaries, or Holdings or any of its Subsidiaries commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to Holdings or any of
its Subsidiaries, or there is commenced against Holdings or any of its
Subsidiaries any such proceeding which remains undismissed or undischarged for a
period of 60 days, or Holdings or any of its Subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or Holdings or any of its Subsidiaries suffers
any appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged
52
<PAGE>
or unstayed for a period of 60 days; Holdings or any of its Subsidiaries makes a
general assignment for the benefit of creditors; or any corporate action is
taken by Holdings or any of its Subsidiaries for the purpose of effecting any of
the foregoing; or
7.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
-----
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days; any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan has not
been timely made, Holdings or any Subsidiary of Holdings or any ERISA Affiliate
has incurred or is likely to incur any liability to or on account of a Plan
under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or
4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) under Section 4980B of the Code, or Holdings or any Subsidiary of
Holdings has incurred or is likely to incur liabilities pursuant to one or more
employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or Plans; (b) there shall result from any such
event or events the imposition of a lien, the granting of a security interest,
or a liability or a material risk of incurring a liability; and (c) such lien,
security interest or liability, individually, and/or in the aggregate, in the
opinion of the Required Banks, has had, or could reasonably be expected to have,
a material adverse effect upon the business, operations, condition (financial or
otherwise) or prospects of Holdings or any Subsidiary of Holdings; or
7.07 Judgments. One or more judgments or decrees shall be entered
---------
against Holdings or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by a reputable insurance company) of
$750,000 or more and all such judgments or decrees shall not be satisfied,
vacated, discharged or stayed or bonded pending appeal for any period of 30
consecutive days; or
53
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7.08 Physician Turnover. The occurrence of greater than 15% of the
------------------
Designated Physicians terminating his or her employment (exclusive of death,
disability or retirement) with such Holdings and its Subsidiaries.
7.09 Ownership. There shall be a Change of Control; or
---------
7.10 Subordinated Guaranties. Any provision of any Subordinated
-----------------------
Guaranty after delivery thereof under Section 3 shall for any reason cease to be
valid and binding on any Subordinated Guarantor party thereto, or any
Subordinated Guarantor shall so state in writing;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent, upon the written request of the Required
Lenders, shall by written notice to the Borrower, take any or all of the
following actions, without prejudice to the rights of the Agent, any Lender or
the holder of any Note to enforce its claims against any Loan Party (provided
--------
that, if an Event of Default specified in Section 7.05 shall occur with respect
to the Borrower, the result which would occur upon the giving of written notice
by the Agent to the Borrower as specified in clauses (i) and (ii) below shall
occur automatically without the giving of any such notice): (i) declare the
Subsequent Commitment terminated, whereupon all Commitments of each Lender
remaining at such time shall forthwith terminate immediately and any fees in
connection therewith shall become due and payable without any other notice of
any kind; (ii) declare the principal of and any accrued interest in respect of
all Loans and the Notes and all Obligations to be, whereupon the same shall
become, forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; and (iii)
exercise any rights or remedies under any Subordinated Guaranty.
Section 8. Definitions and Accounting Terms.
--------------------------------
8.01 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Acquisition Agreements" shall mean each Agreement listed on Schedule
XIII pursuant to which each of the Acquisitions was, is or will be, effected in
each case as the same may be supplemented, modified, amended or restated from
time to time in accordance with Section 6.11 hereof.
"Acquisition Documents" shall mean the Acquisition Agreements and all
other documents entered into or delivered in connection with the Acquisitions as
the same may be supplemented, modified, amended or restated from time to time in
accordance with Section 6.11 hereof.
54
<PAGE>
"Acquisition Loan" shall have the meaning provided in the Senior
Credit as in effect on the date hereof.
"Acquisitions" shall mean and include each of the Pre-Closing
Acquisitions, the Contemporaneous Acquisitions and the Post-Closing
Acquisitions.
"Additional Senior Credit Indebtedness" shall mean Indebtedness of the
Borrower under the Senior Credit Agreement, so long as Banque Paribas is the
Bank Agent, in an aggregate amount of not more than $7,500,000.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors,
officers and trustees of such Person), controlled by, or under direct or
indirect common control with, such Person; provided, however, that for purposes
--------
of Section 6.05, an Affiliate of Holdings shall include (w) any Person that
directly or indirectly owns more than 5% of any class of the capital stock of
Holdings (x) any officer, director, trustee or beneficiary of Holdings or any
such shareholder, (y) any spouse, parent, sibling or descendant of any such
person in clause (w) or (x) above, and (z) any trust for the benefit of any such
Person or for any spouse, issue or lineal descendant of such Person described in
clauses (w) through (y) above. For all purposes of this Agreement, neither the
Agent, the Bank Agent, any Bank, any Lender nor any of their respective
Affiliates, shall be considered an Affiliate of Holdings or any Subsidiary of
Holdings. A Person shall be deemed to control another Person if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such other Person, whether through the ownership
of voting securities, by contract or otherwise.
"Agent" shall mean Paribas Capital Funding LLC in its capacity as
Agent for the Lenders hereunder, and shall include any successor to the Agent
appointed pursuant to Section 9.09.
"Agreement" shall mean this loan agreement, as modified, supplemented
or amended from time to time.
"Bank" shall mean each financial institution listed on Schedule I to
the Senior Credit Agreement, as well as any institution which becomes a "Bank"
thereunder pursuant thereto.
"Bank Agent" shall mean Banque Paribas, as agent for the Banks under
the Senior Credit Agreement, or any successor thereto appointed pursuant to the
terms thereof.
"Bankruptcy Code" shall have the meaning provided in Section 7.05.
55
<PAGE>
"Bankruptcy Event" shall have the meaning provided in Section 11.02.
"Borrower" shall mean PHC Holding Corporation, a corporation organized
and existing under the laws of the State of Georgia.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be in New York a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Capital Expenditures" shall have the meaning provided in Section
6.09.
"Capitalized Lease," as applied to any Person, shall mean any lease of
any property (whether real, personal or mixed) by that Person as lessee which,
in conformity with generally accepted accounting principles, is accounted for as
a capital lease on the balance sheet of that Person.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations under Capitalized Leases, in each case taken at the amount thereof
accounted for as Indebtedness in accordance with generally accepted accounting
principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
--------
United States is pledged in support thereof) having maturities of not more than
twelve months from the date of acquisition, (ii) time deposits and certificates
of deposit of any commercial bank organized under the laws of the United States,
any State thereof or the District of Columbia having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof, or the District of Columbia having, capital,
surplus and undivided profits aggregating in excess of $200,000,000 and having a
long-term unsecured debt rating of at least "A" or the equivalent thereof from
Standard & Poor's Corporation ("S&P") or "A2" or the equivalent thereof from
Moody's Investors Service, Inc. ("Moody's"), with maturities of not more than
twelve months from the date of acquisition by such Person, (iii) repurchase
obligations with a term of not more than 7 days for underlying securities of the
types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above, (iv) commercial paper issued by
any Person incorporated in the United States and/or tax exempt securities issued
by any agency or instrumentality of any state of the United States or
subdivision thereof, in each case rated at least A-2 or the equivalent thereof
by S&P or at least P-2 or the equivalent thereof by Moody's and in each case
maturing not more than 12 months after the date of acquisition by such Person
and (v) investments in money market funds substantially all of whose assets are
comprised of securities of the types described in clauses (i) through (iv)
above.
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"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. (S) 9601 et seq.
"Change of Control" means the occurrence of one or more of the
following: (i) any Person, entity or "group" (within the meaning of Section
13(d) and 14(d) of the Securities Exchange Act) (other than the Investor Group)
obtains the power to elect a majority of the Board of Directors of Holdings,
(ii) either Weston and its Affiliates, Sarah Garvin or the Investor Group shall
cease to have record and beneficial ownership of at least 75% of the number of
shares of Holdings Common Stock owned by such Persons on the Effective Date,
(iii) any Person, entity or "group" (within the meaning of Section 13(d) and
14(d) of the Securities Exchange Act) (other than the Investor Group) shall
become the "beneficial owner" (as defined in Rules 13(d) and 134(d)-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time) of 20%
or more of any outstanding class of capital stock of Holdings having ordinary
voting power in the election of directors of Holdings, or (iv) the Board of
Directors of Holdings shall cease to consist of a majority of Continuing
Directors, (v) Sarah Garvin shall cease to serve (except in the cases of death
or disability) as President and Chief Executive Officer of Holdings, except if
any time after an initial public offering of Holdings Common Stock, Holdings
shall replace Sarah Garvin within 180 days of her ceasing to serve as President
and Chief Executive Officer of Holdings with an individual approved by the
Agent.
"Claims" shall have the meaning provided in the definition of
"Environmental Claims."
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement, and to any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Commitment" shall mean, for each Lender, the Initial Commitment
and/or the Subsequent Commitment for such Lender, as the context may require.
"Consolidated EBIT" shall mean, for any period, the Consolidated Net
Income before interest income, Consolidated Interest Expense and provision for
taxes and without giving effect to any net extraordinary gains or losses or
gains or losses from sales of assets other than inventory sold in the ordinary
course of business or gains or losses from Recovery Events or unrealized foreign
exchange gains or losses.
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"Consolidated EBITDA", for any period shall mean Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation.
"Consolidated Indebtedness" shall mean, at any time, the aggregate
principal amount of all Indebtedness of Holdings and its Subsidiaries determined
on a consolidated basis (excluding all Indebtedness of the type described in
clause (vii) of the definition thereof, except to the extent amounts are owing
with respect thereto upon the termination of the respective agreement
constituting such Indebtedness).
"Consolidated Interest Expense" shall mean, for any period, the total
consolidated interest expense of Holdings and its Subsidiaries for such period
(calculated without regard to any limitations on the payment thereof) payable
during such period in respect of all Indebtedness of Holdings and its
Subsidiaries, on a consolidated basis, for such period (including, without
duplication, that portion of Capitalized Lease Obligations representing the
interest factor for such period) including, without limitation, all commissions,
discounts and net costs or benefits under Interest Rate Contracts.
"Consolidated Net Income" shall mean, for any period, net income of
Holdings and its Subsidiaries for such period determined on a consolidated basis
(after provision for taxes), provided that (a) the net income of any Subsidiary
--------
of Holdings, which is not a Wholly-Owned Subsidiary, shall have its net income
included in the Consolidated Net Income of Holdings and its Subsidiaries only to
the extent of the ownership interest of Holdings and its Wholly-Owned
Subsidiaries in such non-Wholly-Owned Subsidiaries and only so long as such
Subsidiary is not party to any contract or other agreement of the type described
in 6.12, except in the case of MHOA Texas I, L.L.C., the DVI Debt Documents and
(b) the net income of any Immaterial Subsidiary and of the Designated Companies
shall not be included in the Consolidated Net Income of Holdings and its
Subsidiaries.
"Contemporaneous Acquisitions" shall have the meaning provided in
Section 4.29.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations (the "primary obligations") of any other Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of such Person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of any such primary obligation or (y) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation or (iv) otherwise to assure or
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hold harmless the holder of such primary obligation against loss in respect
thereof; provided, however, that the term Contingent Obligation shall not
--------
include endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Contingent Obligation shall be deemed to
be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by such Person in good faith.
"Continuing Directors" shall mean, with respect to Holdings, the
directors of Holdings on the Initial Funding Date and each other director, if
such other director's nomination for election to the board of directors of
Holdings is recommended by a majority of the then Continuing Directors.
"Credit Event Date" shall mean the date on which (i) the Consolidated
EBITDA of Holdings and its Subsidiaries is at least $25 million, and (ii) the
ratio of the Consolidated Indebtedness of Holdings and its Subsidiaries to
Consolidated EBITDA of Holdings and its Subsidiaries is less than 3.5:1.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Designated Agreements" shall mean (i) the Practice Repurchase
Agreement by and among the Borrower and Mark Williams, M.D., Kenneth R. Feuer,
M.D., Robert T. Baker, M.D., Robert F. Stonerock, Jr., M.D., Thomas C. Marbury,
M.D., C. Raymond Cottrell, M.D., Lionel C. Abbot, M.D., Antonio Caos, M.D.,
Timothy L. Prince, M.D., Alex Menendez, M.D., and Jeffrey M. Cohen, M.D.
pertaining to the Designated Assets of Primary Care Specialists, Inc.; (ii)
Practice Repurchase Agreement by and among the Borrower and Don Buswell-Charkow,
M.D., Allen R. Costello, M.D., John Cappleman, M.D., Christopher Edwards, M.D.,
and Thomas Wentzell, M.D. pertaining to the Designated Assets of Internal
Medicine Specialists, Inc.; and (iii) Practice Repurchase Agreement by and among
the Borrower and Sergio W. Larach, M.D., Paul R. Williamson, M.D., and Andrea
Ferrara, M.D. pertaining to the Designated Assets of Larach, Williamson &
Ferrara, Inc., as each such agreement is in effect on the Effective Date.
"Designated Assets" shall mean the assets of the Designated Companies
and defined and described as the Company Assets in the Designated Agreements as
initially executed.
"Designated Companies" shall mean each of Primary Care Specialists,
Inc., Internal Medicine Specialists, Inc. and Larach, Williamson & Ferrara, Inc.
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"Designated Physicians" shall mean the physicians set forth on a
Schedule to be delivered to the Agent within 30 days of the Initial Funding Date
which are the physicians employed directly or indirectly (including through a
Management Services Agreement or similar agreement) who received any
consideration in the form of cash payment, stock or seller note in connection
with the Acquisitions.
"Dividend", with respect to any Person, shall mean that such Person
has declared or paid a dividend or returned any equity capital to its
stockholders or authorized or made any other distribution, payment or delivery
of property (other than capital stock of such Person) or cash to its
stockholders in their capacity as stockholders, or redeemed, retired, purchased
or otherwise acquired, directly or indirectly, for a consideration any shares of
any class of its capital stock outstanding on or after the Effective Date (or
any options or warrants issued by such Person with respect to its capital
stock), or set aside any funds for any of the foregoing purposes, or shall have
permitted any Subsidiary of such Person to purchase or otherwise acquire for a
consideration any shares of any class of the capital stock of such Person
outstanding on or after the Effective Date (or any options or warrants issued by
such Person with respect to its capital stock). Without limiting the foregoing,
"Dividends" with respect to any Person shall also include all cash payments made
or required to be made by such Person with respect to any stock appreciation
rights, equity incentive plans or any similar plans or setting aside of any
funds for the foregoing purposes.
"Documents" shall mean the Loan Documents, the Equity Amendments, the
Senior Credit Agreement, the Warrant Documents and the Subordinated Debt
Amendments.
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"DVI Debt Documents" shall mean Loan and Security Agreement No. 1
among MHOA Texas I, L.L.C., as Borrower, Physician Health Corporation, as
Guarantor, and DVI Financial Services Inc., as Lender, dated as of June 16,
1997, the Loan and Security Agreement No. 2 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI Financial Services
Inc., as Lender, dated as of June 16, 1997, the Loan and Security Agreement No.
3 among MHOA Texas I, L.L.C., as Borrower, Physician Health Corporation, as
Guarantor, and DVI Financial Services Inc., as Lender, dated as of June 16,
1997, the Loan and Security Agreement No. 4 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI Financial Services
Inc., as Lender, dated as of June 16, 1997, the Loan and Security Agreement No.
5 among MHOA Texas I, L.L.C., as Borrower, Physician Health Corporation, as
Guarantor, and DVI Financial Services Inc., as Lender, dated as of June 16,
1997, the Loan and Security Agreement No. 6 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI Financial Services
Inc.,
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as Lender, dated as of June 16, 1997, and the Loan and Security Agreement among
MHOA Texas I, L.L.C. and DVI Business Credit Corporation, dated as of June 16,
1997, and all documents related to any of the foregoing, including, without
limitation, guarantees, security agreements and pledge agreements, as such
agreements are in effect on the Effective Date hereof.
"DVI Indebtedness" shall mean indebtedness of MHOA Texas I, L.L.C.
owing to DVI Financial Services Inc. in an amount not to exceed $8,000,000 under
the DVI Debt Documents.
"Effective Date" shall have the meaning provided in Section 12.10.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution, other "accredited investor" (as defined in Regulation D
of the Securities Act) other than individuals, or a "qualified institutional
buyer" as defined in Rule 144A of the Securities Act.
"Employee Stock Proceeds" shall have the meaning provided in Section
2.02(d)(i).
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating in any way to any violation of, or liability under, any
Environmental Law or any permit issued, or any approval given, under any such
Environmental Law (hereafter, "Claims"), including, without limitation, (a) any
and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law, and (b) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, policy and rule of common law
now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. (S) 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. (S) 7401 et seq.; the Clean Air Act, 42 U.S.C.
(S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S) 3803 et seq.; the
Oil Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq.; the Occupational Safety
and Health Act,
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29 U.S.C. (S) 651 et seq.; and any applicable state and local or foreign
counterparts or equivalents.
"Equity Amendments" shall have the meaning provided in Section
3.01(r).
"Equity Call Agreement" shall mean the Equity Call Agreement dated as
of June 16, 1997 among Holdings, Metroplex Hematology/Oncology Associates,
L.L.P. and the investors party thereto as in effect on the date hereof.
"Equity Securities" shall have the meaning provided in the
Stockholders' Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement, and to any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which, together with Holdings or any Subsidiary of Holdings would be
deemed to be a "single employer" (i) within the meaning of Section 414(b), (c),
(m) or (o) of the Code or (ii) as a result of Holdings or a Subsidiary of
Holdings being or having been a general partner of such person.
"Event of Default" shall have the meaning provided in Section 7.
"Excluded Public Offering Proceeds" shall mean (i) proceeds from the
issuance of common equity by Holdings in the initial public offering of common
equity of Holdings used to repurchase up to 40,000 shares of common stock (or
warrants exercisable into 40,000 shares of common stock) at a purchase price per
share not to exceed the initial public offering price and (ii) 50% of all
proceeds from the public offering of common equity of Holdings after Holdings
has applied $35 million of proceeds from public offerings of Holdings common
equity in accordance with Section 2.02 of this Agreement.
"Existing Indebtedness" shall mean the Indebtedness set forth on
Schedule VIII hereto, which shall include all Retained Indebtedness.
"Fair Market Value" means (i) with respect to any asset (other than a
marketable security) at any date, the value of the consideration obtainable in a
sale of such asset at such date assuming a sale by a willing seller to a willing
purchaser dealing at arm's length and arranged in an orderly manner over a
reasonable period of time having regard to the nature and characteristics of
such asset, as reasonably determined by the Board of
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Directors of the seller, or, if such asset shall have been the subject of a
relatively contemporaneous appraisal by an independent third party appraiser,
the basic assumptions underlying which have not materially changed since its
date, as set forth in such appraisal, and (ii) with respect to any marketable
security at any date, the closing sale price of such security on the business
day (on which any national securities exchange is open for the normal
transaction of business) next preceding such date, as appearing in any published
list of any national securities exchange or in the National Market List of the
National Association of Securities Dealers, Inc. or, if there is no such closing
sale price of such security, the final price for the purchase of such security
at face value quoted on such business day by a financial institution of
recognized standing which regularly deals in securities of such type.
"Funding Date" shall mean the Initial Funding Date and/or the
Subsequent Funding Date, as the context may require.
"Guaranties" shall mean and include each of the Subsidiary Guaranties
executed by the Subsidiaries of Holdings (other than the Borrower and the
Immaterial Subsidiaries) and the Holdings Guaranty.
"Hazardous Materials" means (a) petroleum or petroleum products,
radioactive materials, asbestos in any form that is friable, urea formaldehyde
foam insulation, transformers or other equipment that contain, dielectric fluid
containing levels of polychlorinated biphenyls, and radon gas; (b) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous waste," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "toxic substances," "toxic
pollutants," "contaminants," or "pollutants," or words of similar meaning and
regulatory effect, under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated under applicable Environmental Laws.
"Holdings" shall have the meaning provided in the first paragraph of
this Agreement.
"Holdings Additional Convertible Securities" shall have the meaning
provided in Section 4.13.
"Holdings Common Stock" shall have the meaning provided in Section
4.13.
"Holdings Guaranty" shall mean the guaranty of Holdings contained in
Section 10 thereof.
"Holdings Preferred Stock" shall have the meaning provided in Section
4.13.
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"Holdings Prime Stock" shall have the meaning provided in Section
4.13.
"Holdings Series B Non-Voting Preferred Stock" shall have the meaning
provided in Section 4.13.
"Holdings Series B Voting Preferred Stock" shall have the meaning
provided in Section 4.13.
"Immaterial Subsidiaries" shall mean Subsidiaries of Holdings which
have assets with a book value and fair market value of less than $20,000 (and
the aggregate amount of assets of all such Subsidiaries does not exceed
$100,000) and are not party to any material contracts and Central Florida
Medical Management Services Organization as long as it continues in its present
business and does not enter into any other business.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services other than trade payables and accrued expenses arising in the ordinary
course of business in accordance with customary trade terms, (ii) the maximum
amount available to be drawn under all letters of credit issued for the account
of such Person and all unpaid drawings in respect of such letters of credit,
(iii) all Indebtedness of the types described in clauses (i), (ii), (iv), (v),
(vi) or (vii) of this definition secured by any Lien on any property owned by
such Person, whether or not such Indebtedness has been assumed by such Person,
(iv) all Capitalized Lease Obligations of such Person, (v) all obligations of
such person to pay a specified purchase price for goods or services, whether or
not delivered or accepted, i.e., take-or-pay and similar obligations, (vi) all
Contingent Obligations of such Person and (vii) all obligations under any
Interest Rate Contracts or under any control disbursement accounts, repurchase
agreements, reverse repurchase agreements, caps, collars, derivatives, currency
hedge agreements or other similar types of agreements entered into with a Person
not a Lender or a financial institution as the case may be.
"Indemnified Matters" shall have the meaning provided in Section
12.01.
"Indemnitees" shall have the meaning provided in Section 12.01.
"Initial Commitment" shall mean, for each Lender, the amount set forth
opposite such Lender's name in Schedule I hereto directly below the column
entitled "Initial Commitment," as the same may be adjusted from time to time as
a result of assignments to or from such Lender pursuant to Section 11.04.
"Initial Funding Date" shall mean the first date on which Loans are
made.
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"Intellectual Property" shall have the meaning provided in Section
4.20.
"Interest Rate Contract" shall mean interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance, and other agreements or arrangements designed to provide protection
against fluctuations in interest rates, and shall include, in any event, all
"Interest Rate Protection or Other Hedging Agreements" referred to in the Senior
Credit Agreement and in the Security Documents referred to therein, each as in
effect on the date hereof.
"Investor Group" shall mean Weston Presidio Capital II, L.P., Mercury
Asset Management plc, on behalf of Rowan Nominees Limited, NatWest Ventures
Investments Limited c/o EGL Holdings, St. Paul Venture Capital IV, LLC, Partech
U.S. Partners III C.V., U.S. Growth Fund Partners C.V., Axa U.S. Growth Fund
LLC, Double Black Diamond II LLC, Almanori Limited, Multinvest Limited,
BancBoston Investments Inc., National City Venture Corporation, Total Class B
Non-Voting Preferred Stock, Larry Gerdes, William Eason, Edward H. Bowman, Jr.,
Martin Lamaison, Orville R. Gordon, Howard F. Elkins, Richard V. Lawry, Guaranty
& Trust Co. c/o David O. Ellis KEOGH (No. 410-66530-1-9-390), Kathleen E.J.
Ellis, Jeremy Ellis, Karen Ellis, Gemma Ellis, Rowan Nominees c/o Mercury Asset
Management Ltd., Natwest Ventures, Ltd.
"Leasehold Properties" of any Person means all right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Lender" shall have the meaning provided in the preamble.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" has the meaning specified in Section 1.01.
"Loan Documents" shall mean this Agreement, each Note and each
Subordinated Guaranty.
"Loan Party" means each of Holdings, the Borrower and each
Subordinated Guarantor.
"Margin Stock" shall have the meaning provided in Regulation U.
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"Material Contracts" shall have the meaning provided in Section
3.01(p).
"Maturity Date" shall mean the seventh year anniversary of the Initial
Funding Date.
"Metroplex Note" shall mean the note due April 1, 2002 and payable by
Holdings to Metroplex Hematology/Oncology Associates, LLP.
"Moody's" shall have the meaning provided in the definition of "Cash
Equivalents."
"Net Sale Proceeds" shall mean for any sale or other disposition of
assets including capital stock and securities, the gross cash proceeds
(including any cash received by way of deferred payment pursuant to a promissory
note, receivable or otherwise, but only as and when received) received from such
sale, net of reasonable transaction costs (including, without limitation,
attorneys' fees), the amount of such gross cash proceeds required to be used to
permanently repay any Indebtedness which is secured by the respective assets
which were sold, and the estimated marginal increase in income taxes and any
stamp tax which will be payable by Holdings' consolidated group as a result of
such sale.
"Non-Payment Default" shall have the meaning provided in Section
11.03.
"Notice Office" shall mean the office of the Agent located at 787
Seventh Avenue, New York, New York 10019, Attention: Eric Green, or such other
office as the Agent may hereafter designate in writing as such to the other
parties hereto.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Agent or any Lender pursuant to the terms of this Agreement or any other
Loan Document, including without limitation, all principal, interest, premium,
penalties, fees, expenses, indemnification, reimbursements, damages and any
other liabilities, together with and including any amounts received upon the
exercise of rights of recision or other rights of action (including claims for
damages) or otherwise.
"Other Subordinated Debt" shall have the meaning provided in Section
3.01(s).
"Paribas Capital Funding LLC" or "PCF" shall mean Paribas Capital
Funding LLC, a limited liability company organized under the laws of the State
of Delaware.
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"Payment Default" shall have the meaning provided in Section 11.03.
"Payment Office" shall mean the office of the Agent located at 787
Seventh Avenue, New York, New York 10019, Attention: Eric Green, or such other
office as the Agent may hereafter designate in writing as such to the other
parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall have the meaning set forth in the Senior
Credit Agreement as in effect on the date hereof.
"Permitted Acquisition Notice" shall have the meaning provided in
Section 8.15(a).
"Permitted Business" shall mean a line of business in which the
Borrower and each of the Subsidiaries of the Borrower are engaged on the Initial
Funding Date after giving effect to the Transaction, and reasonably related
extensions thereof.
"Permitted Earnout Debt" shall mean Indebtedness of Holdings incurred
in connection with a Permitted Acquisition and in accordance with Section 5.15,
which Indebtedness is not secured by any assets of Holdings or any of its
Subsidiaries (including, without limitation, the assets so acquired) and is only
payable by Holdings upon the passage of time (e.g., non-compete payments) or in
----
the event certain future performance goals are achieved with respect to the
assets acquired; provided that such Indebtedness shall only constitute Permitted
--------
Earn-Out Debt to the extent the terms of such Indebtedness expressly limit the
maximum potential liability of Holdings with respect thereto and all such other
terms shall be in form and substance reasonably satisfactory to the Agent.
"Permitted Equity Issuances" shall mean issuance of Holdings Common
Stock or Holdings Prime Stock by Holdings as consideration in Permitted
Acquisitions, but only to the extent permitted pursuant to Section 5.15.
"Permitted Liens" shall have the meaning provided in Section 6.01.
"Permitted Refinancing" means any refinancing of Senior Debt which
refinancing does not (a) decrease the average weighted-life to maturity of the
Senior Debt by more than one and one-half (1-1/2) years from that in effect on
the date hereof (calculated as if such refinancing was made on the date hereof)
and (b) increase any interest rate applicable to the Senior Debt to a rate in
excess of the maximum interest rates calculated from time to time permitted
under Section 1.08 of the Senior Credit Agreement, as such Section 1.08 is in
effect on the date hereof, plus 2%.
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"Permitted Seller Notes" shall mean notes issued by Holdings to
sellers of stock or assets in a Permitted Acquisition and issued in accordance
with Section 5.15, which notes shall be subordinated, unsecured and
unguaranteed, and shall otherwise be in form and substance reasonably
satisfactory to the Agent.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"Personal Guarantees" shall have the meaning set forth in Section
4.23.
"Plan" shall mean any multiemployer or single-employer plan, as
defined in Section 4001 of ERISA, which is maintained or contributed to by (or
to which there is an obligation to contribute of) any Loan Party or any of its
Subsidiaries, or any ERISA Affiliate, and each such Plan for the five year
period immediately following the latest date on which any Loan Party or any of
its Subsidiaries, or any ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"Post-Closing Acquisitions" have the meaning provided in Section 4.30.
"Pre-Closing Acquisitions" shall mean the Acquisitions set forth on
Schedule XV.
"Pro Forma Basis" shall mean, with respect to any Permitted
Acquisition or repayment of DVI Indebtedness, the calculation of the
consolidated results of Holdings and its Subsidiaries otherwise determined in
accordance with this Agreement as if the respective Permitted Acquisition or
repayment of DVI Indebtedness (and all other Permitted Acquisitions and
repayments consummated during the respective Calculation Period or thereafter
and prior to the date of determination pursuant to Section 5.15 or other
applicable provision of this Agreement) had been effected on the first day of
the respective Calculation Period; provided that all calculations shall take
--------
into account the following assumptions:
(i) with respect to Consolidated Interest Expense or Consolidated
Indebtedness, if any Indebtedness is incurred pursuant to the respective
Permitted Acquisition or repayment of DVI Indebtedness (or was incurred in
any other Permitted Acquisition or other repayment of DVI Indebtedness
which occurred during the relevant Calculation Period or thereafter and
prior to the date of determination) then all such Indebtedness shall be
deemed to have been outstanding from the first day of the respective
Calculation Period (and the interest expense associated with such
Indebtedness shall be determined at the actual rates applicable thereto or
which would have been applicable had such debt been outstanding for the
whole such period and shall be included in determining Consolidated
Interest
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Expense on such Pro Forma Basis) and all Indebtedness that was outstanding
during the Calculation Period or thereafter and prior to the date of the
Permitted Acquisition or repayment of DVI Indebtedness but not outstanding
on the date of the Permitted Acquisition or repayment of DVI Indebtedness
shall be deemed to have been repaid in full on the first day of the
Calculation Period; and
(ii) if all or any portion of the respective Calculation Period occurs
before November 1, 1997, then compliance with Section 5.15(a) and Sections
6.06 through 6.09, inclusive on a Pro Forma Basis, shall only be required
to be established for the period beginning on the Initial Funding Date and
ending on the last day of the respective Calculation Period; provided that
--------
to the extent a financial covenant calculation compares a balance sheet
item to an income statement item, all calculations relating to the
financial results of the Person or business, division or product line being
acquired pursuant to the Permitted Acquisition shall, to the extent that
such results relate to income statement items, be multiplied by a fraction
(x) the numerator of which shall be the number of days from the Initial
Funding Date to the end of the Calculation Period and (y) the denominator
of which shall be the number of days in the Calculation Period without
giving effect to this clause (iii) which provides that the Calculation
Period commences on the Initial Funding Date (and is therefore less than
four fiscal quarters).
"Projections" shall have the meaning provided in Section 3.01(o).
"Purchase Price" shall mean the aggregate purchase price for each
Acquisition and the amount and form of each type of consideration payable with
respect thereto as set forth on Schedule XIII hereto.
"Qualified IPO" shall mean an initial public offering of the common
stock of Holdings registered under the Securities Act, with minimum net proceeds
to Holdings (net of underwriting discounts and offering expenses) of at least
$50 million.
"Quarterly Payment Date" shall mean the first Business Day of each
January, April, July and October of each calendar year.
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. (S) 6901 et seq.
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leasehold Properties.
"Recovery Event" shall mean the receipt by Holdings or any of its
Subsidiaries of any cash insurance proceeds payable by reason of theft, loss,
physical
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destruction or damage or any other similar event with respect to any properties
or assets of Holdings or any such Subsidiary (excluding business interruption
insurance).
"Register" shall have the meaning provided in Section 5.13.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof among the Borrower and the other investors
named therein.
"Regulation G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Release" means disposing, discharging, injecting, spilling, pumping,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing,
pouring and the like, into or upon any land or water or air, or otherwise
entering into the environment.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan other than those events as to which the 30-day
notice period is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC
Regulation Section 2615.
"Required Lenders" shall mean Lenders the sum of whose outstanding
Loans represents an amount greater than 50% of the sum of all the outstanding
Loans.
"Retained Indebtedness" shall have the meaning provided in Section
4.21.
"Returns" shall have the meaning provided in Section 4.09.
"S&P" shall have the meaning provided in the definition of "Cash
Equivalents."
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"SEC" shall have the meaning provided in Section 5.01(h).
"Section 2.04(b)(ii) Certificate" shall have the meaning provided in
Section 2.04(b)(ii).
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement, dated as of June 16, 1997 among the Company, Weston and certain other
investors.
"Senior Credit Agreement" shall mean the Credit Agreement dated as of
the date hereof among Holdings, the Borrower, the Bank Agent and the Banks, as
such agreement may, subject to Section 6.16, be amended, restated, extended,
replaced, supplemented, restructured or otherwise modified or refinanced
pursuant to a Permitted Refinancing from time to time (in whole or in part
without limitation as to terms extensions of maturities, increasing the amount
of borrowings or other conditions or covenants), including all related notes,
collateral documents, guarantees, Interest Rate Contracts, instruments and
agreements entered into in connection therewith, as the same may be amended,
modified, supplemented, restated, restructured, replaced or refinanced pursuant
to a Permitted Refinancing from time to time.
"Senior Debt" shall mean (a) all payment obligations now or hereafter
incurred pursuant to and in accordance with the terms of the Senior Credit
Agreement (including without limitation all principal, interest, (including,
without limitation, any post-petition interest on such obligations at the rate
set forth in Senior Credit Agreement, accruing whether or not granted or
permitted in connection with an event of the type referred to in Section 7.05
hereof) and Interest Date Protection or other Hedging Agreements as defined in
the Senior Credit Agreement), premium, penalties, fees, expenses,
indemnification, reimbursements, damages and other liabilities payable under the
Senior Credit Agreement; provided, that in no event shall the principal amount
of Senior Debt (exclusive of interest rate protection obligations) exceed the
sum of (i) $38,000,000 (as such amount is reduced by repayments of term loans to
the extent that such repayments may not be reborrowed), (ii) an amount equal to
the revolving loans and commitments therefor outstanding under the Senior Credit
Agreement from time to time to the extent they do not exceed $7,000,000, reduced
by reductions of revolving commitments to the extent such reductions are
permanent and (b) Additional Senior Credit Indebtedness. Senior Debt
outstanding under the Senior Credit Agreement shall continue to constitute
Senior Debt for all purposes hereof, notwithstanding that such Senior Debt or
any claim in respect thereof may be disallowed, avoided or subordinated pursuant
to any insolvency law, the Bankruptcy
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Code or any similar federal or state law for the relief of debtors or other
applicable insolvency law or equitable principles as a claim for unmatured
interest.
"Senior Indebtedness" shall mean collectively, with respect to the
Borrower and its Subsidiaries, (a) the Senior Debt, (b) all Capitalized Lease
Obligations of the Borrower and its Subsidiaries, to the extent such
Indebtedness is permitted to be incurred pursuant to Section 6.04, and (c) any
additional Indebtedness of the Borrower and its Subsidiaries for borrowed money
which is either secured or not subordinated to the payment of the Obligations,
to the extent such additional Indebtedness is permitted to be incurred pursuant
to Section 6.04.
"Shareholders' Agreements" means all agreements entered into by the
Borrower or any Subsidiary of the Borrower governing the terms and relative
rights of its capital stock and any agreements entered into by shareholders
relating to any such entity with respect to their capital stock.
"Stockholders' Agreement" shall mean the Second Amended and Restated
Stockholders' Agreement, dated as of June 16, 1997, among the Borrower and the
other investors named therein.
"Subordinated Debt Amendments" shall have the meaning provided in
Section 3.01(s).
"Subordinated Guarantor" shall mean each Subsidiary of Holdings (other
than the Borrower and any Immaterial Subsidiaries and Central Florida Medical
Management Service Organization).
"Subordinated Guaranty" shall mean a subordinated guaranty, in
substantially the form of Exhibit K, executed by each Subordinated Guarantor, as
such guaranty may be amended, supplemented or otherwise modified from time to
time.
"Subordinated Obligations" shall have the meaning set forth in Section
11.01.
"Subsequent Commitment" shall mean, for each Lender, the amount set
forth opposite such Lender's name in Schedule I hereto directly below the column
entitled "Subsequent Commitment," as the same may be (x) reduced or terminated
from time to time pursuant to Section 1.04, 2.02 or 7 or (y) adjusted from time
to time as a result of assignments to or from such Lender pursuant to Section
12.04.
"Subsequent Funding Date" shall mean the date, other than the Initial
Funding Date, on which Loans are made.
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"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through and/or one or more Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
directly or indirectly through and/or one or more Subsidiaries of such Person
has more than a 50% equity interest at the time.
"Subsidiary Metroplex Note" shall mean the Promissory Note dated June
16, 1997 in the original amount of $6,210,000 from Holdings payable to Metroplex
Hematology/Oncology Associates, L.L.P. which note was assumed by MHOA Texas I,
L.L.C.
"Tax Sharing Agreements" shall mean any tax sharing, tax allocation
and other similar agreements entered into by the Borrower or any Subsidiary of
the Borrower.
"Taxes" shall have the meaning provided in Section 2.04(a).
"Total Commitment" means the aggregate Commitments of the Lenders.
"Transaction" shall mean collectively, (i) the incurrence of Loans
hereunder on the Initial Funding Date, (ii) the consummation of the
Acquisitions, (iii) the incurrence of the Senior Debt, (iv) the issuance of
capital stock of Holdings in connection with the transactions contemplated
hereby, (v) the repayment of all Indebtedness to be repaid by Holdings or its
Subsidiaries in connection with the transactions contemplated hereby, together
with all accrued interest, premiums, fees, commissions and expenses owing in
connection therewith, and the termination of all commitments thereunder, (vi)
the payment of the Transaction Fees and Expenses in connection therewith and
(vii) the entering into of the Equity Amendments and the Subordinated Debt
Amendments.
"Transaction Fees and Expenses" shall mean all fees and expenses
incurred in connection with and arising out of the Transaction and the
transactions contemplated thereby and hereby; provided, however, that the
-------- -------
aggregate amount of such fees and expenses shall not exceed $2.0 million in the
aggregate.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan means the amount, if any, by
which the actuarial present value of the accumulated plan benefits under the
Plan as of the
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close of its most recent plan year exceeds the fair market value of the assets
allocable thereto, each determined in accordance with Statement of Financial
Accounting Standards No. 87, based upon the actuarial assumptions used by the
Plan's actuary in the most recent annual valuation of the Plan.
"Unused Commitment Fee" shall have the meaning provided in Section
1.03.
"United States" and "U.S." shall each mean the United States of
America.
"Voting Stock" shall mean, with respect to any Person, the outstanding
stock of all classes (or equivalent interests) which would ordinarily, in the
absence of contingencies, entitle the holders thereof to vote for the election
of directors (or Persons performing similar functions) of such Person.
"Warrant" shall mean collectively, one or more warrants issued to PCF
or its assignees in connection with this Agreement, substantially in the form of
Exhibit F hereto.
"Warrant Agreement" shall mean the Warrant Agreement dated as of the
date hereof between the Borrower and PCF, in substantially the form of Exhibit G
hereto, as the same may be amended, supplemented or modified from time to time.
"Warrant Documents" means the Warrant, the Warrant Purchase Agreement,
the Warrant Agreement and the Registration Rights Agreement.
"Warrant Purchase Agreement" shall mean the Warrant Purchase Agreement
dated as of the date hereof between the Borrower and PCF, in substantially the
form of Exhibit H hereto.
"Weston" shall mean Weston Presidio Capital Partners II, L.P.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
Section 9. The Agent.
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9.01 Appointment. The Lenders hereby designate PCF as Agent to act as
-----------
specified herein and in the other Loan Documents. Each Lender hereby irrevocably
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authorizes, and each holder of any Note by the acceptance of such Note shall be
deemed irrevocably to authorize, the Agent to take such action on its behalf
under the provisions of this Agreement, the other Loan Documents and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Agent may perform any of
its duties hereunder by or through its officers, directors, agents or employees.
9.02 Nature of Duties. The Agent shall have no duties or
----------------
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents. Neither the Agent nor any of its officers, directors,
agents, employees or affiliates shall be liable for any action taken or omitted
by it or them hereunder or under any other Loan Document or in connection
herewith or therewith, unless caused by its or their gross negligence or willful
misconduct. The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not have by reason of this Agreement or any other Loan
Document a fiduciary relationship in respect of any Lender or the holder of any
Note; and nothing in this Agreement or any other Loan Document, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Agreement or any other Loan Document except as
expressly set forth herein.
9.03 Lack of Reliance on the Agent. Independently and without
-----------------------------
reliance upon the Agent, each Lender and the holder of each Note, to the extent
it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of Holdings and
its Subsidiaries in connection with the making and the continuance of the Loans
and the taking or not taking of any action in connection herewith and (ii) its
own appraisal of the creditworthiness of Holdings and its Subsidiaries and,
except as expressly provided in this Agreement, the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
or the holder of any Note with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter. The Agent shall not be responsible to any Lender
or the holder of any Note for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, priority or sufficiency of
this Agreement or any other Loan Document or the financial condition of Holdings
or its Subsidiaries or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Loan Document, or the financial condition of Holdings or
its Subsidiaries or the existence or possible existence of any Default or Event
of Default. In no event shall the Agent be required to take any action in
contravention of applicable law or if such action would cause
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it, in its sole determination, to incur any risk or liability for which it is
not adequately indemnified for to its sole satisfaction.
9.04 Certain Rights of the Agent. If the Agent shall request
---------------------------
instructions from the Required Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Loan
Document, the Agent shall be entitled to refrain from such act or taking such
action unless and until the Agent shall have received instructions from the
Required Lenders; and the Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing, no Lender or the holder
of any Note shall have any right of action whatsoever against the Agent as a
result of the Agent acting or refraining from acting hereunder or under any
other Loan Document in accordance with the instructions of the Required Lenders.
9.05 Reliance. The Agent shall be entitled to rely, and shall be
--------
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or facsimile message, cablegram,
radiogram, legal opinion, order or other document or telephone message signed,
sent or made by any Person that the Agent believed to be the proper Person, and,
with respect to all legal matters pertaining to this Agreement and any other
Loan Document and its duties hereunder and thereunder, upon advice of counsel
selected by it.
9.06 Indemnification. To the extent the Agent is not reimbursed and
---------------
indemnified by the Borrower, the Lenders will reimburse and indemnify the Agent,
in proportion to their respective "percentages" as used in determining the
Required Lenders, for and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, suits, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by the Agent in performing its duties hereunder or under any
other Loan Document, in any way relating to or arising out of this Agreement or
any other Loan Document; provided, that no Lender shall be liable for any
--------
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct.
9.07 The Agent in Its Individual Capacity. With respect to its
------------------------------------
obligation to make Loans under this Agreement, the Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any similar terms
shall, unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates may accept deposits from, lend
money to, and generally engage in any kind of banking, trust or other business
with the Borrower and its Subsidiaries or any Affiliate thereof as if it were
not performing the duties specified herein, and may accept fees and other
consideration from
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Holdings and its Subsidiaries for services in connection with this Agreement and
otherwise without having to account for the same to the Lenders.
9.08 Holders. The Agent may deem and treat the payee of any Note as
-------
the owner thereof for all purposes hereof unless and until a written notice of
the assignment, transfer or endorsement thereof, as the case may be, shall have
been filed with the Agent. Any request, authority or consent of any Person who,
at the time of making such request or giving such authority or consent, is the
holder of any Note shall be conclusive and binding on any subsequent holder,
transferee, assignee or indorsee, as the case may be, of such Note or of any
Note or Notes issued in exchange therefor.
9.09 Resignation by the Agent. The Agent may resign from the
------------------------
performance of all its functions and duties hereunder and/or under the other
Loan Documents at any time by giving fifteen Business Days' prior written notice
to the Borrower and the Lenders. Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation, the Required Lenders shall
appoint a successor Agent hereunder or thereunder who shall be a commercial bank
or trust company reasonably acceptable to the Borrower.
(c) If a successor Agent shall not have been so appointed within
such 15 Business Day period, the Agent, with the consent of the Borrower, shall
then appoint a successor Agent who shall serve as Agent hereunder or thereunder
until such time, if any, as the Lenders appoint a successor Agent as provided
above.
(d) If no successor Agent has been appointed pursuant to clause (b)
or (c) above by the 20th Business Day after the date such notice of resignation
was given by the Agent, the Agent's resignation shall become effective and the
Lenders shall thereafter perform all the duties of the Agent hereunder and/or
under any other Loan Document until such time, if any, as the Lenders appoint a
successor Agent as provided above.
Section 10. Subordinated Guaranty of Holdings
---------------------------------
10.01 The Guaranty. In order to induce the Lenders to enter into this
------------
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Holdings from the proceeds of the Loans, Holdings
hereby agrees with the Lenders as follows: Holdings hereby unconditionally and
irrevocably guarantees as primary obligor and not merely as surety the full and
prompt payment when due, whether upon maturity, by acceleration or otherwise, of
any and all indebtedness of the Borrower to the Lenders under this Agreement and
the other Loan Documents. If any or all of the indebtedness of the Borrower to
the Lenders becomes due and payable hereunder or under
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such other Loan Documents, Holdings unconditionally promises to pay such
indebtedness to the Lenders, or order of demand, together with any and all
expenses which may be incurred by the Agent or the Lenders in collecting any of
the indebtedness. The word "indebtedness" is used in this Section 10 in its most
comprehensive sense and means any and all advances, debts, obligations and
liabilities of the Borrower arising in connection with this Agreement or any
other Loan Documents, in each case, heretofore, now, or hereafter made, incurred
or created, whether voluntarily or involuntarily, absolute or contingent,
liquidated or unliquidated, determined or undetermined, whether or not such
indebtedness is from time to time reduced, or extinguished and thereafter
increased or incurred, whether the Borrower may be liable individually or
jointly with others, whether or not recovery upon such indebtedness may be or
hereafter become barred by any statute of limitations, and whether or not such
indebtedness may be or hereafter become otherwise unenforceable.
10.02 Bankruptcy. Additionally, Holdings unconditionally and
----------
irrevocably guarantees the payment of any and all indebtedness of the Borrower
to the Lenders whether or not due or payable by the Borrower upon the occurrence
of any of the events specified in Section 7.05, and unconditionally and
irrevocably promises to pay such indebtedness to the Lenders, or order, on
demand, in lawful money of the United States.
10.03 Nature of Liability. The liability of Holdings hereunder is
-------------------
exclusive and independent of any security for or other guaranty of the
indebtedness of the Borrower whether executed by Holdings, any other guarantor
or by any other party, and the liability of Holdings hereunder shall not be
affected or impaired by (a) any direction as to application of payment by the
Borrower or by any other party, or (b) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
indebtedness of the Borrower, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any dissolution, termination or increase,
decrease or change in personnel by the Borrower, or (e) any payment made to the
Agent or the Lenders on the indebtedness which the Agent or such Banks repay the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and Holdings waives any right to
the deferral or modification of its obligations hereunder by reason of any such
proceeding.
10.04 Guaranty Subordinate to Senior Indebtedness. Holdings covenants
-------------------------------------------
and agrees, and the Agent and the Lenders, by acceptance of this Holdings
Guaranty likewise covenant and agree, that, (a) to the extent and in the manner
hereinafter set forth in this Section 10.04, this Holdings Guaranty, including
pursuant to any amendment, modification, restatement or renewal thereof, is
hereby expressly made subordinated and subject in right of payment to the prior
payment in full of all Senior Debt and (b) the terms and conditions of such
subordination is for the benefit of the holders of the Senior Debt and each such
holder may enforce such subordination.
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10.05 Guaranty Absolute. No invalidity, irregularity or
-----------------
unenforceability of all or any part of the indebtedness guaranteed hereby or of
any security therefor shall affect, impair or be a defense to this Guaranty, and
this Guaranty shall be primary, absolute and unconditional notwithstanding the
occurrence of any event or the existence of any other circumstances which might
constitute a legal or equitable discharge of a surety or guarantor except
payment in full of the indebtedness guaranteed herein.
10.06 Independent Obligation. The obligations of Holdings hereunder
----------------------
are independent of the obligations of any other guarantor or the Borrower, and a
separate action or actions may be brought and prosecuted against Holdings
whether or not action is brought against any other guarantor or the Borrower and
whether or not any other guarantor the Borrower be joined in any such action or
actions. Holdings waives, to the fullest extent permitted by law the benefit of
any statute of limitations affecting its liability hereunder or the enforcement
thereof. Any payment by the Borrower or other circumstance which operates to
toll any statute of limitations as to the Borrower shall operate to toll the
statute of limitations as to Holdings.
10.07 Authorization. Holdings authorizes the Agent and the Lenders
-------------
without notice or demand to Holdings, and without affecting or impairing its
liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the indebtedness (including any increase or decrease in the rate of
interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the Guaranty herein made
shall apply to the indebtedness as so changed, extended, renewed or
altered;
(b) take and hold security for the payment of the indebtedness and
sell, exchange, release, surrender, realize upon or otherwise deal with in
any manner and in any order any property by whomsoever at any time pledged
or mortgaged to secure, or howsoever securing, the indebtedness or any
liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligors;
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(e) settle or compromise any of the indebtedness, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate
the payment of all or any part thereof to the payment of any
liability(whether due or not) of the Borrower to its creditors other than
the Lenders;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Lenders regardless of what
liability or liabilities of Holdings or the Borrower remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any of the instruments or agreements
referred to herein, or otherwise amend, modify or supplement this Agreement
or any of such other instruments or agreements; and/or
(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
Holdings from its liabilities under this Section 10.
10.08 Reliance. It is not necessary for the Agent or the Lenders to
--------
inquire into the capacity or powers of the Borrower or its Subsidiaries or the
officers, directors, partners or agents acting or purporting to act on its
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
10.09 Subordination. Any indebtedness of the Borrower now or
-------------
hereafter held by Holdings is hereby subordinated to the indebtedness of the
Borrower to the Agent and the Lenders, and such indebtedness of the Borrower to
Holdings, if the Agent (at the direction of the Required Lenders), after an
Event of Default has occurred, so requests, shall be collected, enforced and
received by Holdings as trustee for the Lenders and be paid over to the Lenders
on account of the indebtedness of the Borrower to the Lenders, but without
affecting or impairing in any manner the liability of Holdings under the other
provisions of this Guaranty. Prior to the transfer by Holdings of any note or
negotiable instrument evidencing any indebtedness of the Borrower to Holdings,
Holdings shall mark such note or negotiable instrument with a legend that the
same is subject to this subordination.
10.10 Waiver. (a) Holdings waives any right to require the Agent or
------
the Lenders to (i) proceed against the Borrower, any other guarantor or any
other party, (ii) proceed against or exhaust any security held from the
Borrower, any other guarantor or any other party or (iii) pursue any other
remedy in the Agent's or the Lenders' power whatsoever. Holdings waives any
defense based on or arising out of any defense of the
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Borrower, any other guarantor or any other party other than payment in full of
the indebtedness (other than payment), including, without limitation, any
defense based on or arising out of the disability of the Borrower, any other
guarantor or any other party, or the unenforceability of the indebtedness or any
party thereof from any cause, or the cessation from any cause of the liability
of the Borrower other than to the extent of payment in full of the indebtedness.
The Agent and the Lenders may, in accordance with the Loan Documents, at their
election, foreclose on any security held by the Agent or the Lenders by one or
more judicial or nonjudicial sales, whether or not every aspect of any such sale
is commercially reasonable (to the extent such sale is permitted by applicable
law), or exercise any other right or remedy the Agent and the Lenders may have
against the Borrower or any other party, or any security, without affecting or
impairing in any way the liability of Holdings hereunder except to the extent
the indebtedness has been paid. Holdings waives any defense arising out of any
such election by the Agent and the Borrower, even though such election operates
to impair or extinguish any right of reimbursement or subrogation or other right
or remedy of Holdings against the Borrower or any other party or any security.
(b) Except as otherwise specifically required hereunder, Holdings
waives all presentments, demands for performance, protests and notices,
including, without limitation, notices of nonperformance, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty, and notices of the
existence, creation or incurring of new or additional indebtedness. Holdings
assumes all responsibility for being and keeping itself informed of the
Borrower's financial condition and assets, and of all other circumstances
bearing upon the risk of non-payment of the indebtedness and the nature, scope
and extent of the risks which Holdings assumes and incurs hereunder, and agrees
that the Agent and the Lenders shall have no duty to advise Holdings of
information known to them regarding such circumstances or risks.
10.11 Guaranty Continuing. This Guaranty is a continuing one and all
-------------------
liabilities to which it applies or may apply under the terms hereof shall be
conclusively presumed to have been created in reliance hereon. No failure or
delay on the part of any Lender or any holder of any Note, in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein expressly specified
are cumulative and not exclusive of any rights or remedies which any Lender or
any subsequent holder of a Note would otherwise have. No notice to or demand
on Holdings in any case shall entitle Holdings to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
the Lender or any holder, creator or purchaser to any other or further action in
any circumstances without notice or demand.
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10.12 Binding Nature of Guaranties. This Guaranty shall be binding
----------------------------
upon Holdings and its successors and assigns and shall inure to the benefit of
the Lender and their successors and assigns.
10.13 Judgments Binding. If claim is ever made upon any Lender or
-----------------
any subsequent holder of a Note for repayment or recovery of any amount or
amounts received in payment or on account of any of the indebtedness and any of
the aforesaid payees repays all or part of said amount by reason of (a) any
judgment, decree or order of any court or administrative body having
jurisdiction over such payee or any of its property, or (b) any settlement or
compromise of any such claim effected by such payee with any such claimant
(including the Borrower) then and in such event Holdings agrees that any such
judgment, decree, order, settlement or compromise shall be binding upon
Holdings, notwithstanding any revocation hereof or the cancellation of any Note,
or other instrument evidencing any liability of the Borrower, and Holdings shall
be and remain liable to the aforesaid payees hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by any such payee.
Section 11. Subordination
-------------
11.01 Notes Subordinate to Senior Indebtedness. The Borrower
----------------------------------------
covenants and agrees, and each Lender and each other holder of any Note, if any,
likewise covenants and agrees, that, (a) to the extent and in the manner
hereinafter set forth in this Section 11, the payment of the Obligations,
including pursuant to any amendment, modification, restatement or renewal
thereof (the "Subordinated Obligations"), is hereby expressly made subordinated
and subject in right of payment to the prior payment in full of all Senior
Indebtedness and (b) the terms and conditions of such subordination is for the
benefit of the holders of the Senior Indebtedness and each such holder may
enforce such subordination.
11.02 Payment Over of Proceeds Upon Dissolution. In the event of (i)
-----------------------------------------
any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Borrower or to its assets, or (ii) any liquidation,
dissolution or other winding up of any the Borrower, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy, or (iii) any
assignment for the benefit of creditors or any other marshalling of assets and
liabilities of the Borrower (collectively, "Bankruptcy Events"), then and in any
such event:
(a) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash of all amounts due or to become due on or in respect of
all Senior Indebtedness (including interest after the commencement of a
Bankruptcy Event at the rate specified in the Senior Indebtedness, whether or
not allowed), before any Lender is entitled to receive any direct or indirect
payment or distribution on account of Subordinated
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Obligations including, without limitation, by exercise of set-off and any
payment which may be payable or deliverable by reason of any other Indebtedness
being subordinated in right of payment to the Subordinated Obligations;
(b) any payment or distribution of assets of the Borrower of any kind
or character, whether in cash, property or securities, by set-off or otherwise,
to which any Lender would be entitled but for the provisions of this Section 11,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness of the Borrower being
subordinated to the payment of Subordinated Obligations (except for any such
payment or distribution (1) authorized by an unstayed, final, nonappealable
order or decree stating that effect is being given to the subordination of such
Subordinated Obligations to the Senior Indebtedness, and made by a court of
competent jurisdiction in a reorganization proceeding under any applicable
bankruptcy law or (2) of securities which, if debt securities, are subordinated
to at least the same extent as the Subordinated Obligations are to (A) such
Senior Indebtedness or (B) any securities issued in exchange for Senior
Indebtedness; provided, however, that (x) the final maturity day of such
-------- -------
securities shall not be earlier than one year following the maturity date of the
last to mature of the Senior Indebtedness (including any securities issued in
exchange therefor) at the time outstanding and the scheduled amortization
thereof shall not be more favorable (as to amount or time of payment) then the
scheduled amortization of the principal amount of the Subordinated Obligations,
(y) such securities shall contain covenants which are no more restrictive than
the covenants contained herein and shall not contain greater defaults than as
are contained herein, and (z) such securities shall bear interest at a rate per
annum less than or equal to 12% per annum computed on the same basis as
described herein) shall be paid by the liquidating trustee or agent or other
Person making such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or otherwise, directly to the holders of all
Senior Indebtedness or their representative or representatives or to the trustee
or trustees under any indenture under which any instruments evidencing any of
such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the principal of, and interest
on, such Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all such Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of
this Section 11, any Lender shall have received any such payment or distribution
of assets of the Borrower of any kind or character, whether, property or
securities, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the Borrower
being subordinated to the payment of the Subordinated Obligations (but excluding
any payment of the character described in the parenthetical clause in the
foregoing paragraph (b)) before all Senior Indebtedness is paid
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in full or payment thereof is provided for, then and in such event such payment
or distribution shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payment or distribution of assets of the Borrower for application
to the payment of all such Senior Indebtedness remaining unpaid, to the extent
necessary to pay such Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of such Senior
Indebtedness.
If, notwithstanding the provisions of this Agreement, there shall
occur any consolidation of the Borrower with, or any merger of the Borrower
into, another corporation or the liquidation or dissolution of the Borrower
following any conveyance, transfer or lease of its properties and assets
substantially as an entirety to another corporation, such consolidation, merger
or liquidation shall not be deemed a Bankruptcy Event; provided, that no other
Bankruptcy Event shall have occurred and be continuing at the time of such
consolidation, merger or liquidation. The Bank Agent is hereby authorized to
file an appropriate claim on behalf of the Lenders if the Lenders do not file
such claim or there is not filed on behalf of the Lenders a proper proof of
claim in the form required in any Bankruptcy Event prior to thirty (30) days
before the expiration of the time to file such claim or claims.
11.03 No Payment in Certain Circumstances. In the event that (i) the
-----------------------------------
Borrower shall fail to pay when due (after giving effect to any applicable grace
periods), upon acceleration or otherwise, any amount or obligation with respect
to Senior Indebtedness (a "Payment Default") which Payment Default shall not
have been cured or waived, or (ii) an event of default (other than a Payment
Default) under the Senior Credit Agreement shall occur and be continuing, which
shall not have been cured or waived (a "Non-Payment Default"), and the Borrower
and the Agent receive written notice of such Non-Payment Default from either the
Bank Agent or the holders of at least a majority in aggregate principal amount
of the Senior Debt under the Senior Credit Agreement at the time outstanding (a
"Non-Payment Blockage Notice"), then no payment on account of the Subordinated
Obligations shall be made by the Borrower (x) in the case of any Payment
Default, unless and until such Senior Indebtedness shall have been paid in full
or until such Payment Default shall have been cured or waived, or (y) in the
case of any Non-Payment Default, from the earlier of the date on which the
Borrower and the Agent receive such Non-Payment Blockage Notice until the
earlier of (1) 179 days after such date and (2) the date, if any, on which the
Senior Debt under the Senior Credit Agreement is paid in full or such Non-
Payment Default is waived by the holders of such Senior Debt or otherwise cured
(a "Blockage Period"); provided, that only one Non-Payment Blockage Notice may
be given in any 360-day period.
In the event that, notwithstanding the foregoing, the Borrower shall
make any payment to any Lender prohibited by the foregoing provisions of this
Section 11.03,
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then and in such event such payment shall be paid over and delivered forthwith
to the holders (or their agent or trustee) of the relevant Senior Indebtedness.
The provisions of this Section 11.03 shall not apply to any payment with respect
to which Section 11.02 would be applicable.
11.04 Acceleration Rights; Remedies. If an Event of Default, other
-----------------------------
than an Event of Default under Section 7.05, shall exist at any time that any
Senior Debt under the Senior Credit Agreement shall be outstanding, no Lender
nor any other holder of the Notes nor the Agent shall take any action, judicial
or otherwise, to accelerate or collect payment on the Subordinated Obligations
or to pursue any other remedy with respect to the Subordinated Obligations prior
to the earlier of (i) the expiration of five Business Days immediately following
the receipt by the Bank Agent of notice of the occurrence of such Event of
Default from the Agent or from the holder or holders entitled to accelerate
payments on the Subordinated Obligations or (ii) acceleration of the Senior
Debt, but such action may only be taken if at the end of such period such Event
of Default has not been cured or waived; provided, that any amount received by
the Agent or any of the Lenders as a result of any acceleration permitted above
prior to payment in full in cash of the Senior Debt under the Senior Credit
Agreement shall be paid to the Bank Agent in accordance with the provisions of
this Section 11.
11.05 Payment Otherwise Permitted. Nothing contained in this Section
---------------------------
11 or elsewhere in this Agreement or in the Notes shall prevent the Borrower, at
any time except as set forth in Section 11.02 or under the conditions described
in Section 11.03, from making payments at any time of principal of and interest
on the Loans or any other amount payable by the Borrower under the Notes or this
Agreement. Notwithstanding the provisions of this Section 10, neither the Agent
nor any Lender shall be charged with knowledge of the existence of any facts,
including of the occurrence of a Payment Default, which would prohibit the
making of any payment or distribution by the Borrower or the receipt or
retention thereof by the Agent or any Lender, or the taking of any action by the
Agent or any Lender of the type referred to in Section 11.04, unless the Agent
or such Lender as the case may be, shall have received at least two Business
Day's prior written notice of such facts.
11.06 Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
Subject to, and solely effective following, the final payment in full of all
Senior Indebtedness the Lenders shall be subrogated to the rights of the holders
of Senior Indebtedness to receive payments and distributions of cash, property
and securities applicable to such Senior Indebtedness to the extent of the
payments or distributions made to the Banks, or otherwise applied to payment of,
the Senior Indebtedness pursuant to the provisions of this Section 11 until the
principal of and interest on the Loans and the Notes shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of any cash, property or securities to which the Lenders
would be entitled
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except for the provisions of this Section 11, and no payments over pursuant to
the provisions of this Section 11 to the holders of Senior Indebtedness by the
Lenders shall, as among the Borrower, its creditors (other than holders of
Senior Indebtedness) and the Lenders, be deemed to be a payment or distribution
by the Borrower to or on account of the Senior Indebtedness.
11.07 Provisions Solely to Define Relative Rights. The provisions of
-------------------------------------------
this Section 11 are and are intended solely for the purpose of defining the
relative rights of the holders of the Notes on the one hand and the holders of
Senior Indebtedness on the other hand. Nothing contained in this Section 11 or
elsewhere in this Agreement or in the Notes is intended to or shall (i) impair,
as among the Borrower, its creditors (other than holders of Senior Indebtedness)
and the Lenders, the obligation of the Borrower, which is absolute and
unconditional, to pay to the Lenders the principal of, and premium and interest
on, and any other amount payable by the Borrower under, the Loans, the Notes or
this Agreement as and when the same shall become due and payable in accordance
with its terms; or (ii) affect the relative rights against the Borrower of the
Lenders and its creditors (other than the holders of Senior Indebtedness); or
(iii) prevent the Lenders from accelerating the Loans and exercising all other
remedies otherwise permitted by applicable law upon default under this
Agreement, subject to the rights, if any, under this Section 11 of the holders
of Senior Indebtedness (x) upon the occurrence of a Bankruptcy Event, to
receive, pursuant to and in accordance with Section 11.02, cash, property and
securities otherwise payable or deliverable to the Lenders, (y) under the
conditions specified in Section 11.03, to prevent any payment prohibited by such
Section or (z) Section 11.04.
11.08 No Waiver of Subordination Provisions; Amendment. No right of
------------------------------------------------
any present or future holder of any Senior Indebtedness to enforce subordination
as herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Borrower or by any act or failure to
act, in good faith, by any such holder, or by any non-compliance by the Borrower
with the terms, provisions, and covenants of this Agreement, regardless of any
knowledge thereof any such holder may have or be otherwise charged with. Without
in any way limiting the generality of the foregoing, the holders of Senior
Indebtedness may at any time and from time to time, without the consent of or
notice to the Lenders or any other holder of the Notes, without incurring
responsibility to the Lenders or such holders and without impairing or releasing
the subordination provided in this Section 11 or the obligations hereunder of
the Lenders and such holders to the holders of Senior Indebtedness, do any one
or more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable in any manner for the collection of Senior
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Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Borrower and any other Person.
11.09 Reliance on Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets of the Borrower referred to in this
Section 11, the Lenders shall be entitled to rely upon any unstayed, final,
nonappealable order or decree entered by any court of competent jurisdiction in
which a Bankruptcy Event is pending, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of Senior
Indebtedness of the Borrower, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Section 11.
11.10 Turnover; Miscellaneous Subordination Provisions. (a) If a
------------------------------------------------
distribution is made to any holder of Subordinated Obligations that because of
this Section 11 should not have been made to it, such holder shall segregate
such distribution from its other funds and property and hold it in trust for the
benefit of, and, upon written request, pay it over (in the same form as
received, with any necessary endorsement) to, the holders of Senior Indebtedness
as their interests may appear, or their agent or representative or the trustee
under the indenture or other agreement (if any) pursuant to which Senior
Indebtedness may have been issued, as their respective interests may appear, for
application (in the case of cash) to, or as collateral (in the case of non-cash
property or securities) for the payment or prepayment of, all obligations with
respect to Senior Indebtedness remaining unpaid to the extent necessary to pay
such obligations in full in accordance with their terms, after giving effect to
an concurrent payment or distribution to or for the holders of Senior
Indebtedness.
(b) A distribution may consist of cash, securities or other property,
by set-off or otherwise, and a payment or distribution on account of any
obligations with respect to the holders of Subordinated Obligations shall
include any redemption, purchase or other acquisition of the Subordinated
Obligations.
(c) For the purpose of this Section 11, all indebtedness now or
hereafter existing under the Senior Credit Agreement shall not be deemed to have
been paid in full unless the holders or owners thereof shall have received
payment in full in cash.
(d) The agreements contained in this Section 11 shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Senior Indebtedness is rescinded or must otherwise be returned by any
holder of Senior Indebtedness upon any Bankruptcy Event of the Borrower, all as
though such payment had not been made.
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(e) All rights and interests under this Agreement of the holders of
Senior Debt, and all agreements and obligations of the holders of Subordinated
Obligations and the Borrower under this Section 11, shall remain in full force
and effect irrespective of (i) any lack of validity or enforceability of the
Senior Credit Agreement, any promissory notes evidencing the Indebtedness
thereunder, or any other agreement or instrument relating thereto or to any
other Senior Debt, including, without limitation, any agreement referred to in
the definition of Senior Credit Agreement, or (ii) any other circumstance that
might otherwise constitute a defense available to, or a discharge of, any
holders of Subordinated Obligations or the Borrower.
(f) The provisions set forth in this Section 11 constitute a
continuing agreement and shall (i) be and remain in full force and effect until
payment in full of all Indebtedness under the Senior Credit Agreement at such
time when no Bank shall have any obligation to make advances under the Senior
Credit Agreement, (ii) be binding upon the holders of Subordinated Obligations
and the Borrower and its respective successors, transferees and assigns, and
(iii) inure to the benefit of, and be enforceable directly by, each of the
holders of Senior Indebtedness and their respective successors, transferees and
assigns.
Section 12. Miscellaneous.
-------------
12.01 Payment of Expenses, Etc. Each of Holdings and the Borrower
------------------------
jointly and severally agrees to: (i) whether or not the transactions herein
contemplated are consummated, pay all reasonable out-of-pocket costs and
expenses of the Agent (including, without limitation, the reasonable fees and
disbursements of Weil, Gotshal & Manges LLP) in connection with the preparation,
execution and delivery of this Agreement and the other Loan Documents and the
documents and instruments referred to herein and therein and any amendment,
waiver or consent relating hereto or thereto, of the Agent in connection with
its syndication efforts with respect to this Agreement (including, without
limitation, the reasonable fees and disbursements of Weil, Gotshal & Manges LLP)
and of the Agent and each of the Lenders in connection with the enforcement of
this Agreement and the other Loan Documents and the documents and instruments
referred to herein and therein (including, without limitation, the reasonable
fees and disbursements of counsel for the Agent and for each of the Lenders);
(ii) pay and hold each of the Lenders and the Agent harmless from and against
any and all present and future stamp, excise and other similar taxes with
respect to the foregoing matters and save each of the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to such Lender) to pay such
taxes; and (iii) defend, protect, indemnify and hold harmless the Agent and each
Lender, and each of their respective officers, directors, employees,
representatives, attorneys, agents, Affiliates, any other Person in control of
the Agent or its affiliates (collectively called the "Indemnitees") from and
against any and all liabilities, obligations (including removal or remedial
actions),
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losses, damages (including foreseeable and unforeseeable consequential damages
and punitive damages), penalties, claims, actions, judgments, suits,
proceedings, costs, expenses and disbursements (including reasonable attorneys'
and consultants fees and disbursements) of any kind or nature whatsoever that
may at any time be incurred by, imposed on or assessed against the Indemnitees
directly or indirectly based on, or arising or resulting from, or in any way
related to, or by reason of (a) any investigation, litigation or other
proceeding (whether or not the Agent or any Lender is a party thereto and
whether or not any such investigation, litigation or other proceeding is between
or among the Agent, any Lender, the Borrower or any of its Subsidiaries, or any
third Person or otherwise) related to the entering into and/or performance of
this Agreement or any other Document or the proceeds of any Loans hereunder or
the consummation of any transactions contemplated herein (including, without
limitation, the Transaction) or in any other Document or the exercise of any of
their rights or remedies provided herein or in the other Loan Documents; or, (b)
the actual or alleged generation, presence or Release of Hazardous Materials on
or from, or the transportation of Hazardous Materials to or from, any Real
Property owned or at any time operated by Holdings or any of its Subsidiaries;
or (c) any Environmental Claim relating to Holdings, any of its Subsidiaries or
any Real Property owned or at any time operated by Holdings or any of its
Subsidiaries; or (d) the exercise of the rights of the Agent and of any Lender
under any of the provisions of this Agreement, any other Loan Document, or any
other Document or any Loans hereunder; or (e) the consummation of any
transaction contemplated herein (including, without limitation, the Transaction)
or in any other Loan Document (the "Indemnified Matters") regardless of when
such Indemnified Matter arises, but excluding any such Indemnified Matter based
solely on the gross negligence or willful misconduct of any Indemnitee.
12.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Lender is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to the Borrower
or any of its Subsidiaries or to any other Person, any such notice being hereby
expressly waived, but in any event subject to Section 11, to set off and to
appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by such Lender (including, without
limitation, by branches and agencies of such Lender wherever located) to or for
the credit or the account of the Borrower or any of its Subsidiaries against and
on account of the Obligations and liabilities of the Borrower or any of its
Subsidiaries to such Lender under this Agreement or under any of the other Loan
Documents, including, without limitation, all interests in Obligations purchased
by such Lender pursuant to Section 12.06(b), and all other claims of any nature
or description arising out of or connected with this Agreement or any other Loan
Document, irrespective of whether or not such Lender shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured. The Agent and the Lenders hereby agree to
provide notice to the
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Borrower and the Bank Agent of any action taken pursuant to this Section 12.02;
provided, that the failure to give such notice shall not affect any action
- --------
taken by the Agent or such Lender pursuant to this Section 12.02.
12.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to Holdings or the
Borrower, at its address specified opposite its signature below; if to any
Lender, at its address specified opposite its name below; and if to the Agent,
at its Notice Office; if to the Banks or the Bank Agent, to the address
specified in the Senior Credit Agreement; or, as to Holdings, the Borrower or
the Agent, at such other address as shall be designated by such party in a
written notice to the other parties hereto and, as to the Bank Agent, each Bank
and each Lender, at such other address as shall be designated by the Bank Agent,
such Bank or such Lender in a written notice to the Borrower and the Agent. All
such notices and communications shall, when mailed, telegraphed, telexed,
facsimile, or cabled or sent by overnight courier, be effective three Business
Days after deposited in the mails, certified, return receipt requested, when
delivered to the telegraph company or cable company or one Business Day
following delivery to an overnight courier, as the case may be, or sent by telex
or facsimile device, except that notices and communications to the Agent shall
not be effective until received by the Agent or the Bank Agent.
12.04 Benefit of Agreement. This Agreement shall be binding upon and
--------------------
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that no Loan Party may assign
-------- -------
or transfer any of its rights, obligations or interest hereunder or under any
other Loan Document without the prior written consent of the Lenders; and
provided, further, that although any Lender may transfer, assign or grant
- -------- -------
participations in its rights hereunder, such Lender shall remain a "Lender" for
all purposes hereunder (and may not transfer or assign all or any portion of its
Loans hereunder except as provided in Section 12.04(b)) and the transferee,
assignee or participant, as the case may be, shall not constitute a "Lender"
hereunder; and provided, further, that no Lender shall transfer or grant any
-------- -------
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Loan Document except to
the extent such amendment or waiver would: (i) extend the final scheduled
maturity of any Loan or Note in which such participant is participating, or
reduce the rate or extend the time of payment of interest (except in connection
with a waiver of applicability of any post-default increase in interest rates)
or reduce the principal amount thereof over the amount thereof then in effect
(it being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default or of a mandatory repayment shall not
constitute a change in the terms of such participation), or (ii) consent to the
assignment or transfer by or a release of the Borrower or any Subordinated
Guarantor of any of its rights and obligations under this Agreement or any
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other Loan Document other than, in the case of any Subordinated Guaranty, as
otherwise provided therein. In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Loan Documents (the participant's rights against such Lender in respect of such
participation to be those set forth in the agreement executed by such Lender in
favor of the participant relating thereto) and all amounts payable by any Loan
Party hereunder and thereunder shall be determined as if such Lender had not
sold such participation.
(b) Notwithstanding the foregoing, any Lender (or any Lender together
with one or more other Lenders) may assign all or a portion of its outstanding
principal amount of Loans to one or more Eligible Transferees each of which
assignees shall become a party to this Agreement as a Lender by execution of an
assignment and assumption agreement substantially in the form of Exhibit J
(appropriately completed); provided that: (i) at such time Schedule I shall be
--------
deemed modified to reflect the outstanding Loans of such new Lender and of the
existing Lenders; (ii) new Notes will be issued, at the Borrower's expense, to
such new Lender and to the assigning Lender upon the request of such new Lender
or assigning Lender, such new Notes to be in conformity with the requirements of
Section 1.01 (with appropriate modifications) to the extent needed to reflect
the revised outstanding Loans; (iii) the consent of the Agent shall be required
in connection with any such assignment pursuant to this Section 12.04(b)(which
consent shall not be unreasonably withheld or delayed); and (iv) the Agent shall
receive at the time of each such assignment, from the assigning Lender, the
payment of a non-refundable assignment fee of $3,500. No transfer or assignment
under this Section 12.04(b) will be effective until recorded by the Agent on the
Register pursuant to Section 5.13. At the time of each assignment pursuant to
this Section 12.04(b) to a Person which is not already a Lender hereunder and
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Lender shall provide to the Borrower and the Agent the appropriate
Internal Revenue Service Forms (and, if applicable, a Section 2.04(b)(ii)
Certificate) required by Section 2.04(b). The Agent shall provide notice to the
Borrower of any such assignment effected pursuant to this Section 12.04(b);
provided, that the failure to give such notice shall not prohibit, affect or
- --------
otherwise impair any such assignment.
12.05 No Waiver; Remedies Cumulative. No failure or delay on the part
------------------------------
of the Agent or any Lender or any holder of any Note in exercising any right,
power or privilege hereunder or under any other Loan Document and no course of
dealing between Holdings or any of their Subsidiaries and the Agent or any
Lender or the holder of any Note shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder or
under any other Loan Document preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder or thereunder. The
rights, powers and remedies herein or in any other Loan Document expressly
provided are cumulative and not exclusive of any rights, powers or remedies
91
<PAGE>
which the Agent or any Lender or the holder of any Note would otherwise have. No
notice to or demand on the Borrower or any of their Subsidiaries in any case
shall entitle any such Person to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the Agent
or any Lender or the holder of any Note to any other or further action in any
circumstances without notice or demand.
12.06 Payments Pro Rata. Except as otherwise provided in this
-----------------
Agreement, the Agent agrees that promptly after its receipt of each payment from
or on behalf of the Borrower or any Subordinated Guarantor in respect of any
Obligations hereunder, it shall distribute such payment to the Lenders pro rata
--------
based upon their respective shares, if any, of the Obligations with respect to
which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Loan Documents, or otherwise),
which is applicable to the payment of the principal of, or interest on, the
Loans, of a sum which with respect to the related sum or sums received by other
Lenders is in a greater proportion than the total of such Obligations then owed
and due to such Lender bears to the total of such Obligations then owed and due
to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations to such other
Lenders in such amount as shall result in a proportional participation by all
the Lenders in such amount; provided, that if all or any portion of such excess
--------
amount is thereafter recovered from such purchasing Lender, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery, but
without interest.
12.07 Calculations; Computations. The financial statements to be
--------------------------
furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrower to the
Lenders); provided, that except as otherwise specifically provided herein, all
--------
computations determining compliance with Section 6, including the definitions
used therein, shall utilize accounting principles and policies in conformity
with those used to prepare the historical financial statements for the fiscal
year ended June 30, 1997 delivered to the Lenders pursuant to Section 4.05(a).
(b) All computations of interest, hereunder shall be made on the
basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such interest
is payable.
92
<PAGE>
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
-----------------------------------------------------------
JURY TRIAL. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
- ----------
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY DESIGNATES,
ACCEPTS AND EMPOWERS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH OF
HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS
CT CORPORATION SERVICES, WITH OFFICES ON THE EFFECTIVE DATE AT 1633 BROADWAY,
NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE,
ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY,
SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY
BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE,
APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, HOLDINGS AND THE
BORROWER AGREE TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT ON THE TERMS AND
FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT UNDER THIS
AGREEMENT. EACH OF HOLDINGS AND THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO HOLDINGS OR THE BORROWER AT ITS ADDRESS SET FORTH OPPOSITE
ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH
MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT UNDER THIS
AGREEMENT, ANY LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANY PARTY IN ANY OTHER JURISDICTION.
(b) EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH
93
<PAGE>
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be maintained by the Borrower and the
Agent.
12.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which Holdings, the Borrower, the Agent and each
of the Lenders shall have signed a copy hereof (whether the same or different
copies) and shall have delivered the same to the Agent at its Notice Office or,
in the case of the Lenders, shall have given to the Agent telephonic (confirmed
in writing), written or facsimile transmission notice (actually received) in
accordance with Section 12.03 at such office that the same has been signed and
mailed to it.
12.11 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.12 Amendment or Waiver. Neither this Agreement nor any other Loan
-------------------
Document nor any terms hereof or thereof may be amended, changed, waived,
discharged or terminated unless such amendment, change, waiver, discharge or
termination is in writing signed by the respective parties thereto and the
Required Lenders; provided, that no such amendment, change, waiver, discharge or
--------
termination shall, without the consent of each Lender: (i) extend the final
scheduled maturity of any Loan or Note beyond the relevant Maturity Date, or
reduce the rate or extend the time of payment of interest thereon (except in
connection with a waiver of applicability of any post-default increase in
interest rates), or reduce the principal amount thereof; (ii) amend, modify or
waive any provision of this Section 12.12; (iii) reduce the percentage specified
in, or otherwise modify, the definition of Required Lenders; or (iv) consent to
the assignment or transfer by the Borrower or (except as permitted hereby) any
of its Subsidiaries of any of their rights and
94
<PAGE>
obligations under this Agreement; provided further, that no such change, waiver,
-------- -------
discharge or termination shall: (w) without the consent of the Agent, amend,
modify or waive any provision of Section 9 or any other provision relating to
the rights or obligations of the Agent; or (x) without the consent of the
Required Lenders, alter the required application of any prepayments or
repayments pursuant to Section 2.02. The Borrower and the Lenders hereby agree
for the benefit of the holders of Senior Debt that no amendment of, supplement
of, modification to or waiver under any provision of this Agreement or any Notes
will be entered into or effected (x) with respect to Section 11 or (y) with
respect to any other provisions, if the same would be adverse to the holders of
Senior Debt (or any of them), without the prior consent of the required Banks
under the Senior Credit Agreement.
12.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Sections 2.04 and 12.01 shall survive the execution and delivery
of this Agreement and the Notes and the making and repayment of the Loans.
12.14 Domicile of Loans. Each Lender may transfer and carry its
-----------------
Loans at, to or for the account of any office, Subsidiary or Affiliate of such
Lender.
95
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address: PHC HOLDING CORPORATION
900 Hammond Drive
Atlanta, Georgia 30328-5582
Telephone: (770) 673-1974
Facsimile: (770) 673-1079 By: /s/ Sarah C. Garvin
----------------------------
Title: President
PHYSICIAN HEALTH CORPORATION
Address:
900 Hammond Drive
Atlanta, Georgia 30328-5582
Telephone: (770) 673-1974 By /s/ Sarah C. Garvin
----------------------------
Facsimile: (770) 673-1079 Title: President
PARIBAS CAPITAL FUNDING LLC,
Address: as a Lender and as Agent
787 Seventh Avenue
New York, New York
Attention: Eric Green
Telecopy No.: (212) 841-2144 By /s/ illegible
----------------------------
Title:
By
____________________________
Title:
<PAGE>
SCHEDULE I
----------
COMMITMENTS
-----------
<TABLE>
<CAPTION>
Lender Initial Commitment Subsequent Commitment
- ------ ------------------ ---------------------
<S> <C> <C>
Paribas Capital Funding LLC $9,000,000 $6,000,000
---------- ----------
Total $9,000,000 $6,000,000
========== ==========
Total $ 15,000,000
=====
</TABLE>
<PAGE>
SCHEDULE II
-----------
INSURANCE POLICIES
------------------
<PAGE>
SCHEDULE III
------------
[INTENTIONALLY OMITTED]
---------------------
<PAGE>
SCHEDULE IV
-----------
LOANS, ADVANCES AND COMMITMENTS
-------------------------------
<PAGE>
SCHEDULE V
----------
[INTENTIONALLY OMITTED]
<PAGE>
SCHEDULE VI
-----------
SUBSIDIARIES
------------
<PAGE>
SCHEDULE VII
------------
EXISTING LIENS
--------------
<PAGE>
SCHEDULE VIII
-------------
EXISTING INDEBTEDNESS
---------------------
<PAGE>
SCHEDULE IX
-----------
RETAINED INDEBTEDNESS
---------------------
<PAGE>
SCHEDULE X
----------
FINANCIAL STATEMENTS
--------------------
<PAGE>
SCHEDULE XI
-----------
MATERIAL CONTRACTS
------------------
<PAGE>
SCHEDULE XII
------------
CAPITALIZATION
--------------
<PAGE>
SCHEDULE XIII
-------------
ACQUISITIONS
------------
<PAGE>
SCHEDULE XIV
------------
UNWIND PROVISIONS AND MANDATORY DISTRIBUTIONS
---------------------------------------------
<PAGE>
SCHEDULE XV
-----------
PRE-CLOSING ACQUISITIONS
------------------------
<PAGE>
SCHEDULE XVI
------------
CONTEMPORANEOUS ACQUISITIONS
----------------------------
<PAGE>
SCHEDULE XVII
-------------
POST-CLOSING ACQUISITIONS
-------------------------
<PAGE>
SCHEDULE XVIII
--------------
DIVIDEND RESTRICTIONS
---------------------
<PAGE>
SCHEDULE XIX
------------
ERISA
-----
<PAGE>
SCHEDULE XX
-----------
PRACTICE MANAGEMENT AGREEMENTS
------------------------------
<PAGE>
SCHEDULE XXI
------------
EXCLUSIONS FROM OTHER SUBORDINATED DEBT
---------------------------------------
<PAGE>
SCHEDULE XXII
-------------
PERSONAL GUARANTEES
-------------------
<PAGE>
EXHIBIT 10.45(a)
AMENDMENT NO. 1 TO THE
SENIOR SUBORDINATED CREDIT AGREEMENT
AMONG PHYSICIAN HEALTH CORPORATION, PHC HOLDING CORPORATION,
THE LENDERS PARTY THERETO, AND
PARIBAS CAPITAL FUNDING LLC, as AGENT
AMENDMENT NO. 1 (the "Amendment"), dated as of December 11, 1997, by and
among Physician Health Corporation, a Delaware corporation ("Holdings"), PHC
Holding Corporation, a Georgia corporation and wholly owned subsidiary of
Holdings (the "Borrower"), the financial institutions party to the Credit
Agreement (the "Lenders"), and Paribas Capital Funding LLC, as administrative
agent for the Lenders (in such capacity, the "Administrative Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Holdings, the Borrower, the Lenders, and the Administrative Agent
are party to a Senior Subordinated Credit Agreement, dated as of October 27,
1997 (the "Credit Agreement"). Capitalized terms defined in the Credit
Agreement and not otherwise defined herein shall have the meanings provided
therein; and
WHEREAS, the Borrower has requested, among other things, that the Credit
Agreement be amended to permit the Borrower to increase the amount available to
it under the Senior Credit Agreement from $45,000,000 to $62,500,000; and
WHEREAS, the Lenders have agreed with the Borrower to so amend the Credit
Agreement upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Credit Agreement. Upon the satisfaction of
----------------------------------
the conditions in Section 3 of this Amendment relating to the effectiveness of
this Section 1, the Credit Agreement is hereby amended as follows:
(a) The definition of "Senior Debt" in Section 8 of the Credit Agreement
shall be deleted in its entirety and replaced with the following:
"Senior Debt" shall mean (a) all payment obligations now or hereafter
incurred pursuant to and in accordance with the terms of the Senior Credit
Agreement (including without limitation all principal, interest, (including,
without limitation, any post-petition interest on such obligations at the rate
set forth in Senior Credit Agreement, accruing whether or not granted or
permitted in connection with an event of the type referred to in Section 7.05
hereof) and Interest Rate Protection or other Hedging Agreements as defined in
the Senior Credit Agreement), premium, penalties,
<PAGE>
fees, expenses, indemnification, reimbursements, damages and other liabilities
payable under the Senior Credit Agreement; provided, that in no event shall the
principal amount of Senior Debt (exclusive of interest rate protection
obligations) exceed the sum of (i) $52,500,000 (as such amount is reduced by
repayments of term loans to the extent that such repayments may not be
reborrowed), (ii) an amount equal to the revolving loans and commitments
therefor outstanding under the Senior Credit Agreement from time to time to the
extent they do not exceed $10,000,000, reduced by reductions of revolving
commitments to the extent such reductions are permanent and (b) Additional
Senior Credit Indebtedness. Senior Debt outstanding under the Senior Credit
Agreement shall continue to constitute Senior Debt for all purposes hereof,
notwithstanding that such Senior Debt or any claim in respect thereof may be
disallowed, avoided or subordinated pursuant to any insolvency law, the
Bankruptcy Code or any similar federal or state law for the relief of debtors or
other applicable insolvency law or equitable principles as a claim for unmatured
interest.
SECTION 2. Representations and Warranties. The Borrower hereby represents
------------------------------
and warrants that (a) the execution, delivery and performance of this Amendment
have been duly authorized by all necessary corporate action on the part of the
Borrower and Holdings and this Amendment constitutes a legal, valid and binding
obligation of the Borrower and Holdings, enforceable against each in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
similar laws affecting creditors' rights generally and to general principles of
equity regardless of whether enforcement is sought in a proceeding in equity or
at law and (b) except as set forth on Schedule 2(b) hereto, the representations
and warranties of the Borrower contained in Section 4 of the Credit Agreement
and of each Loan Party in the other Loan Documents to which it is a party are
true and correct as of the date hereof both before and after giving effect to
this Amendment as though made on such date, except to the extent such
representations and warranties relate to an earlier date, in which case such
representations and warranties were correct on and as of such earlier date.
SECTION 3. Condition to Effectiveness. The amendments in Section 1 hereof
--------------------------
shall become effective on the date (the "Effective Date") when counterparts
hereof shall have been executed by the Required Lenders, the Administrative
Agent, Holdings and the Borrower and acknowledged by each of the Guarantors.
SECTION 4. Effect on the Credit Agreement. Except as amended hereby, the
------------------------------
Credit Agreement and the other Loan Documents shall remain in full force and
effect.
<PAGE>
SECTION 5. Counterparts. This Amendment may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together constitute one and the same agreement.
SECTION 6. Governing Law. This Amendment shall be governed by and
-------------
construed and enforced in accordance with the law of the State of New York.
SECTION 7. Headings. Section headings in this Amendment are included
--------
herein for the convenience of reference only and shall not constitute part of
this Amendment for any other purpose.
SECTION 8. References. References herein and in the Loan Documents to the
----------
Credit Agreement are to the Credit Agreement as amended hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PHYSICIAN HEALTH CORPORATION
By:/s/ Sarah C. Garvin
---------------------------
Title:
PHC HOLDING CORPORATION
By:/s/ Sarah C. Garvin
---------------------------
Title:
PARIBAS CAPITAL FUNDING LLC
as Administrative Agent
By:/s/ Joseph A. Kaufman
---------------------------
Title:
<PAGE>
Each of the undersigned consents to the foregoing Amendment and hereby
confirms that its respective Guaranty shall continue to guaranty the Obligations
of the Borrower pursuant to the Credit Agreement, as amended hereby.
GUARANTORS
-----------
4401 S. Orange Avenue, #102 PHC CENTRAL FLORIDA, INC.,
Orlando, FL 32806 as a Guarantor
Telephone No.: (407) 438-9511
Facsimile No.: (407) 438-9595
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC PHYSICIAN NETWORKS, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC ANCILLARY SERVICES, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC PALM BEACH, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 EYE CARE SERVICES OF MISSOURI, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
<PAGE>
990 Hammond Drive, #300 PHC-ORLANDO ACQUISITION SUBSIDIARY I,
Atlanta, GA 30328 INC.,
Telephone No.: (770) 673-1974 as a Guarantor
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC-ST. LOUIS ACQUISITION SUBSIDIARY
Atlanta, GA 30328 I, INC.,
Telephone No.: (770) 673-1974 as a Guarantor
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC-ACQUISITION SUBSIDIARY II, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
800 East 5th Street, #115 TRI-COUNTY EYE CENTER, INC.,
Washington, MO 63090 as a Guarantor
Telephone No.: (314) 239-1650
Facsimile No.: (314) 239-9005
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PRIMARY CARE SPECIALIST, OF GEORGIA,
Atlanta, GA 30328 INC.,
Telephone No.: (770) 673-1974 as a Guarantor
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
<PAGE>
990 Hammond Drive, #300 PHC ORLANDO ACQUISITION SUBSIDIARY II,
Atlanta, GA 30328 INC.,
Telephone No.: (770) 673-1974 as a Guarantor
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC-MIDWEST, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
127000 Southfork Road, Suite 255 JOHN W. DAAKE, INC.,
St. Louis, MO 63128 as a Guarantor
Telephone: (314) 842-2226
Facsimile: (314) 842-7977
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 DENTOFACIAL CARE CENTER, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC TENNESSEE ACQUISITION SUBSIDIARY
Atlanta, GA 30328 I, INC.,
Telephone No.: (770) 673-1974 as a Guarantor
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PRIMARY CARE SPECIALISTS OF CENTRAL
Atlanta, GA 30328 FLORIDA, INC.,
Telephone No.: (770) 673-1974 as a Guarantor
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
<PAGE>
990 Hammond Drive, #300 PHC PHYSICIAN NETWORK OF GEORGIA,
Atlanta, GA 30328 INC.,
Telephone No.: (770) 673-1974 as a Guarantor
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC OHIO, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
760 Kentucky PHC - WEST PLAINS, INC. D/B/A REAM
West Plains, MO 63017 OPTOMETRY, LTD.,
Telephone No.: (417) 256-6171 as a Guarantor
Facsimile No.: (417) 451-0940
By: /s/ Sarah C. Garvin
----------------------------
Title:
232 S. Woods Mill Road, #56 INTERNACARE, INC.,
Chesterfield, MO 63017 as a Guarantor
Telephone No.: (314) 542-0371
Facsimile No.: (314) 542-0943
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC - REGIONAL ONCOLOGY CARE, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC - SOUTHEAST, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
<PAGE>
990 Hammond Drive, #300 PHC - ARIZONA, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
1106 North Beeline PFCA MANAGEMENT, INC.,
Payson, AZ 85541 as a Guarantor
Telephone No.: (520) 474-9188
Facsimile No.: (520) 474-8947
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 ALOF, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 RAK, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 RATL, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 DTD, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
<PAGE>
990 Hammond Drive, #300 SCD, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHK, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC ORLANDO II, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC LOUISVILLE, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
101 S. Hanley, #1600 PHYSICIAN MANAGEMENT SERVICES OF
St. Louis, MO 63105 MISSOURI, INC.,
Telephone No.: (314) 862-1200 as a Guarantor
Facsimile No.: (314) 569-1260
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 PHC ORLANDO III, INC.,
Atlanta, GA 30328 as a Guarantor
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
<PAGE>
990 Hammond Drive, #300 PHC PHYSICIAN NETWORK OF
Atlanta, GA 30328 ORLANDO, INC.,
Telephone No.: (770) 673-1974 as a Guarantor
Facsimile No.: (770) 673-1970
By: /s/ Sarah C. Garvin
----------------------------
Title:
990 Hammond Drive, #300 G.H. KUSAR EYE CARE SERVICES,
Atlanta, GA 30328 INC.,
Telephone No.: (770) 673-1974
Facsimile No.: (770) 673-1970
906 W. Randol Mill Road MHOA TEXAS I, L.L.C.,
Arlington, TX 76012 as a Guarantor
Telephone No.: (817) 261-4906
Facsimile No.: (817) 261-5837
By: /s/ Sarah C. Garvin
----------------------------
Title:
<PAGE>
EXHIBIT 10.49
RESTATED AND AMENDED STOCKHOLDER AGREEMENT
------------------------------------------
THIS STOCKHOLDER AGREEMENT (this "Agreement") is made and entered into as
of this _____ day of ____________, 1997, by and among PHYSICIAN HEALTH
CORPORATION, a Delaware corporation (the "Company"), SARAH C. GARVIN, HOWARD E.
FAGIN, Ph.D., H. THOMAS SCOTT, JULIE RAWLS MOORE, and SHAMUS HOLT (collectively,
the "Stockholders" and individually, a "Stockholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Stockholders desire to designate 300,000
shares issued to each Stockholder restricted stock (the "Shares"), subject to
the vesting and other provisions contained herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
---------
VESTING
-------
1.1 Vesting Schedule. As of the date of this Agreement, twenty-five
----------------
percent (25%) of each Stockholder's Shares have vested. Of the remaining
seventy-five percent (75%) (the "Remaining Shares"), subject to each Stockholder
remaining a full-time employee of the Company and continuing in such employment
throughout the vesting period, twenty-five percent (25%) of the Remaining Shares
shall vest on January 30, 1997, and twenty-five percent (25%) of the Remaining
Shares vesting on January 30, 1998, January 30, 1999, and January 30, 2000,
respectively.
1.2 Effects of Vesting. Those Shares that have vested pursuant to Section
------------------
1.1 above shall thereafter be released from the restrictions contained in this
Agreement.
1.3 Termination of Employment. In the event the employment of any
-------------------------
Stockholder is terminated due to death or Disability prior to January 30, 2000,
all unvested Shares issued in the name of such Stockholder shall immediately
vest. For purposes of this Agreement, "Disability" shall be defined as a
<PAGE>
Stockholder becoming mentally or physically unable to perform his or her usual
employment duties for 180 days in any twelve (12) month period.
1.4 Termination of Employment Not Due to Death or Disability. In the
--------------------------------------------------------
event the employment of any Stockholder is terminated other than due to death or
Disability prior to January 30, 2000, a portion of the Stockholder's unvested
Shares equal to the amount of Shares that would have vested under Section 1.1
for the twelve (12) month period ending on the subsequent January 30 multiplied
by a fraction, the numerator of which is the number of days elapsed since the
last January 30 and the denominator of which is 365, will vest as of the date of
termination.
1.5 Acceleration Upon a Change of Control. Notwithstanding any other term
-------------------------------------
or condition contained herein, immediately prior to a "Change of Control" of the
Company, all unvested Shares shall immediately vest and each Stockholder shall
be the record and beneficial owner of all such Shares without regard to the
vesting schedule contained in Section 1.1 hereof or any other restrictions
contained in this Agreement. For the purposes of this Agreement, the term
"Change of Control" means the merger, consolidation or sale of the Company with
or to any other entity if the Company is not the surviving entity, or the sale
of all or substantially all of the assets of the Company.
ARTICLE II
----------
ESCROW OF SHARES
----------------
2.1 Establishment of Escrow. By execution of this Agreement, each
-----------------------
Stockholder appoints Mr. Scott, in his capacity as an officer of the Company, as
escrow agent (the "Escrow Agent") to hold the Shares on behalf of and as a
convenience to each Stockholder with the same force and effect as if such Shares
had been delivered by the Company to each Stockholder and subsequently delivered
by such Stockholder to the Escrow Agent. The Escrow Agent shall hold the Shares
for the benefit of each Stockholder pursuant to the terms of this Agreement
pending vesting or acceleration.
2.2 Delivery of Shares. Upon the complete vesting of all Shares subject
------------------
to the terms of this Agreement, the Escrow Agent shall deliver to each
Stockholder the stock certificate issued by the Company in such Stockholder's
name evidencing the Shares. Upon the request of any Stockholder, the Escrow
Agent shall cause to be delivered to such Stockholder a stock certificate
representing those shares that have particularly vested pursuant to Section 1.1
hereof.
2.3 Voting Rights. Each Stockholder shall have the right to vote the
-------------
Shares being held by the Escrow Agent on behalf of such Stockholder or direct
the Escrow Agent in writing as to the exercise of his or her voting rights with
respect to such Shares, and the Escrow Agent shall comply with any such
directors so received. In the absence of such directions, the Escrow Agent
shall not vote any such Shares held in escrow, other than those Shares held by
the Escrow Agent in his individual capacity.
2.4 Effect of Final Delivery. The terms of this Article II shall continue
------------------------
in full force and effect until the Escrow Agent has delivered or caused to be
canceled all of the Shares pursuant to the terms of this Agreement. After all
of the Shares have been so delivered or canceled, all rights, duties and
obligations of the respective parties under this Article II shall terminate.
2.5 Successor Escrow Agent. Upon the resignation of the Escrow Agent, the
----------------------
Company has the right to appoint any other officer of the Company as successor
-2-
<PAGE>
Escrow Agent. The Company shall also have the right to remove the Escrow Agent
or any successor thereof, with or without cause, at any time and from time to
time.
ARTICLE III
-----------
MISCELLANEOUS
-------------
3.1 Termination of Prior Stockholder Agreement. This Agreement supersedes
------------------------------------------
the Stockholders' Agreement dated October 6, 1995, as amended on December 28,
1995, by and among the Stockholders.
3.2 Specific Performance. In any action or proceeding to specifically
--------------------
enforce the provisions of this Agreement, any persons against whom such action
or proceeding is brought hereby waives the claim or defense therein that the
plaintiff or claimant has an adequate remedy at law, and such person shall not
urge in any such action or proceeding the claim or defense that such remedy at
law exists. The provisions of this Article 4.1, however, shall not prevent any
party from seeking a remedy at law in connection with any breach of this
Agreement.
3.3 Notices. Any and all notices, designations, consents, offers,
-------
acceptances, or any other communications provided for in this Agreement shall be
given in writing by personal delivery or by registered or certified mail which
shall be addressed, in the case of the Company, to its principal office, and in
the case of a Stockholder to his or her principal office or such other address
as may be designated by such Stockholder.
3.4 Severability of Provisions. If any one or more of the provisions of
--------------------------
this Agreement shall be determined to be invalid, illegal, or unenforceable in
any respect for any reason, the validity, legality, and enforceability of any
such provision in every other respect and of the remaining provisions of this
Agreement shall not be impaired in any way.
3.5 Amendments. No change, amendment, or modification of this Agreement
----------
shall be valid unless it is in writing and signed by all the parties hereto.
3.6 Legend on Stock Certificates. Upon the execution of this Agreement,
----------------------------
the certificates representing the Shares subject hereto shall be surrendered to
the Company and endorsed (in addition to any other applicable endorsements or
legends) substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") OR ANY STATE SECURITIES LAW OR REGULATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFERABILITY CONTAINED IN A STOCKHOLDER AGREEMENT
-3-
<PAGE>
DATED THE 6th DAY OF OCTOBER, 1995, BETWEEN AND AMONG THE PARTIES
THERETO, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE COMPANY. NO
TRANSFER OR ENCUMBRANCES OF THE SHARES REPRESENTED HEREBY MAY BE MADE
EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT.
After endorsement, the certificates shall be returned to the Escrow Agent who
shall, subject to the terms of this Agreement, hold the certificates for the
benefit of each Stockholder.
3.7 Waivers. Nothing contained in this Agreement shall prevent the waiver
-------
of the provisions of this Agreement by the parties hereto. No party to this
Agreement, however, shall be deemed to have waived any of its rights under this
Agreement unless such waiver shall be in writing and signed by such party. A
waiver on any one occasion shall not be construed as a bar or waiver of any
right on any future occasion.
3.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
3.9 Benefits. All of the terms, covenants, agreements and conditions
--------
contained in this Agreement shall be binding upon and . . . to the benefit of
all of the parties hereto, and their respective heirs, executors,
administrators, successors as assigned.
3.10 Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Georgia.
3.11 Conflict with Bylaws. In the event of any conflict between the terms
--------------------
and provisions of this Agreement and the terms and provisions of the Bylaws of
the Company, the terms and provisions of this Agreement shall control.
3.12 Applicability of Laws. Any transfer of Shares made pursuant to and
---------------------
in accordance with the terms of this Agreement shall be subject to applicable
state and federal securities and other laws, notwithstanding its permissibility
under this Agreement.
(Signatures on Following Page)
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
COMPANY:
PHYSICIAN HEALTH CORPORATION
By:
---------------------------------------------
Sarah C. Garvin
President and Chief Executive Officer
STOCKHOLDERS:
By:
---------------------------------------------
Sarah C. Garvin
By:
---------------------------------------------
Howard E. Fagin, Ph.D.
By:
---------------------------------------------
H. Thomas Scott
By:
---------------------------------------------
Julie Rawls Moore
By:
---------------------------------------------
Shamus Holt
-5-
<PAGE>
EXHIBIT 10.50
AMENDMENT TO
------------
RESTATED AND AMENDED STOCKHOLDER AGREEMENT
------------------------------------------
THIS AMENDMENT STOCKHOLDER AGREEMENT (this "Amendment") is made and entered
into as of this ___________ day of February, 1997, by an among PHYSICIAN HEALTH
CORPORATION, a Delaware corporation (the "Company"), SARAH C. GARVIN, HOWARD E.
FAGIN, Ph.D., H. THOMAS SCOTT, JULIE RAWLS MOORE, and SHAMUS HOLT (collectively,
the "Stockholders" and individually, a "Stockholder").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Stockholders entered into that certain
Restated and Amended Stockholder Agreement dated November 1, 1997 (the
"Agreement").
WHEREAS, pursuant to the Agreement, the Company and the Stockholders
designated 300,000 shares issued to each Stockholder restricted stock (the
"Shares"), subject to the vesting and other provisions contained therein.
WHEREAS, the Company and the Stockholders desire to clarify certain terms
and conditions regarding the vesting provisions contained in the Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein and in the Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
I. Vesting Schedule. Pursuant to the Agreement, 56,250 of the shares
----------------
issued to each Stockholder vest on January 30, 2000, subject to each Stockholder
remaining a full-time employee of the Company and continuing in such employment
throughout the vesting period. In addition to this continued employment
<PAGE>
requirement, 37,500 of these 56,250 shares (or 12.5% of the 300,000 issued to
each Shareholder) shall vest on January 30, 2000 if (i) the Company has a
Liquidity Event (as defined in the Company's Amended Certificate of
Incorporation), or (ii) the Company achieves Net After-Tax Income (as defined in
the Company's Amended Certificate of Incorporation) of at least $6.0 million in
its fiscal year 1998 or any fiscal year ending before December 31, 1998. If the
Company does not satisfy (i) or (ii) above by December 31, 1998, these 37,500
unvested shares of each Stockholder will be canceled.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
COMPANY:
PHYSICIAN HEALTH CORPORATION
By:
/s/ Sarah C. Garvin
--------------------------------------------------
Sarah C. Garvin
President and Chief Executive Officer
STOCKHOLDERS:
/s/ Sarah C. Garvin
--------------------------------------------------
Sarah C. Garvin
/s/ Howard E. Fagin, Ph.D
--------------------------------------------------
Howard E. Fagin, Ph.D
/s/ H. Thomas Scott
--------------------------------------------------
H. Thomas Scott
/s/ Julie Rawls Moore
--------------------------------------------------
Julie Rawls Moore
--------------------------------------------------
Shamus Holt
<PAGE>
EXHIBIT 10.51
NON-COMPETITION AND NON-DISCLOSURE FORM OF AGREEMENT
----------------------------------------------------
In consideration and as a condition of my employment or continued
employment by Physician Health Corporation (the "Company"), I hereby agree with
the Company as follows:
1. I covenant and agree that for so long as I am employed by the Company
and for a two (2) year period thereafter, I will not, without the prior written
consent of the Company, directly or indirectly, within the metropolitan
statistical service areas identified on Exhibit A attached hereto (i) provide as
a manager, employee, officer or consultant any services of the type included in
my employment duties described below for any medical management services company
which develops or manages physician networks or provides management or contract
negotiation services to physician practices or (ii) solicit or attempt to
solicit any employee of the Company either to work for me personally or on
behalf of any other person or entity. The parties acknowledge that this
Agreement may be amended from time to time by substituting a new Exhibit A to
expand the geographic scope of the restrictions contained in this Article 3.1 to
include each of the new markets in which the Company is then doing business.
For purposes of this section, my employment duties shall include _______________
________________________________________________________________________________
Notwithstanding the foregoing, if my employment is terminated "without cause,"
then the restrictions contained in clause (i) above shall terminate. For
purposes of this paragraph, termination "without cause" shall mean termination
of my employment for any reason other than resignation, death, disability (as
such term is defined in the Amended and Restated Stockholder Agreement of even
date herewith), conviction of a felony or violation of this Agreement.
2. I will not at any time, whether during or after the termination of my
employment, reveal to any person or entity any of the trade secrets or
confidential information concerning the organization, business or finances of
the Company or of any third party which the Company is under an obligation to
keep confidential (including but not limited to trade secrets or confidential
information respecting inventions, products, designs, methods, know-how,
techniques, systems, processes, software programs, works of authorship, customer
lists, projects, plans and proposals), except as may be required in the ordinary
course of performing my duties as an employee of the Company, and I shall keep
secret all matters entrusted to me and shall not use or attempt to use any such
information in any manner which may injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to the Company.
Further, I agree that during my employment I shall not make, use or permit
to be used any notes, memoranda, reports, lists, records, drawings, sketches,
specifications, software programs, data, documentation or other materials of any
nature relating to any matter within the scope of the business of the Company or
concerning any of its dealings or affairs otherwise than for the benefit of the
Company. I further agree that I shall not, after the termination of my
employment, use or permit to be used any such notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials, it being agreed that all of the foregoing
shall be and remain the sole and exclusive property of the Company and that
immediately upon the termination of my employment I shall deliver all of the
foregoing, and all copies thereof, to the Company, at its main office.
3. If at any time or times during my employment, I shall (either alone or
with others) make, conceive, create, discover or reduce to practice any
invention, modification, discovery, design, development, improvement, process,
software program, work of authorship, documentation, formula, data, technique,
know-how, secret or intellectual property right whatsoever or any interest
therein (whether or not patentable or registrable under copyright, trademark or
similar statutes or subject to analogous protection) (herein called
"Developments") that (a) relates to the business of the Company or any customer
of or supplier to the Company or any of the products or services being
developed, manufactured or sold by the Company or which may be used in relation
therewith, (b) results from tasks assigned me by the Company or (c) results from
the use of premises or personal property (whether tangible or intangible) owned,
leased or contracted for by the Company, such Developments and the benefits
thereof
Page 1
<PAGE>
are and shall immediately become the sole and absolute property of the Company
and its assigns, and I shall promptly disclose to the Company (or any persons
designated by it) each such development and, as may be necessary to ensure the
Company's ownership of such Developments, I hereby assign any rights including,
but not limited to, any copyrights and trademarks) I may have or acquire in the
Developments and benefits and/or rights resulting therefrom to the Company and
its assigns without further compensation and shall communicate, without cost or
delay, and without disclosing to others the same, all available information
relating thereto (with all necessary plans and models) to the Company.
Upon disclosure of each Development to the Company, I will, during my
employment and at any time thereafter, at the request and cost of the Company,
sign, execute, make and do all such deeds, documents, acts and things as the
Company and its duly authorized agents may reasonably require:
(a) to apply for, obtain, register and vest in the name of the Company
alone (unless the Company other-wise directs) letters patent,
copyrights, trademarks or other analogous protection in any country
throughout the world and when so obtained or vested to renew and
restore the same; and
(b) to defend any opposition or other administrative proceedings in
respect of such applications and any opposition proceedings or
petitions or applications for cancellation or revocation of such
letters patent, copyright or other analogous protection.
In the event the Company is unable, after reasonable effort, to secure my
signature on any letters patent, copyright or trademark registration
applications or other documents regarding any legal protection relating to a
Development, whether because of my physical or mental incapacity or for any
other reason whatsoever, I hereby irrevocably designate and appoint the Company
and its duly authorized officers and agents as my agent and attorney-in-fact, to
act for and in my behalf and stead to execute and file any such application or
applications or other documents and to do all other lawfully permitted acts to
further the prosecution and issuance of letters patent, copyright or trademark
registrations or other legal protection thereon with the same legal force and
effect as if executed by me.
4. I agree that any breach of this Agreement by me will cause irreparable
damage to the Company and that in the event of such breach the Company shall
have, in addition to any and all remedies of law, the right to an injunction,
specific performance or other equitable relief to prevent the violation of my
obligations hereunder.
5. I understand that this Agreement does not create an obligation on the
Company or any other person or entity to continue my employment.
6. I represent that the Developments identified in the pages, if any,
attached hereto comprise all the unpatented and unregistered copyrightable
Developments which I have created, made or conceived prior to my employment by
the Company, which Developments are excluded from this Agreement. I understand
that it is only necessary to list the title and purpose of such Developments but
not details thereof.
I further represent that my performance of all of the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Company. I have not
entered into, and I agree will not enter into, any agreement either written or
oral in conflict herewith.
7. Any waiver by the Company of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
8. I hereby agree that each provision herein shall be treated as a
separate and
Page 2
<PAGE>
independent clause, and the unenforceability of any one clause shall in no way
impair the enforceability of any of the other clauses herein. Moreover, if one
or more of the provisions contained in this Agreement shall for any reason be
held to be excessively broad as to scope, activity, subject or otherwise so as
to be unenforceable at law, such provision or provisions shall be construed by
the appropriate judicial body by limiting, or reducing it or them, so as to be
enforceable to the maximum extent compatible with the applicable law as it shall
then appear.
9. My obligations under this Agreement shall survive the termination of
my employment regardless of the manner of such termination and shall be binding
upon my heirs, executors, administrators and legal representatives.
10. The term "Company" shall include Physician Health Corporation and any
of its subsidiaries, subdivisions or affiliates. The Company shall have the
right to assign this Agreement to its successors and assigns, and all covenants
and agreements hereunder shall inure to the benefit of and be enforceable by
said successors or assigns.
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as a sealed
instrument as of the 28th day of December, 1995.
____________________________________________
Signature
____________________________________________
Name (please print)
____________________________________________
Address
Page 3
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Atlanta, Georgia
January 5, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 9, 1997, with respect to the financial
statements of Metroplex Hematology/Oncology Associates, L.L.P., included in
Amendment No. 1 to the Registration Statement (Form S-1 No. 333-40073) and
related Prospectus of Physician Health Corporation for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
Dallas, Texas
January 5, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,218,651
<SECURITIES> 0
<RECEIVABLES> 8,112,843
<ALLOWANCES> (833,912)
<INVENTORY> 430,616
<CURRENT-ASSETS> 14,969,065
<PP&E> 6,499,503
<DEPRECIATION> 484,292
<TOTAL-ASSETS> 41,733,474
<CURRENT-LIABILITIES> 20,195,530
<BONDS> 0
16,447,572
0
<COMMON> 13,636,000
<OTHER-SE> 9,357,867
<TOTAL-LIABILITY-AND-EQUITY> 41,733,474
<SALES> 15,990,611
<TOTAL-REVENUES> 15,990,611
<CGS> 0
<TOTAL-COSTS> 33,138,407
<OTHER-EXPENSES> (2,080,975)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,767,745
<INCOME-PRETAX> (16,834,566)
<INCOME-TAX> 13,720
<INCOME-CONTINUING> (16,848,286)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,848,286)
<EPS-PRIMARY> (5.82)
<EPS-DILUTED> (5.82)
</TABLE>
<PAGE>
EXHIBIT 99.1
CONSENT OF PROPOSED DIRECTOR
The undersigned hereby consents to being named as a proposed member
of the Board of Directors of Physician Health Corporation (the "Registrant") in
the Prospectus constituting a part of the Registration Statement on Form S-1
of the Registrant filed under the Securities Act of 1933, as amended.
/s/ William C. Stewart, Jr., M.D.
--------------------------------
William C. Stewart, Jr., M.D.
DATED: December 30, 1997
