<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
(MARK ONE)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________TO_____________________
COMMISSION FILE NO. 1-10677
DRCA MEDICAL CORPORATION
-------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0203483
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Riverway, Suite 1430, Houston, Texas 77056
-------------------------------------------------
(Address of principal executive offices)
(713) 439-7511
----------------------------------------------
(Registrant's telephone number, including area code)
None
----------------------------------
(Former Name, Address and fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
As of June 30, 1995, 5,269,975 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (Check One) YES NO X
--- ---
<PAGE>
DRCA MEDICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets (June 30, 1995
and December 31, 1994) 1
Consolidated Statements of Operations for the
quarter and the six months ended June 30, 1995
and June 30, 1994 2
Consolidated Statements of Changes in
Stockholders' Equity for the six months
ended June 30, 1995 and June 30, 1994 3
Consolidated Statements of Cash Flows for
the six months ended June 30, 1995 and
June 30, 1994 4 - 5
Notes to Consolidated Financial Statements 6 - 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION
Item 1 - 6 11 - 13
SIGNATURES 14
</TABLE>
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
(Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
ASSETS
----------------
CURRENT ASSETS
Cash and cash equivalents $ 88,887 $ 813,942
Accounts receivable, trade, net 4,943,034 3,800,328
Income taxes receivable - 11,275
Deferred income taxes 141,000 141,000
Notes receivable, net 156,831 38,832
Assets held for resale - -
Other current assets 440,682 120,157
----------- -----------
TOTAL CURRENT ASSETS 5,770,434 4,925,534
----------- -----------
FIXED ASSETS
Equipment (including equipment under capital leases) 5,396,849 5,345,894
Leasehold improvements 437,676 436,624
Furniture and fixtures 399,121 399,120
Vehicles 108,301 108,301
----------- -----------
6,341,947 6,289,939
Less accumulated depreciation (3,573,105) (3,138,962)
2,768,842 3,150,977
----------- -----------
OTHER ASSETS
Deposits 38,814 46,602
Intangibles, net 1,021,209 1,138,257
----------- -----------
1,060,023 1,184,859
----------- -----------
TOTAL ASSETS 9,599,299 9,261,370
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------
CURRENT LIABILITIES
Accounts payable 786,799 1,068,939
Accrued liabilities 405,919 344,278
Income taxes payable 123,774 -
Current obligations under capital leases 325,019 415,487
Current portion of notes payable 1,643,002 717,229
----------- -----------
TOTAL CURRENT LIABILITIES 3,284,513 2,545,933
----------- -----------
LONG-TERM DEBT
Notes payable 1,133,317 1,908,649
Obligations under capital leases 121,258 239,097
----------- -----------
1,254,575 2,147,746
----------- -----------
DEFERRED INCOME TAXES 158,000 158,000
----------- -----------
MINORITY INTEREST 17,712 51,366
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 50,000,000
shares authorized; 5,301,808 and 5,301,808 issued 5,302 5,302
Additional paid-in capital 2,470,570 2,470,570
Retained earnings 2,408,643 1,882,469
Treasury shares, 15,833 and 15,833 shares (16) (16)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,884,499 4,358,325
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,599,299 $ 9,261,370
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Quarters Ended,
---------------- ---------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 7,943,572 $ 6,473,032 $ 4,165,461 $ 3,393,108
DIRECT OPERATING COSTS (3,822,696) (3,769,778) (1,856,741) (1,975,480)
AMOUNTS RETAINED BY MEDICAL GROUPS (1,716,340) (844,558) (1,061,214) (448,697)
----------- ----------- ----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (1,127,321) (1,179,726) (569,206) (669,385)
PROVISION FOR DOUBTFUL ACCOUNTS (311,378) (256,242) (151,316) (176,887)
---------- ---------- ---------- -----------
Operating income 965,837 422,728 526,984 122,659
GAIN ON SALE OF ASSETS - 36,634 - -
INTEREST EXPENSE (152,257) (145,469) (78,274) (81,738)
--------- --------- --------- --------
INCOME BEFORE MINORITY INTEREST
AND INCOME TAXES 813,580 313,893 448,710 40,921
MINORITY INTEREST 33,654 1,127 - 519
--------- --------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES 847,234 315,020 448,710 41,440
(PROVISION FOR) BENEFIT FROM INCOME
TAXES (321,060) (88,087) (168,596) 15,873
--------- --------- --------- --------
NET INCOME (LOSS) $ 526,174 $ 226,933 $ 280,114 $ 57,313
========= ========= ========= ========
EARNINGS (LOSS) PER COMMON AND
COMMON SHARE EQUIVALENT
Primary $ .10 $ .04 $ .05 $ .01
========= ========= ========= ========
Fully diluted $ .10 $ .04 $ .05 $ .01
========= ========= ========= ========
</TABLE>
The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the fiscal year. In the
opinion of management, the information contained herein reflects all adjustments
necessary to make the results of operations for the interim periods a fair
statement of such operations. All such adjustments are of a normal recurring
nature.
See notes to consolidated financial statements.
2
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
------- -------- --------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance -
December 31, 1993 5,301,808 $5,302 $2,470,570 $1,468,732 $ (16) $3,944,588
For services rendered - - (1,500) - - (1,500)
Net income - - 226,933 - 226,933
--------- ------ ---------- ---------- -------- ----------
Balance -
June 30, 1994 5,301,808 $5,302 $2,469,070 $1,695,665 $ (16) $4,170,021
========= ====== ========== ========== ======== ==========
Balance -
December 31, 1994 5,301,808 $5,302 $2,470,570 $1,882,469 $ (16) $4,358,325
Net income - - 526,174 - 526,174
--------- ------ ---------- ---------- -------- ----------
Balance -
June 30, 1995 5,301,808 $5,302 $2,470,570 $2,408,643 $ (16) $4,884,499
========= ====== ========== ========== ======= ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 526,174 $ 226,933
Non cash adjustments:
Depreciation and amortization 434,143 440,132
Amortization of intangibles 117,048 117,048
Minority interest in income (33,654) (1,127)
Gain on sale of assets - (36,634)
Change in assets and liabilities, net of the
effects of business acquisitions:
Accounts receivable, trade, net (1,142,706) (734,581)
Other current assets (320,525) (108,490)
Deposits 7,788 (645)
Accounts payable and accrued
liabilities (220,499) 197,986
Trade notes payable - (241,554)
Income taxes payable 123,774 62,088
Income taxes receivable 11,275 337,477
---------- ---------
Net cash provided (used) by operating
activities (497,182) 258,633
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements to assets held for resale - (3,600)
Purchase of fixed assets (52,008) (28,582)
Net proceeds from sale of assets held for resale - 237,387
---------- ---------
Net cash provided (used) by investing activities (52,008) 205,205
---------- ---------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
June 30, June 30,
1995 1994
------------ ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings on line of credit $ 351,577 $ -
Proceeds from issuance of notes payable 1,413,049 -
Payments on notes payable (1,614,188) (325,759)
Payments on capital lease obligations (208,304) (162,255)
Distributions to limited partners - (36,500)
Collections on note receivable 382,001 21,399
Additions to notes receivable (500,000) (27,335)
----------- ---------
Net cash provided (used) by
financing activities (175,865) (530,450)
----------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (725,055) (66,612)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 813,942 904,308
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 88,887 $ 837,696
=========== =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 167,718 $ 167,916
=========== =========
Income taxes $ 161,397 $ 46,000
=========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Assets acquired through capital leases $ - $ 75,465
</TABLE>
5
<PAGE>
DRCA MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1995
NOTE A BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only
of those of a normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 1995 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1995. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-KSB for the year ended December 31,
1994.
NOTE B EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per common share are based upon the
weighted average number of shares of common stock outstanding and common
stock equivalents of dilutive stock options and warrants during the three
month and six month periods, as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
June 30, June 30,
1995 1994
---------- ----------
<S> <C> <C>
Primary
Weighted average shares outstanding 5,269,975 5,269,975
Net effect of dilutive stock options
and warrants, based on the treasury
stock method using average market
price 67,414 104,912
---------- ----------
5,337,389 5,374,887
========== ==========
Net Income $ 280,114 $ 57,313
========== ==========
Earnings Per Share $ .05 $ .01
========== ==========
Fully diluted
Weighted average shares outstanding 5,269,975 5,269,975
Net effect of dilutive stock
options and warrants, based on
the treasury stock method using
the quarter end market price,
if higher than average market
price 67,414 104,912
---------- ----------
5,337,389 5,374,887
========== ==========
Net Income $ 280,114 $ 57,313
========== ==========
Earnings Per Share $ .05 $ .01
========== ==========
</TABLE>
6
<PAGE>
NOTE B EARNINGS PER COMMON SHARE (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Primary
Weighted average shares outstanding 5,269,975 5,269,975
Net effect of dilutive stock options and
warrants, based on the treasury stock
method using average market price 44,449 104,912
---------- ----------
5,314,424 5,374,887
========== ==========
Net Income $ 526,174 $ 226,933
========== ==========
Earnings Per Share $ .10 $ .04
========== ==========
Fully diluted
Weighted average shares outstanding 5,269,975 5,269,975
Net effect of dilutive stock options and
warrants, based on the treasury stock
method using the quarter end market
price, if higher than average market
price 60,126 104,912
---------- ----------
5,330,101 5,374,887
========== ==========
Net Income $ 526,174 $ 226,933
========== ==========
Earnings Per Share $ .10 $ .04
========== ==========
</TABLE>
7
<PAGE>
PART I
FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED JUNE 30, 1995 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1994.
Revenues and direct costs.
-------------------------
Revenues and direct costs (including amounts retained by medical groups and
the provision for doubtful accounts) increased by $772,353 and $468,207,
respectively, in the second quarter of 1995 as compared to the same period in
1994. The Company's medical clinic facilities (including two orthopedic
clinics added to the medical group in March, 1995) and mobile health testing
units reported increased revenues over last year while revenues from other
business units were flat or lower. Changes in revenues are generally
attributable to changes in the number of patient visits. The increase in
direct costs results primarily from the variable costs associated with
changes in patient volume and the additional costs of the two orthopedic
clinics. The Company attributes the improvement in the occupational medicine
component of the business and the decrease in rehabilitation related revenues
to general trends in the industry resulting from increased cost containment
efforts and the effectiveness of injury prevention and risk management
programs. Although the Company intends to retain the expertise and
capabilities it has developed in its rehabilitation facilities, it is
expected that the relative importance of rehabilitation programs will
decrease as management of occupational medicine, orthopedic, and other
medical practices related to the prevention, diagnosis, treatment and
management of worker injuries emerges as the primary area for corporate
growth.
Selling, general and administrative expenses.
--------------------------------------------
Selling, general and administrative expenses decreased by $100,179. Expenses
in 1995 decreased primarily because expenses incurred in 1994 included
$113,000 associated with the settlement of two legal proceedings. Sales and
marketing expenses increased by $44,935 as the Company has expanded its sales
and marketing efforts. Other costs decreased by $32,114.
Interest expense.
----------------
Interest expense decreased by $3,464. This is due to reductions of
outstanding principal balances on notes payable and capital leases.
Minority interest.
-----------------
Minority interest in income decreased by $519. This is due to the winding
down of all of the Company's partnership interests.
8
<PAGE>
SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1994.
Revenues and direct costs.
-------------------------
Revenues and direct costs (including amounts retained by medical groups and
the provision for doubtful accounts) increased $1,470,540 and $979,830,
respectively, in the first six months of 1995 as compared to the same period
in 1994. The Company's medical clinic facilities (including two orthopedic
clinics added to the medical group in March, 1995) and mobile health testing
units reported increased revenues over last year while revenues from other
business units were flat or lower. Changes in revenues are generally
attributable to changes in the number of patients visits. The increase in
direct costs results primarily from variable costs associated with the
changes in patient volume, the additional costs of the two orthopedic
clinics, and an increase in the provision for doubtful accounts. The Company
attributes the improvement in the occupational medicine component of the
business and the decrease in rehabilitation related revenues to general
trends in the industry resulting from increased cost containment efforts and
the effectiveness of injury prevention and risk management programs.
Although the Company intends to retain the expertise and capabilities it has
developed in its rehabilitation facilities, it is expected that the relative
importance of rehabilitation programs will decrease as management of
occupational medicine, orthopedic, and other medical practices related to the
prevention, diagnosis, treatment, and management of worker injuries emerges
as the primary area for corporate growth.
Selling, general and administrative expenses.
--------------------------------------------
Selling, general and administrative expenses decreased by $52,405. Expenses
in 1995 decreased primarily because expenses incurred in 1994 included
$113,000 associated with the settlement of two legal proceedings. Sales and
marketing expenses increased by $92,108 as the Company has expanded its sales
and marketing efforts. Other costs decreased by $31,513.
Interest expense.
----------------
Interest expense increased by $6,788 due mainly to the increase in the prime
interest rate which effects the Company's interest on the term notes and the
revolving line of credit with its major lending bank.
Minority interest.
-----------------
Minority interest in expenses increased by $32,527 reflecting the minority
partners' interest in the final expenses of the partnership interests, as the
partnerships are winding down.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital at June 30, 1995 was $2,485,921 as compared to
$2,379,601 at December 31, 1994, an increase of $106,320. This is mainly due
to: 1) the Company's increase in revenue for the first six months of 1995
compared to 1994, which has increased net accounts receivable by $1,142,706;
2) the reclassification of $351,577 outstanding on the Company's line of
credit to a current liability as compared to its December 31, 1994
classification as a long-term liability because the Company's new line of
credit expires on January 30, 1996; and 3) new short-term notes of $553,958
and $63,049 from the Company' major lending bank.
The Company currently finances its business activities primarily through cash
flow from operations, borrowing, and leasing transactions.
9
<PAGE>
On February 6, 1995, the Company signed and funded two credit facilities and
paid off two smaller, matured facilities which were in place on December 31,
1994. The two new facilities include a $750,000 term loan and a one-year,
$1,000,000 revolving line of credit. The $1,000,000 revolving line of credit
expires January 30, 1996. It requires the payment of a 1% annual fee and
borrowings under the line bear interest at prime + 1.25%. Advances under
the line of credit are subject to a borrowing base formula, under which the
Company presently has sufficient collateral to support more than a $1,000,000
balance. The $750,000 term loan is payable in 48 monthly installments of
$19,061. Both facilities are subject to the terms and conditions of a loan
agreement which includes normal financial ratio covenants and various other
provisions. The combined facilities increase the Company's capital
availability by approximately $500,000 as compared to that available on
December 31, 1994. On May 11, 1995 the Company amended the loan agreement
and borrowed an additional $600,000 to support the addition of an orthopedic
practice to the primary medical group managed by the Company. Of the loan
proceeds, $500,000 was used to provide liquidity for the orthopedic
practice's accounts receivable and $100,000 was set aside for working
capital. The $600,000 note is secured by the accounts receivable of the
orthopedic practice and is payable in twelve installments of approximately
$46,000. The note bears interest at prime + 1.25%. The facilities are
secured by substantially all assets of the Company, its subsidiaries and the
medical groups managed by the Company and are personally guaranteed by Jose
E. Kauachi, the Company's Chairman of the Board of Directors, President and
CEO and by Dr. and Mrs. William F. Donovan (Dr. Donovan is a Director of the
Company). The Company believes these credit facilities and cash provided by
operations will be sufficient to provide its working capital requirements for
at least the next twelve months.
10
<PAGE>
PART II
--------
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not a party to any pending litigation other than routine
litigation incidental to the business or that which is immaterial in amount
of damages sought.
Item 2 Changes in Securities
This item is not applicable.
Item 3 Defaults upon Senior Securities
See Item 2 of Part 1 of this Report.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 11, 1995. The
following persons were elected to theCompany's Board of Directors to hold
office for the ensuing year.
<TABLE>
<CAPTION>
For Withheld
--------- --------
<S> <C> <C>
Jose E. Kauachi 4,585,839 33,674
William F. Donovan, M.D. 4,591,839 27,674
Victor M.Rivera, M.D. 4,586,238 33,275
Juan R. Dickey, M.D. 4,592,839 26,674
</TABLE>
The results of the voting for ratification of Price Waterhouse to serve as the
Company's independent accounts for the fiscal year ending December 31, 1995,
were as follows:
For: 4,602,423 Against: 8,515 Abstention: 8,575
Item 5 Other Information
This item is not applicable.
Item 6 (a) Exhibits and Exhibit Index
Exhibit No. Exhibit Title Filed As
----------- --------------------------------- --------------
10.99 Management Services Agreement by and between
DRCA Houston Clinics, Inc. and PhysiCare, L.L.P.
dated effective March 1, 1995 /1/Same
11
<PAGE>
Exhibit No. Exhibit Title Filed As
----------- --------------------------------- --------------
10.100 Equipment Lease Agreement by and between Northshore
Orthopedics Assoc. and DRCA Houston Clinics, Inc.
dated effective March 1, 1995 /1/Same
10.101 Lease Agreement by and between William F.
Donovan, M.D. and DRCA Houston Clinics, Inc.
dated effective March 1, 1995 /1/Same
10.102 Collection Services Agreement by and between
DRCA Houston Clinics, Inc. and Northshore
Orthopedics Assoc. dated effective March 1, 1995 /1/Same
10.103 Promissory Note for $500,000 by Northshore
Orthopedics Assoc. and William F. Donovan, M.D.
as Co-Makers and DRCA Houston Clinics, Inc.
dated effective March 1, 1995 /1/Same
10.104 Security Agreement between Northshore Orthopedics
Assoc. and DRCA Houston Clinics, Inc. dated
effective March 1, 1995 /1/Same
10.105 Promissory Note for $1,000,000 by PhysiCare,
L.L.P. and DRCA Houston Clinics, Inc. dated
effective March 1, 1995 /1/Same
10.106 Security Agreement between PhysiCare, L.L.P.
and DRCA Houston Clinics, Inc. dated effective
March 1, 1995 /1/Same
10.107 Master Transaction Agreement by and among
the Company, DRCA Houston Clinics, Inc.,
Occupational Medicine Associates of
Houston, P.A., Northshore Orthopedics Assoc.,
PhysiCare, L.L.P. and William F. Donovan, M.D.
dated effective March 1, 1995 /1/Same
10.108 Professional Services Agreement Medical
Director between William F. Donovan, M.D.
and the Company dated effective
March 1, 1995 /1/Same
10.109 Promissory Note for $600,000 by the Company
to First Interstate Bank of Texas, N.A.
dated May 15, 1995 /1/Same
10.110 Amendment to Loan Agreement dated January 30, 1995
by and among the Company, Northshore Orthopedics
Assoc., PhysiCare, L.L.P., and First Interstate
12
<PAGE>
Exhibit No. Exhibit Title Filed As
----------- --------------------------------- --------------
Bank of Texas, N.A. dated effective May 15, 1995 /1/Same
10.111 Commercial Guarantee by PhysiCare, L.L.P. to
First Interstate Bank of Texas, N.A. dated May 15,
1995 /1/Same
Item 6 (b) Reports on Form 8-K
This item is not applicable.
-----------------
/1/Filed herewith
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DRCA MEDICAL CORPORATION
(Registrant)
Jose E. Kauachi Jefferson R. Casey
--------------------------------------- -------------------------------
Jose E. Kauachi Jefferson R. Casey
President, Chief Executive Officer Senior Vice President, Treasurer
and Chairman of the Board (Principal Financial & Accounting
Officer), and Secretary
Date: August 11, 1995
14
<PAGE>
*** WHERE REFERENCES TO "**CONFIDENTIAL
INFORMATION**" HAVE BEEN MADE WITHIN THIS
AGREEMENT, CERTAIN CONFIDENTIAL
INFORMATION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISION ***
MANAGEMENT SERVICES AGREEMENT
between
DRCA HOUSTON CLINICS, INC.
a Texas corporation,
and
PHYSICARE, L.L.P.
a registered limited liability partnership
Effective March 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
RECITALS.............................................................. 1
I. DEFINITIONS...................................................... 2
1.1 Agreement................................................... 2
1.2 Budget...................................................... 2
1.3 Confidential Information.................................... 2
1.4 Management Fee.............................................. 2
1.5 Managing Physician.......................................... 2
1.6 Medical Practice............................................ 2
1.7 Medical Services............................................ 2
1.8 Medical Practice Account.................................... 2
1.9 Medical Practice Expense.................................... 2
1.10 Office...................................................... 4
1.11 Physician................................................... 4
1.12 Manager Expense............................................. 4
1.13 State....................................................... 4
1.14 Term........................................................ 4
II. APPOINTMENT AND AUTHORITY OF THE MANAGER......................... 4
2.1 Appointment................................................. 4
2.2 Authority................................................... 4
2.3 Patient Referrals........................................... 4
2.4 Additional Financial Authority.............................. 5
III. COVENANTS AND RESPONSIBILITIES OF THE MANAGER.................... 5
3.1 Office and Equipment........................................ 5
3.2 Supplies.................................................... 6
3.3 Support Services............................................ 6
3.4 Quality Assurance, Risk Management, and Utilization Review.. 6
3.5 Licenses and Permits........................................ 6
3.6 Marketing and Public Relations.............................. 6
3.7 Personnel................................................... 6
3.8 Contract Negotiations....................................... 7
3.9 Billing and Collection...................................... 7
3.10 Medical Practice Account.................................... 9
3.11 Fiscal Matters.............................................. 9
3.11-1 Annual Budget....................................... 9
3.11-2 Accounting and Financial Records.................... 9
3.11-4 Review of Accounting and Financial Records.......... 10
3.11-5 Tax Returns and Taxation Issues..................... 10
(a) In General...................................... 10
(b) Sales and Use Taxes............................. 10
3.12 Reports and Records......................................... 11
</TABLE>
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3.12-1 Medical Records..................................... 11
3.12-2 Other Reports and Records........................... 11
3.13 Recruitment of Medical Practice Personnel and Physicians.... 11
3.14 Confidentiality............................................. 11
3.15 Manager's Insurance......................................... 11
3.16 Indemnification by Manager.................................. 12
3.17 No Warranty................................................. 12
IV. COVENANTS AND RESPONSIBILITIES OF MEDICAL PRACTICE............... 12
4.1 Organization and Operation.................................. 12
4.2 Medical Practice Personnel.................................. 12
4.2-1 Physician Personnel.................................. 12
4.3 Professional Standards...................................... 13
4.4 Medical Services............................................ 13
4.5 Peer Review/Quality Assurance............................... 13
4.6 Medical Practice's Insurance................................ 14
4.7 Indemnification by Medical Practice......................... 14
4.8 Confidential and Proprietary Information.................... 14
4.9 Noncompetition.............................................. 15
V. FINANCIAL ARRANGEMENT............................................ 16
5.1 Reimbursement of Expenses................................... 16
5.2 Amount of Management Fees................................... 16
5.3 Payment of Management Fee................................... 17
5.4 Adjustments................................................. 17
5.5 Accounts Receivable......................................... 17
VI. TERM AND TERMINATION............................................. 18
6.1 Initial and Renewal Term.................................... 18
6.2 Termination................................................. 18
6.2-1 Termination By The Manager........................... 18
6.2-2 Termination By Medical Practice...................... 19
6.2-3 Termination by Agreement............................. 19
6.2-4 Legislative, Regulatory or Administrative Change..... 19
6.2-5 Termination On Notice of Default..................... 20
6.3 Effects of Termination...................................... 20
VII. MISCELLANEOUS.................................................... 20
7.1 Administrative Services Only................................ 20
7.2 Status of Contractor........................................ 20
7.3 Notices..................................................... 21
7.4 Governing Law............................................... 21
7.5 Assignment.................................................. 21
7.6 Waiver of Breach............................................ 22
7.7 Enforcement................................................. 22
7.8 Gender and Number........................................... 22
7.9 Additional Assurances....................................... 22
7.10 Consents, Approvals, and Exercise of Discretion............. 22
7.11 Dispute Resolution.......................................... 22
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7.12 Force Majeure............................................... 22
7.13 Severability................................................ 23
7.14 Divisions and Headings...................................... 23
7.15 Amendments and Agreement Execution.......................... 23
7.16 Entire Agreement............................................ 23
</TABLE>
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MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made and entered
into effective as of the 1st day of March, 1995, by and between DRCA Houston
Clinics, Inc., a Texas corporation ("Manager"), and PhysiCare, L.L.P. ("Medical
Practice").
RECITALS:
This Agreement is made with reference to the following facts:
A. Medical Practice is a duly formed and validly existing Texas
registered limited liability partnership consisting of professional
associations.
B. Medical Practice is formed for and engaged in the conduct of a medical
practice and the provision of medical services to the general public in the
State of Texas through individual physicians who are licensed to practice
medicine in the State of Texas and who are employed or otherwise retained by
Medical Practice.
C. Manager is a duly formed and validly existing Texas corporation, which
is in the business of providing administrative and related services to
professional associations, physicians, and other professional health-care
entities and individuals. Manager personnel are experienced in the design,
development, financing, equipping, staffing, accounts receivable management, and
marketing of medical practices.
D. Medical Practice desires to focus its energies, expertise, and time on
the actual practice of medicine and on the delivery of medical services to
patients, and to accomplish that goal it desires to delegate the increasingly
more complex business aspects of its practice to business persons;
E. Medical Practice wishes to engage Manager to provide the management,
marketing, administrative, and business services that are necessary and
appropriate for the day-to-day administration of the nonmedical aspects of
Medical Practice's medical practice in Texas, and Manager desires to provide
such services, all upon the terms and conditions hereinafter set forth.
F. Medical Practice and the Manager have determined a fair market value
for the services to be rendered by the Manager. Based on this fair market
value, Medical Practice and the Manager have developed a formula to compensate
the Manager that will allow the parties to establish a relationship permitting
each party to devote its skills and expertise to the appropriate
responsibilities and functions.
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NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinabove and hereinafter set forth, the parties agree as follows:
I. DEFINITIONS.
For the purposes of this Agreement, the following terms have the following
meanings, unless otherwise clearly required by the context in which the term is
used.
1.1 AGREEMENT. The term "Agreement" means this Management Services
Agreement between Medical Practice and the Manager and any amendments that may
be adopted from time to time as hereinafter provided.
1.2 BUDGET. The term "Budget" means an operating budget for each fiscal
year as prepared by the Manager.
1.3 CONFIDENTIAL INFORMATION. The term "Confidential Information" means
all of the materials, information and ideas of the Manager, including, without
limitation: operation methods and information, accounting and financial
information, marketing and pricing information and materials, internal
publications and memoranda, and other matters considered confidential by the
Manager.
1.4 MANAGEMENT FEE. The term "Management Fee" means the Manager's monthly
compensation established pursuant to this Agreement.
1.5 MANAGING PHYSICIAN. The term "Managing Physician" means the physician
selected by the partners of Medical Practice to assume overall supervision and
administrative duties related to Medical Practice.
1.6 MEDICAL PRACTICE. The term "Medical Practice" means PhysiCare,
L.L.P., a registered limited liability partnership.
1.7 MEDICAL SERVICES. The term "Medical Services" means medical care and
services, including but not limited to the practice of medicine, and all related
health care services provided by Medical Practice through Medical Practice's
Managing Physician or Physicians or other health-care providers that are
retained by or professionally affiliated with Medical Practice.
1.8 MEDICAL PRACTICE ACCOUNT. The term "Medical Practice Account" means
the bank account of Medical Practice established pursuant to this Agreement.
1.9 MEDICAL PRACTICE EXPENSE. The term "Medical Practice Expense" means
an expense or cost that is incurred by the Manager or Medical Practice and for
which Medical Practice is financially liable. Specifically included in Medical
Office Expense, without limitation, are the following:
1.9-1 the salaries, benefits and other direct costs of all employees
of Manager at the Office and the salaries, benefits and other direct costs
of the nonphysician
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employees of Medical Practice, but not the salaries, benefits or other
direct costs of the Physicians;
1.9-2 the direct cost of any employee or consultant that provides
services at or in connection with the Office for improved clinic
performance, such as management, billing and collections, business office
consultation, accounting and legal services, but only when such services
are coordinated by Manager;
1.9-3 reasonable recruitment costs and out-of-pocket expenses of
Manager or Medical Practice associated with the recruitment of additional
physician employees of Medical Practice;
1.9-4 malpractice insurance expenses for Physicians, Manager
employees, and nonphysician employees and comprehensive and general
liability insurance covering the Office and employees of Medical Practice
and Manager at the Office;
1.9-5 the expense of using, leasing, purchasing or otherwise procuring
the Office and related equipment, including depreciation but not including
monies paid by third parties and expenses related to the amortization of
intangible acquisition costs related to the Office and existing patient
flow available to Partnership upon initiation of this Agreement;
1.9-6 the cost of capital (whether as actual interest on indebtedness
incurred on behalf of Medical Practice or as reasonable imputed interest on
capital advanced by Manager, to finance or refinance obligations of Medical
Practice, purchase medical or nonmedical equipment, or finance new ventures
of Medical Practice;
1.9-7 the reasonable travel expenses associated with attending
meetings, conferences or seminars to benefit Medical Practice;
1.9-8 the cost of medical supplies (including but not limited to
drugs, pharmaceuticals, products, substances, items or medical devices),
office supplies, inventory and utilities other than those medical supplies
or medical inventory owned by Medical Practice on the date of this
Management Services Agreement; and
1.9-9 any State sales tax assessed on those certain enumerated
services in Article IV that have been determined to be taxable services.
1.9-10 any administrative service fees charged to Manager pursuant to
that certain Administrative Services Agreement dated effective August 1,
1993 by and between Manager and DRCA Medical Corporation.
1.10 OFFICE. The term "Office" means any office space that the Manager
leases, owns, or otherwise procures for the use of Medical Practice.
1.11 PHYSICIAN. The term "Physician" means the individually licensed
professionals who are employed or otherwise retained by or associated with
Medical Practice.
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1.12 MANAGER EXPENSE. The term "Manager Expense" means an expense or cost
incurred by the Manager and for which the Manager is financially liable.
1.13 STATE. The term "State" means the State of Texas.
1.14 TERM. The term "Term" means the initial and any renewal periods of
duration of this Agreement.
II. APPOINTMENT AND AUTHORITY OF THE MANAGER.
2.1 APPOINTMENT. Medical Practice appoints the Manager as its sole and
exclusive agent for the management, marketing, and administration of the
business functions and business affairs of Medical Practice in Texas, except as
otherwise specifically agreed in writing by Medical Practice and the Manager,
and the Manager accepts the appointment, subject at all times to the provisions
of this Agreement.
2.2 AUTHORITY. Consistent with the provisions of this Agreement, the Manager
shall have the responsibility and commensurate authority to provide business,
marketing, administrative, and full management services for Medical Practice,
including, without limitation, provision of equipment, supplies, support
services, nonmedical personnel, marketing, office space, management,
administration, financial recordkeeping and reporting, and other business office
services. The Manager is expressly authorized to provide such services in any
reasonable manner the Manager deems appropriate to meet the day-to-day
requirements of the business functions of Medical Practice. Unless an expense
is expressly designated as a Manager Expense in this Agreement, all expenses
incurred by the Manager in providing administrative services pursuant to this
Agreement shall be Medical Practice Expenses. The parties acknowledge and agree
that Medical Practice, through its Physicians, shall be responsible for and
shall have complete authority, responsibility, supervision, and control over the
provision of all Medical Services and other professional health-care services
performed for patients, and that all diagnoses, treatments, procedures, and
other professional health-care services shall be provided and performed
exclusively by or under the supervision of the Physicians as the Physicians, in
their sole discretion, deem appropriate. The Manager shall have and exercise
absolutely no control or supervision over the provision of Medical Services.
2.3 PATIENT REFERRALS. The Manager and the Medical Practice agree that the
benefits to Medial Practice hereunder do not require, are not payment for, and
are not in any way contingent upon the referral, admission, or any other
arrangement for the provision of any item or service of any patient of Medical
Practice to any health care facility, laboratory, or hospital controlled,
managed, or operated by the Manager.
2.4 ADDITIONAL FINANCIAL AUTHORITY. Recognizing the significant financial
commitment to be made by Manager hereunder, Medical Practice specifically grants
to Manager the authority and responsibility to make certain financial decisions
for Medical Practice, including the following:
2.4-1 ** CONFIDENTIAL INFORMATION **
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2.4-2 ** CONFIDENTIAL INFORMATION **
2.4-3 ** CONFIDENTIAL INFORMATION **
2.4-4 ** CONFIDENTIAL INFORMATION **
2.4-5 ** CONFIDENTIAL INFORMATION **
2.4-6 ** CONFIDENTIAL INFORMATION **
Notwithstanding the authority granted herein, Manager shall not be or be deemed
to be a partner of Medical Practice or be deemed to be engaged in the practice
of medicine.
III. COVENANTS AND RESPONSIBILITIES OF THE MANAGER.
During the Term of the Agreement, the Manager shall provide all the
management, marketing, administrative and business services that are necessary
and appropriate for the day-to-day administration of the nonprofessional aspects
of Medical Practice's operations, including without limitation those set forth
in this Article III in accordance with the law and all rules, regulations, and
guidelines of applicable governmental agencies. In satisfying its obligations
hereunder, the Manager may perform any service or provide any material directly
or the Manager may engage an affiliate or a third party to perform any service
or provide any material.
3.1 OFFICE AND EQUIPMENT. As necessary and appropriate, the Manager shall
lease or otherwise procure an Office, shall permit Medical Practice to use of
the Office in return for the payment of a use fee, and shall provide all
equipment, fixtures, furniture, and furnishings deemed reasonably necessary by
the Manager for the operation of the Office and reasonably necessary for the
provision of Medical Services therein. The Manager shall consult with and seek
the advice of Medical Practice in connection with equipping the Office and in
connection with the purchase of additional or replacement equipment to ensure
the necessity and appropriateness of equipment placed in service at the Office.
The Manager shall be responsible for the repair and maintenance of the Office,
consistent with the Manager's responsibilities under the terms of any lease or
other use arrangement, and for the repair, maintenance, and replacement of all
equipment other than such repairs, maintenance and replacement necessitated by
the negligence or willful misconduct of Medical Practice, the Physicians, or
other personnel employed by the Medical Practice, the repair or replacement of
which shall be a Medical Practice Expense.
3.2 SUPPLIES. The Manager shall obtain and provide all reasonable medical,
office, and other supplies, and shall ensure that the Office is at all times
adequately stocked with the supplies that are reasonably necessary and
appropriate for the operation of the Office and the provision of Medical
Services therein; except, however, that Medical Practice shall order, purchase,
stock, and monitor the inventory of pharmaceuticals and other medical supplies,
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substances, or items whose purchase, maintenance, or security require licensure
as a health-care provider or require a permit, registration, certification, or
identification number that requires licensure or certification as a health-care
provider.
3.3 SUPPORT SERVICES. The Manager shall provide or arrange for all printing,
stationery, forms, postage, duplication or photocopying services, and other
support services that are reasonably necessary and appropriate for the operation
of the Office and the provision of Medical Services in the Office.
3.4 QUALITY ASSURANCE, RISK MANAGEMENT, AND UTILIZATION REVIEW. The Manager
shall assist Medical Practice in Medical Practice's establishment and
implementation of procedures to ensure the consistency, quality,
appropriateness, and medical necessity of Medical Services provided by Medical
Practice, and shall provide administrative support for Medical Practice's
overall quality-assurance, risk-management, and utilization-review programs.
Manager shall have no authority to make utilization review or medical necessity
decisions.
3.5 LICENSES AND PERMITS. The Manager shall, on behalf of and in the name of
Medical Practice, coordinate all development and planning processes, and apply
for and use the Manager's reasonable best efforts to obtain and maintain all
federal, State, and local licenses and regulatory permits required for or in
connection with the operation of Medical Practice and equipment (existing and
future) located therein, other than those relating to the practice of medicine
or the administration of drugs by Physicians.
3.6 MARKETING AND PUBLIC RELATIONS. Marketing and public relations services
provided by the Manager shall be provided in accordance with the standards of
medical ethics of the American Medical Association and the Texas Medical
Association and all applicable laws prior to publication or distribution of
marketing or public relations material or information. the Manager shall submit
such material to Medical Practice for its review and approval and shall make the
changes thereto as Medical Practice may direct. The Manager shall be the sole
owner and holder of all right, title, and interest in and to any materials or
documents prepared, purchased, or furnished by the Manager pursuant to this
Agreement.
3.7 PERSONNEL.
3.7-1 Except as specifically provided in this Agreement, the Manager
shall employ or otherwise retain as a Medical Practice Expense and shall be
responsible for selecting, training, supervising, and terminating all
management, administrative, clerical, secretarial, bookkeeping, accounting,
payroll, billing and collection, and other nonprofessional personnel as the
Manager deems reasonably necessary and appropriate for the Manager's
performance of its duties and obligations under this Agreement and for the
operation of the Office. The Manager shall have sole responsibility for
determining the salaries and providing fringe benefits, and for
withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable
law or governmental requirement.
3.7-2 In recognition of the fact that the Manager and the management
and administrative personnel and nonphysician health care personnel
provided to Medical
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Practice by the Manager pursuant to this Agreement may from time to time
perform services for others, this Agreement shall not prevent the Manager
or such personnel from performing services for others or restrict the
Manager from so using the Manager's personnel. The Manager shall use
reasonable efforts, consistent with sound business practices, to honor the
specific requests of Medical Practice with regard to the assignment of the
Managers's personnel; provided, however, that the Manager reserves the sole
right to determine the assignment of its personnel.
3.7-3 The Manager expressly agrees to abide by any and all applicable
federal and/or State equal employment opportunity statutes, rules and
regulations, all as may from time to time be modified or amended.
3.7-4 The Manager shall appropriately prepare, maintain, and file all
requisite reports and statements regarding income tax withholdings,
unemployment insurance, social security, workers' compensation, equal
employment opportunity, or other reports and statements required with
respect to personnel provided by the Manager pursuant to this Agreement.
3.8 CONTRACT NEGOTIATIONS. Upon the request of Medical Practice, the Manager
shall advise Medical Practice with respect to and shall negotiate, either
directly or on Medical Practice's behalf, as appropriate, all contractual
arrangements with third parties that are reasonably necessary and appropriate
for Medical Practice's provision of Medical Services, including, without
limitation, negotiated price agreements with third-party payers, alternative
delivery systems, or other purchasers of group health-care services. Medical
Practice shall not execute any agreement relating to the provision of Medical
Services unless Manager has reviewed the agreement, advised the Medical Practice
on the financial implications of the agreement, and approved the nonmedical
provisions of the agreement. No contract or arrangement regarding the provision
of Medical Services shall be entered into without Medical Practice's consent.
3.9 BILLING AND COLLECTION. On behalf of and for the account of Medical
Practice, the Manager shall establish and maintain credit and billing and
collection policies and procedures, and shall use the Manager's reasonable best
efforts to bill and collect timely all professional and other fees for all
billable Medical Services provided by Medical Practice or the Physicians. the
Manager shall advise and consult with Medical Practice regarding the fees for
Medical Services provided by Medical Practice; it being understood, however,
that Medical Practice shall establish the fees to be charged for Medical
Services and that the Manager shall have no authority whatsoever with respect to
the establishment of such fees. In connection with the billing and collection
services to be provided hereunder, and throughout the Term (and thereafter as
provided in Section 6.3), Medical Practice grants the Manager a special power of
attorney and appoints the Manager as Medical Practice's true and lawful agent
and attorney-in-fact, and the Manager accepts such special power of attorney and
appointment, for the following purposes:
3.9-1 To bill Medical Practice's patients, in Medical Practice's name
and on Medical Practice's behalf, for all billable Medical Services
provided by Medical Practice to patients;
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3.9-2 To bill, in Medical Practice's name and on Medical Practice's
behalf, all claims for reimbursement or indemnification from Blue
Cross/Blue Shield, insurance companies, Medicare, Medicaid, and all other
third-party payers or fiscal intermediaries for all covered billable
Medical Services provided by Medical Practice to patients;
3.9-3 To collect and receive, in Medical Practice's name and on
Medical Practice's behalf, all accounts receivable generated by such
billings and claims for reimbursement, to administer such accounts
including, but not limited to, extending the time of payment of any such
accounts for cash, credit or otherwise; discharging or releasing the
obligors of any such accounts; suing, assigning or selling at a discount
such accounts to collection agencies; or taking other measure to require
the payment of any such accounts; provided, however, that extraordinary
collection measures, such as discharging or releasing obligors or assigning
or selling accounts at a discount to collection agencies shall not be
undertaken without approval of Managing Physician;
3.9-4 To deposit all amounts collected into the Medical Practice
Account which shall be and at all times remain in Medical Practice's name.
Medical Practice covenants to transfer and deliver to the Manager all funds
received by Medical Practice from patients or third- party payers for
Medical Services. Upon receipt by the Manager of any funds from patients or
third-party payers or from Medical Practice for Medical Services, the
Manager shall immediately deposit the funds into the Medical Practice
Account. The Manager shall disburse the deposited funds to creditors and
other persons on behalf of Medical Practice, maintaining records of the
receipt and disbursement of funds as directed by Medical Practice; and
3.9-5 To take possession of, endorse in the name of Medical Practice,
and deposit into the Medical Practice Account any notes, checks, money
orders, insurance payments, and any other instruments received in payment
of accounts receivable for Medical Services.
Upon request of the Manager, Medical Practice shall execute and deliver to the
financial institution wherein the Medical Practice Account is maintained any
additional documents or instruments that may be necessary to evidence or effect
the special power of attorney granted to the Manager by Medical Practice
pursuant to this Section or pursuant to Section 3.10 of this Agreement. The
special power of attorney granted in this Agreement shall be coupled with an
interest and shall be irrevocable except with the Manager's written consent.
3.10 MEDICAL PRACTICE ACCOUNT. The Manager shall have access to the Medical
Practice Account solely for the purposes stated in this Agreement. In
connection with this Agreement and throughout the Term, Medical Practice grants
the Manager a special power of attorney and appoints the Manager as Medical
Practice's true and lawful agent and attorney-in-fact, and the Manager accepts
such special power of attorney and appointment, to deposit into the Medical
Practice Account all funds, fees, and revenues generated from Medical Practice's
provision of Medical Services and collected by the Manager, and to make
withdrawals from the Medical Practice Account for payments specified in this
Agreement and as requested from time to time by Medical Practice.
Notwithstanding the special power of attorney granted to the Manager under this
paragraph, Medical Practice may, upon notice to the Manager, draw checks
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on the Medical Practice Account; provided, however, that Medical Practice shall
neither draw checks on the Medical Practice Account nor request the Manager to
do so if the balance remaining in the Medical Practice Account after such
withdrawal would be insufficient to enable the Manager to pay on behalf of
Medical Practice any Medical Practice Expense attributable to the operations of
the Office or to the provision of Medical Services, and/or any other obligations
of Medical Practice. Disbursements shall be related to, and in an amount to
ensure that, disbursements are consistent with the expenditures authorized by
the Budget. Limits on authority to sign checks and purchase orders shall be
mutually agreed upon by Managing Physician and the Manager.
3.11 FISCAL MATTERS.
3.11-1 ANNUAL BUDGET. Annually and at least thirty (30) days prior to
the commencement of each fiscal year of Medical Practice, the Manager, in
consultation with the Managing Physician, shall prepare and deliver to
Medical Practice a Budget, setting forth an estimate of Medical Practice's
revenues and expenses (including, without limitation, all costs associated
with the services provided by the Manager under this Agreement). The
Manager shall endeavor to manage and administer the operations of Medical
Practice as herein provided so that the actual revenues, costs and expenses
of the operation and maintenance of Medical Practice during any applicable
period of the Medical Practice's fiscal year shall be consistent with the
Budget.
3.11-2 ACCOUNTING AND FINANCIAL RECORDS. The Manager shall establish
and administer accounting procedures, controls, and systems for the
development, preparation, and safekeeping of administrative or financial
records and books of account relating to the business and financial affairs
of Medical Practice and the provision of Medical Services, all of which
shall be prepared and maintained in accordance with generally accepted
accounting principles consistently applied on both a cash and accrual
basis. The Manager shall prepare and deliver to Medical Practice within
ninety (90) days of the end of each calendar year a balance sheet and a
profit-and-loss statement reflecting the financial status of Medical
Practice in respect of the provision of Medical Services as of the end of
the prior calendar year, all of which shall be prepared in accordance with
generally accepted accounting principles consistently applied. In addition,
the Manager shall prepare or assist in the preparation of any other
financial statements or records as Medical Practice may request from time
to time.
3.11-3 PRIORITY OF PAYMENTS. Each month Manager shall apply the
proceeds in the Medical Practice Account in the following manner:
(a) ** CONFIDENTIAL INFORMATION **
(b) ** CONFIDENTIAL INFORMATION **
(c) ** CONFIDENTIAL INFORMATION **
(d) ** CONFIDENTIAL INFORMATION **
(e) ** CONFIDENTIAL INFORMATION **
** CONFIDENTIAL INFORMATION **
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(a) ** CONFIDENTIAL INFORMATION **
(b) ** CONFIDENTIAL INFORMATION **
3.11-4 Review of Accounting and Financial Records. The Managing
Physician shall review all expenditures related to the operation of the
Medical Practice but shall not have the power to prohibit or invalidate any
legitimate expenditure.
3.11-5 TAX RETURNS AND TAXATION ISSUES.
(A) IN GENERAL. The Manager shall arrange for the preparation by
an accountant approved in advance by Medical Practice (which approval
shall not be unreasonably withheld) of all appropriate tax returns and
reports required of Medical Practice. As requested by Medical
Practice, the Manager shall, on behalf of Medical Practice and as a
Medical Practice Expense, protest and/or file applications regarding
regulations, orders, and determinations that are issued by any
governmental taxing authority and that affect or are issued in
connection with Medical Practice's provision of Medical Services.
(B) SALES AND USE TAXES. The Manager and Medical Practice
acknowledge and agree that to the extent that certain of the services
to be provided by the Manager hereunder may be subject to any State
sales and use taxes, the Manager shall have a legal obligation to
collect such taxes from Medical Practice and to remit same to the
appropriate tax collection authorities. Medical Practice agrees to pay
the applicable State sales and use taxes in respect of the portion of
the Management Fee attributable to taxable services. the Manager
agrees to maintain all books, records, and financial reports in a
manner to ensure adequate differentiation of services rendered for
which such sales and use taxes may be levied.
3.12 REPORTS AND RECORDS.
3.12-1 MEDICAL RECORDS. The Manager shall establish, monitor, and
maintain procedures and policies for the timely creation, preparation,
filing, and retrieval of all medical records generated by Medical Practice
in connection with Medical Practice's provision of Medical Services; and,
subject to applicable law, shall ensure that medical records are promptly
available to the Physicians and any other appropriate persons. All medical
records shall be retained and maintained in accordance with all applicable
State and federal laws relating to the confidentiality and retention
thereof. All medical records shall remain the property of the Medical
Practice or the Physician performing the Medical Services.
3.12-2 OTHER REPORTS AND RECORDS. The Manager shall timely create,
prepare, and file such additional reports and records as are reasonably
necessary and appropriate for Medical Practice's provision of Medical
Services, and shall be prepared to analyze and interpret such reports and
records upon the request of Medical Practice.
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3.13 RECRUITMENT OF MEDICAL PRACTICE PERSONNEL AND PHYSICIANS. Upon Medical
Practice's request, the Manager shall perform all administrative services
reasonably necessary and appropriate to recruit potential physician personnel to
become employees of Medical Practice or Partners of Medical Practice. The
Manager shall provide Medical Practice with model agreements to document Medical
Practice's employment, retention, or other service arrangements with such
individuals. It shall be and shall remain the sole and complete responsibility
of Medical Practice to interview, select, contract with, supervise, control, and
terminate all Physicians performing Medical Services or other professional
services, and the Manager shall have no authority whatsoever with respect to
such activities.
3.14 CONFIDENTIALITY. The Manager shall instruct its personnel to keep
confidential any financial, statistical, personal, personnel, or patient
information obtained or encountered relating to Medical Practice or any patient
of Medical Practice. However, the Manager shall not be required to keep any
data confidential that is publicly available, that is obtained by the Manager
from third parties, that was available to the Manager prior to commencement of
this Agreement, or that is required by law to be released.
3.15 MANAGER'S INSURANCE.
3.15-1 ON MANAGER. Throughout the Term, the Manager shall, as a
Manager Expense, obtain and maintain with commercial carriers, through
self-insurance, or by some combination thereof, appropriate worker's
compensation coverage for the Manager's employed personnel provided
pursuant to this Agreement, and professional, casualty, and comprehensive
general liability insurance covering the Manager, Manager's personnel, and
all of the Manager's equipment in such amounts, on such basis, and upon
such terms and conditions as the Manager deems appropriate. Upon the
request of Medical Practice, the Manager shall provide Medical Practice
with a certificate evidencing such insurance coverage.
3.15-2 ON PHYSICIANS. Whenever there is any debt owed to the Manager
by Medical Practice or by a Physician, the Manager may, as a Manager
Expense, obtain and maintain appropriate life and disability insurance and
business overhead insurance coverage for the Managing Physician or for any
Physician indebted to the Manager, which shall be payable to Medical
Practice upon the insured's permanent disability or death and shall be used
by Medical Practice or the retained Physician to repay any debt held by the
Manager and to allow the Medical Practice to continue as a self-sustaining
Medical Practice, provided that the Manager shall be responsible for
obtaining and maintaining such insurance only so long as the Managing
Physician has provided the Manager with a valid assignment of such
benefits. The amount of such insurance shall not exceed the debt then owed
to the Manager by the Medical Practice.
3.16 INDEMNIFICATION BY MANAGER. To the extent not otherwise covered by
insurance, the Manager shall indemnify and hold harmless Medical Practice from
and against any and all liability, losses, damages, claims, causes of action,
and expenses, including reasonable attorney's fees, associated with or directly
or indirectly resulting from any act or omission of the Manager or the personnel
under its supervision. To be entitled to such indemnification, Medical Practice
shall give the Manager prompt written notice of the assertion by a third party
of any claim with
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respect to which Medical Practice might bring a claim for indemnification
hereunder, and in all events must provide such written notice to the Manager
within the applicable period for defense of such claim by the Manager. The
Manager shall, as a Manager Expense, have the right to defend and litigate any
such third-party claim.
3.17 NO WARRANTY. Medical Practice acknowledges that the Manager has not
made and will not make any express or implied warranties or representations that
the services provided by the Manager will result in any particular amount or
level of medical practice or income to Medical Practice.
IV. COVENANTS AND RESPONSIBILITIES OF MEDICAL PRACTICE.
4.1 ORGANIZATION AND OPERATION. Medical Practice, as a continuing condition
of the Manager's obligations under this Agreement, shall at all times during the
Term be and remain legally organized and operated to provide Medical Services in
a manner consistent with all State and federal laws.
4.2 MEDICAL PRACTICE PERSONNEL.
4.2-1 PHYSICIAN PERSONNEL. Medical Practice shall retain, as a Medical
Practice Expense, the number of Physicians (either through direct
contracting or by contracting with a professional association), sufficient
in the sole discretion of Medical Practice, that are necessary and
appropriate for the provision of Medical Services, each of whom shall be
bound by and subject to applicable provisions of this Agreement. Each
Physician shall hold and maintain a valid and unrestricted license to
practice medicine in the State and shall be competent in the practice of
medicine in his specialty. Medical Practice shall enter into and maintain
with each Physician (or professional association) a written employment or
independent contractor agreement, as applicable. Medical Practice shall be
responsible for paying the compensation for all Physicians and any other
physician personnel or other contracted or affiliated physicians, and for
withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable
law. The Manager shall, on behalf of Medical Practice, establish and
administer the compensation with respect to such individuals in accordance
with the written agreement between Medical Practice and each Physician. The
Manager shall neither control nor direct any Physician in the performance
of Medical Services for patients.
4.2-2 NONPHYSICIAN HEALTH-CARE PERSONNEL. All nonphysician health-care
personnel who provide patient-care services in the diagnostic areas of the
Office shall be employed by or retained by Medical Practice and shall be
under Medical Practice's control, supervision, and direction in the
performance of or in connection with Medical Services for patients.
4.3 PROFESSIONAL STANDARDS. As a continuing condition of Medical Practice's
obligations under this Agreement, each Physician must (i) have and maintain a
valid and unrestricted license to practice medicine in the State, (ii) comply
with, be controlled and governed by, and otherwise provide Medical Services in
accordance with applicable federal,
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State, and municipal laws, rules, regulations, ordinances, and orders, and the
ethics and standard of care of the medical community wherein the principle
office of the Medical Practice is located, and (iii) obtain and retain
appropriate medical staff membership with appropriate clinical privileges at any
hospital or health-care facility at which Medical Services are to be provided.
Procurement of temporary staff privileges pending the completion of the medical
staff approval process shall satisfy this provision, provided the Physician
actively pursues full appointment and actually obtains full appointment.
4.4 MEDICAL SERVICES. Medical Practice shall ensure that Physicians and
nonphysician health-care personnel are available as necessary to provide Medical
Services to patients. Medical Practice and the Physicians shall be responsible
for scheduling Physician and nonphysician health-care personnel coverage of all
medical procedures. Medical Practice shall cause all Physicians to exert their
best efforts to develop and promote Medical Practice in a manner designed to
ensure that Medical Practice is able to serve the diverse needs of the
community.
4.5 PEER REVIEW/QUALITY ASSURANCE. Medical Practice shall adopt a peer-
review/quality-assurance program to monitor and evaluate the quality and cost
effectiveness of Medical Services provided by physician personnel of Medical
Practice. Upon the request of Medical Practice, the Manager shall provide
administrative assistance to Medical Practice in performing its peer-
review/quality-assurance activities.
4.6 MEDICAL PRACTICE'S INSURANCE. Medical Practice shall, as a Medical
Practice Expense, obtain and maintain with commercial carriers acceptable to the
Manager and the Medical Practice appropriate worker's compensation coverage for
Medical Practice's employed personnel, if any, and professional and
comprehensive general liability insurance covering Medical Practice and each
Physician. The comprehensive general liability coverage shall be in the minimum
amount of One Hundred Thousand Dollars ($100,000); and professional liability
coverage shall be in the minimum amount of One Million Dollars ($1 Million) for
each occurrence and Three Million Dollars ($3 Million) annual physician
aggregate and Ten Million Dollars ($10 Million) annual policy aggregate. The
insurance policy or policies shall provide for at least thirty (30) days advance
written notice to Medical Practice from the insurer as to any alteration of
coverage, cancellation, or proposed cancellation for any cause. Medical
Practice shall cause to be issued by the insurer or insurers a certificate
reflecting such coverage and shall obtain the consent of the insurer or insurers
to provide prior written notice to the Manager equal to notice given to
Physician of the cancellation or proposed cancellation of insurance for any
cause. ** CONFIDENTIAL INFORMATION **
4.7 INDEMNIFICATION BY MEDICAL PRACTICE. To the extent not otherwise covered
by insurance, Medical Practice shall indemnify and hold harmless the Manager
from and against any and all liability, losses, damages, claims, causes of
action, and expenses, including, without limitation, reasonable attorney's fees
and associated costs, associated with or directly or indirectly resulting from
any act or omission of Medical Practice, its employees, agents, or independent
contractors during the Term. To be entitled to such indemnification, the
Manager
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shall give Medical Practice prompt written notice of the assertion by a third
party of any claim with respect to which the Manager might bring a claim for
indemnification hereunder, and in all events must provide written notice to
Medical Practice within the applicable period for defense of such claim by
Medical Practice. Medical Practice shall, as a Medical Practice Expense, have
the right to defend and litigate any such third-party claim.
4.8 CONFIDENTIAL AND PROPRIETARY INFORMATION. Medical Practice acknowledges
the confidentiality of its relationship with the Manager and of any Confidential
Information of which it may learn or obtain during the Term of this Agreement.
Medical Practice shall not, either during the Term of this Agreement or at any
time after the expiration or sooner termination of this Agreement, directly or
indirectly, disclose to any person or entity other than employees, agents or
independent contractors engaged by Medical Practice, any Confidential
Information obtained or learned by Medical Practice. Medical Practice also
agrees to place any person, including all Physicians, to whom confidential
information is disclosed for the purpose of performance under legal obligation
to treat Confidential Information as strictly confidential.
4.9 NONCOMPETITION. Medical Practice recognizes and acknowledges that the
Manager will incur substantial costs in providing the equipment, support
services, personnel, marketing, management, administration, and other items and
services that are the subject matter of this Agreement, and that in the process
of providing services under this Agreement, Medical Practice will be privy to
financial and confidential information, to which Medical Practice would not
otherwise be exposed. The parties also recognize that the services to be
provided by the Manager will be feasible only if Medical Practice operates an
active practice to which the Physicians associated with Medical Practice devote
their full time and attention.
4.9-1 ** CONFIDENTIAL INFORMATION **
4.9-2 ** CONFIDENTIAL INFORMATION **
4.9-3 ** CONFIDENTIAL INFORMATION **
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4.9-4 ** CONFIDENTIAL INFORMATION **
15
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4.9-5 ** CONFIDENTIAL INFORMATION **
V. FINANCIAL ARRANGEMENT.
5.1 REIMBURSEMENT OF EXPENSES. Medical Practice shall reimburse the Manager
for all out of pocket expenses, direct costs, and reasonable indirect costs paid
or incurred by the Manager on behalf of Medical Practice.
5.2 AMOUNT OF MANAGEMENT FEES.
5.2-1 Medical Practice and the Manager mutually recognize and
acknowledge that the Manager will incur substantial costs and business
risks in arranging for Medical Practice's use of the Office and in
providing the equipment, support services, personnel, marketing, office
space, management, administration, and other items and services that are
the subject matter of this Agreement. Medical Practice and the Manager
further recognize that certain of such costs and expenses can vary to a
considerable degree according to the extent of Medical Practice's business
and services. It is the intent of the parties that the fees paid to the
Manager be reasonable and approximate its costs and expenses plus a
reasonable return considering the investment and risk taken by the Manager
and the value of the services provided by the Manager. In addition to the
reimbursement of expenses and costs described in Section 5.1 above, Medical
Practice shall pay to the Manager a Management Fee as described in Exhibit
A attached hereto and incorporated into this Agreement.
5.2-2 The Management Fee amount shall be re-evaluated on not less than
a yearly basis in the anniversary month of the execution of this Agreement
or as changes in the Medical Practice dictate, to ensure that the
Management Fee reflects the fair market value of the Manager's services.
Payment of the Management Fee is not intended to be and shall not be
interpreted or applied as permitting the Manager to share in Medical
Practice's fees for Medical Services or any other services but is
acknowledged as the parties' negotiated agreement as to the reasonable fair
market value of the equipment, support services, personnel, marketing,
office space, management, administration, and other items and services
furnished by the Manager pursuant to this Agreement, considering the nature
and volume of the services required and the risks assumed by the Manager.
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5.2-3 Notwithstanding the above, the Fixed Fee shall increase each
year by no less than the greater of five percent (5%) of the increase in
the Consumer Price Index for all Urban Consumers.
5.3 PAYMENT OF MANAGEMENT FEE. To facilitate the payment of the Management
Fee and the reimbursement of expenses, Medical Practice expressly authorizes the
Manager to withdraw the Management Fee and other amounts due to the Manager as
reimbursement of expenses from the Medical Practice Account, from time to time
at Manager's sole discretion.
5.4 ADJUSTMENTS. Adjustments to the Management Fee calculation shall be made
as follows:
5.4-1 ** CONFIDENTIAL INFORMATION **
5.4-2 ** CONFIDENTIAL INFORMATION **
5.5 ** CONFIDENTIAL INFORMATION **
5.5-1 ** CONFIDENTIAL INFORMATION **
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5.5-2 ** CONFIDENTIAL INFORMATION **
VI. TERM AND TERMINATION.
6.1 INITIAL AND RENEWAL TERM. The Term of this Agreement shall be for an
initial period of twenty (20) years after the effective date of this Agreement
and shall be automatically renewed for successive five (5) year periods
thereafter, provided that neither the Manager nor the Medical Practice shall
have given notice of termination of this Agreement at least one hundred twenty
(120) days but not more than one hundred fifty (150) days before the end of the
initial twenty-year term or any subsequent five-year period, unless otherwise
terminated in accordance with this Agreement.
6.2 TERMINATION.
6.2.1 Termination By The Manager. The Manager may terminate this
Agreement immediately upon the occurrence of any one of the following
events:
(a) The revocation, suspension, cancellation, surrender, or
restriction of the Managing Physician's license to practice medicine
in the State;
(b) Medical Practice's loss or suspension of its Medicare or
Medicaid provider number and/or Medical Practice's restriction from
treating beneficiaries of the Medicare or Medicaid programs; or
(c) The dissolution of Medical Practice or the filing of a
petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or any other action taken voluntarily or involuntarily
under any state or federal statute for the protection of debtors.
(d) Medical Practice fails to generate a level of gross billings
for Medical Services in excess of the amount specified in Exhibit D,
which exhibit may be modified or amended by the Manager if Medical
Practice adds/removes Partners, changes the number of Physicians under
contract, or adds clinic locations or ancillary services.
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6.2-2 TERMINATION BY MEDICAL PRACTICE. Medical Practice may terminate
this Agreement upon thirty (30) days prior written notice upon the
occurrence of any one of the following events:
(a) The dissolution of Manager or the filing of a voluntary or
involuntary petition in bankruptcy, an assignment for the benefit of
creditors, or any other action taken voluntarily or involuntarily
under any state or federal statute for the protection of debtors.
(b) ** CONFIDENTIAL INFORMATION **
6.2-3 TERMINATION BY AGREEMENT. If Medical Practice and the Manager
shall mutually agree in writing, this Agreement may be terminated on the
date specified in the written agreement.
6.2-4 LEGISLATIVE, REGULATORY OR ADMINISTRATIVE CHANGE. If there shall
be a change in the Medicare or Medicaid laws, regulations or general
instructions, new case law interpretations, the adoption of new
legislation, or a change in any third-party reimbursement system, any of
which materially affects the manner in which either party may perform or be
compensated for its services under this Agreement, the parties shall
immediately propose a new service arrangement or basis for compensation for
the services furnished pursuant to this Agreement. If such notice of new
service arrangement or basis for compensation is given and if the Manager
and Medical Practice are unable within thirty (30) days thereafter to agree
upon a new service arrangement or basis for compensation, either party may
terminate this Agreement by thirty (30) days notice to the other on any
future date specified in the notice.
6.2-5 TERMINATION ON NOTICE OF DEFAULT. If either party shall give
notice to the other that the other party has substantially defaulted in the
performance of any other obligation under this Agreement, and the default
shall not have been cured within sixty (60) calendar days following the
giving of the notice, the party giving notice shall have the right to
terminate this Agreement upon thirty (30) days notice to the other party.
6.3 EFFECTS OF TERMINATION. Upon termination of this Agreement, as
hereinabove provided, neither party shall have any further obligations under
this Agreement except for (i) obligations accruing prior to the date of
termination, including, without limitation, payment of
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the Management Fee relating to services provided prior to the termination of
this Agreement and (ii) obligations, promises, or covenants set forth in this
Agreement that are expressly made to extend beyond the Term, including, without
limitation, indemnities and noncompetition provisions.
** CONFIDENTIAL INFORMATION **
VII. MISCELLANEOUS.
7.1 ADMINISTRATIVE SERVICES ONLY. Nothing in this Agreement is intended or
shall be construed to allow the Manager to exercise control or direction over
the manner or method by which Medical Practice and its Physicians perform
Medical Services or other professional health-care services. The rendition of
all Medical Services, including, but not limited to, emergency medicine and the
prescription or administration of medicine and drugs, shall be the sole
responsibility of Medical Practice and its Physicians, and the Manager shall not
interfere in any manner or to any extent therewith. Nothing in this Agreement
shall be construed to permit the Manager to engage in the practice of medicine,
it being the sole intention of the parties that the services to be rendered to
Medical Practice by the Manager are solely for the purpose of providing
nonmedical management and administrative services to Medical Practice so that
Medical Practice can devote its full time and energies to the professional
conduct of its medical practice and to the provision of Medical Services to its
patients and not to administration, marketing, or practice management.
7.2 STATUS OF CONTRACTOR. It is expressly acknowledged that the parties are
independent contractors, and nothing in this Agreement is intended and nothing
shall be construed to create an employer-employee, partnership, joint-venture,
or other type of relationship, or to allow either party to exercise control or
direction over the manner or method by which the other performs the services
that are the subject matter of this Agreement; provided always that the services
to be provided under this Agreement shall be furnished in a manner consistent
with the standards governing those services and the provisions of this
Agreement. Each party understands and agrees that (i) the other will not be
treated as an employee for federal tax purposes, (ii) neither will withhold on
behalf of the other any sums for income tax, unemployment insurance, social
security, or any other withholding pursuant to any law or requirement of any
governmental body or make available any of the benefits afforded to its
employees, (iii) all of such payments, withholdings, and benefits, if any, are
the sole responsibility of the party incurring the liability, and (iv) each will
indemnify and hold the other harmless from any and all loss or liability arising
with respect to such payments, withholdings, and benefits, if any.
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7.3 NOTICES. Any notice, demand, or communication required, permitted, or
desired to be given under this Agreement shall be deemed effectively given when
in writing and personally delivered or mailed by prepaid certified or registered
mail, return receipt requested, addressed as follows:
MEDICAL PRACTICE:
-----------------------------------
-----------------------------------
-----------------------------------
MANAGER: DRCA Houston Clinics, Inc.
Three Riverway, Suite 1430
Houston, Texas 77056
ATTN: President
or to another address, or to the attention of another person or officer, that
either party may designate by written notice.
7.4 GOVERNING LAW. This Agreement shall be governed by the laws of the State
of Texas and is performable and shall be enforceable in Harris County, Texas.
The federal and state courts of Harris County, Texas shall be the exclusive
courts of jurisdiction and venue for any litigation, special proceeding, or
other proceeding as between the parties that may be brought in connection with
or by reason of, or arise out of, this Agreement.
7.5 ASSIGNMENT. Except as may specifically provided in this Agreement to the
contrary, this Agreement shall inure to the benefit of and be binding upon the
parties and their respective legal representatives, successors, and assigns;
provided, however, that Medical Practice may not assign this Agreement without
the prior written consent of the Manager, which consent the Manager may withhold
in its sole discretion. ** CONFIDENTIAL INFORMATION **
Any breach of this provision, whether or not void or voidable, shall constitute
a material breach of this Agreement, and in the event of such a breach, the
Manager may terminate this Agreement upon twenty-four (24) hours notice to
Medical Practice. The Manager shall have the right (i) to assign its rights and
obligations under this Agreement to any third party and (ii) collaterally to
assign its interest in this Agreement and its right to collect Management Fees
under this Agreement to any financial institution or other third party without
the consent of Medical Practice.
7.6 WAIVER OF BREACH. The waiver by either party of a breach or violation of
any provision of this Agreement shall not operate as, or be construed to
constitute, a waiver of any subsequent breach of the same or another provision.
7.7 ENFORCEMENT. If either party resorts to legal action to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover the costs and expenses of the action, including, without
limitation, reasonable attorneys' fees.
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7.8 GENDER AND NUMBER. Whenever the context of this Agreement requires, the
gender of all words shall include the masculine, feminine, and neuter, and the
number of all words shall include the singular and plural.
7.9 ADDITIONAL ASSURANCES. Except as may be specifically provided in this
Agreement to the contrary, the provisions of this Agreement shall be self-
operative and shall not require further agreement by the parties; provided,
however, at the request of either party, the other party shall execute any
additional instruments and take any additional acts that are reasonable and that
the requesting party may deem necessary to effectuate this Agreement.
7.10 CONSENTS, APPROVALS, AND EXERCISE OF DISCRETION. Whenever this
Agreement requires any consent or approval to be given by either party or either
party must or may exercise discretion, the parties agree that the consent or
approval shall not be unreasonably withheld or delayed and that the discretion
shall be reasonably exercised.
7.11 DISPUTE RESOLUTION. Manager and Managing Physician shall use good
faith negotiation to resolve any dispute that may arise under this Agreement.
In the event Manager and Managing Physician cannot reach agreement on any issue,
Medical Practice shall call a meeting of its partners, who shall vote on whether
to agree with Manager or Managing Physician on the issue in dispute. If the
partners vote to agree with the Managing Physician, and the parties remain in
disagreement, the issue shall be submitted by either party to binding
arbitration according to the rules of arbitration of the National Health Lawyers
Association. Arbitration shall take place in Houston, Texas.
7.12 FORCE MAJEURE. Neither party shall be liable or deemed to be in
default for any delay or failure in performance under this Agreement or other
interruption of service deemed to result, directly or indirectly, from acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by either party's employees, or any other similar cause
beyond the reasonable control of either party unless the delay or failure in
performance is expressly addressed elsewhere in this Agreement.
7.13 SEVERABILITY. The parties have negotiated and prepared the terms of
this Agreement in good faith and with the intent that every term, covenant, and
condition be binding upon and inure to the benefit of the respective parties.
Accordingly, if any one or more of the terms, provisions, promises, covenants,
or conditions of this Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void, or
voidable for any reason whatsoever by a court of competent jurisdiction, that
provision shall be as narrowly construed as possible, and all the remaining
terms, provisions, promises, covenants, and conditions of this Agreement or
their application to other persons or circumstances shall not be affected
thereby and shall be valid and enforceable to the fullest extent permitted by
law. To the extent this Agreement is in violation of applicable law, then the
parties agree to negotiate in good faith to amend the Agreement, to the extent
possible consistent with its purposes, to conform to applicable law.
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7.14 DIVISIONS AND HEADINGS. The divisions of this Agreement into articles,
sections, and subsections and the use of captions and headings in connection
therewith is solely for convenience and shall not affect in any way the meaning
or interpretation of this Agreement.
7.15 AMENDMENTS AND AGREEMENT EXECUTION. This Agreement and its amendments,
if any, shall be in writing and may be executed in multiple copies on behalf of
Medical Practice by its President and on behalf of the Manager by its duly
authorized officer. Each multiple copy shall be deemed an original, but all
multiple copies together shall constitute one and the same instrument.
7.16 ENTIRE AGREEMENT. With respect to the subject matter of this
Agreement, this Agreement supersedes all previous contracts and constitutes the
entire agreement between the parties. Neither party shall be entitled to
benefits other than those specified in this Agreement. No prior oral statements
or contemporaneous negotiations or understandings or prior written material not
specifically incorporated in this Agreement shall be of any force and effect,
and no changes in or additions to this Agreement shall be recognized unless
incorporated by amendment as provided in this Agreement, such amendment(s) to
become effective on the date stipulated in the amendment(s). The parties
specifically acknowledge that, in entering into and executing this Agreement,
the parties rely solely upon the representations and agreements in this
Agreement and upon no others.
IN WITNESS WHEREOF, Medical Practice and the Manager have caused this
Agreement to be executed by their duly authorized representatives, all as of the
day and year first above written.
MEDICAL PRACTICE: PHYSICARE, L.L.P.
Occupational Medicine Associates of Houston, P.A.
an Authorized Partner
By: /s/ William F. Donovan, M.D.
----------------------------------
Name William F. Donovan
----------------------------------
Title President
----------------------------------
MANAGER: DRCA HOUSTON CLINICS, INC.
By: /s/ Jose E. Kauachi
----------------------------------
Name: Jose E. Kauachi
----------------------------------
Title: President & CEO
----------------------------------
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Exhibit A
** CONFIDENTIAL INFORMATION **
24
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Exhibit D
** CONFIDENTIAL INFORMATION **
25
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EXHIBIT 10.100
EQUIPMENT LEASE AGREEMENT
This EQUIPMENT LEASE AGREEMENT (this "Lease") is made and entered into this
___ day of _______, 1995 by and between Northshore Orthopedics, Assoc.,
("Lessor"), and DRCA Houston Clinics, Inc., a Texas corporation ("Lessee").
1. DEFINITIONS AND BASIC PROVISIONS. This Section contains definitions
and basic provisions for this Lease. Other provisions of this Lease may explain
and define these definitions and basic provisions and are to be read in
conjunction with these definitions and basic provisions. Each reference in this
Lease to any of the following definitions and basic provisions shall be
construed to incorporate each term set forth under such definition or provision.
a. COMMENCEMENT DATE: March 1, 1995.
b. RENTAL TERM: Three (3) years beginning on the Commencement Date or such
other date as is specified in this Lease, and ending on February 28, 1998.
c. EQUIPMENT: The personal property described on Exhibit A together with
all replacements, parts, repairs, additions and accessories incorporated therein
or affixed thereto. The Equipment will be used by Lessee at the following
address:
12455 East Freeway
Houston, Texas 77015
6200 Gulf Freeway, Suite 100
Houston, Texas 77023
or at such other locations as may be mutually agreed upon by Lessee and Lessor.
d. RENT: shall mean the annual aggregate amount of Thirty Thousand Dollars
($30,000.00) which shall be payable in twelve (12) equal monthly installments of
Two Thousand Five Hundred Dollars ($2,500.00) per month.
2. LEASE. Lessor leases to Lessee, and Lessee leases from Lessor, the
Equipment.
3. TERMS AND RENTALS. This Lease shall commence on the Commencement Date
and shall continue for the Rental Term. For the Rental Term, Lessee agrees to
pay Lessor aggregate rentals equal to the sum of all rental payments specified
herein. The first rental payment is due on the Commencement Date and remaining
rents on the same day of each consecutive month, quarter or annually thereafter
as designated on the reverse side.
<PAGE>
4. WARRANTIES. LESSOR MAKES NO WARRANTIES, EXPRESSED OR IMPLIED,
INCLUDING THOSE OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE WITH RESPECT
TO THE EQUIPMENT AND DISCLAIMS ANY SUCH WARRANTIES.
5. TITLE; IDENTIFICATION; PERSONAL PROPERTY. No right, title or interest
in the Equipment shall pass to Lessee other than, conditioned upon Lessee's
compliance with and fulfillment of the terms and conditions of this Lease, the
right to maintain possession and use the Equipment for the full Rental Term.
Lessor may require markings to be affixed to Equipment indicating Lessor's
interest. Lessor and Lessee hereby confirm their intent that the Equipment
shall always remain and be deemed personal property even though the Equipment
may hereafter become attached to realty. Lessee agrees not to sell, assign,
sublet, or otherwise encumber or suffer a lien upon or against any interest in
this Lease or the Equipment or to remove the Equipment from its place of
installation without Lessor's prior written consent.
6. TAXES; INDEMNITY. Lessee agrees to comply with all laws, regulations
and orders relating to this Lease and to pay Lessor when due, all license fees,
assessments, and sales, use, property, excise and other taxes now or hereafter
imposed by any government body or agency upon any Equipment, or the use thereof,
exclusive, however, of any taxes based on the net income of Lessor, and to
assume the risk of liability arising from or pertaining to the possession,
operation or use of such Equipment. Lessee does hereby agree to indemnify, hold
safe and harmless from and covenants to defend Lessor against any and all
claims, costs, expenses, damages and liability arising from or pertaining to the
use, possession, operation or transportation of such Equipment. Any fees, taxes
or other lawful charges paid by Lessor upon failure of Lessee to make such
payments shall, at Lessor's option, become immediately due from Lessee to
Lessor. The indemnities contained in this paragraph shall survive the
termination of this Lease.
7. USE; INSPECTION. Lessee will cause Equipment to be operated in
accordance with the applicable operations manual, and for business purposes
only. Lessor shall have the right during normal business hours to enter upon
Lessee's premises for the purpose of confirming the condition and proper
maintenance of the Equipment.
8. EVENTS OF DEFAULT. An event of default shall occur hereunder if Lessee
(i) fails to pay any installment of rent or other payment required hereunder
when due and such failure continues unremedied for five (5) days after written
notice is sent from Lessor; or (ii) fails to perform or observe any other
covenant or agreement to be performed or observed by it hereunder, or breaches
any representation, and such failure or breach shall continue unremedied for ten
(10) days after written notice is sent from Lessor; or (iii) attempts to remove,
sell, encumber, or sublet any item of Equipment; or (iv) shall become insolvent
or make an assignment for the benefit of creditors, or a trustee or receiver
shall be appointed for Lessee or for a substantial part of its property, or
bankruptcy, reorganization or insolvency proceedings shall be instituted by or
against Lessee; (v) shall suffer an adverse material change in its financial
condition from the date hereof; or (vi) shall be in default under any other
agreement executed with Lessor or any of its affiliates.
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9. REMEDIES. Upon the occurrence of any event of default and at any time
thereafter Lessor may, in its sole discretion, do any one or more of the
following: (i) upon notice to Lessee, terminate this Lease; (ii) declare all
sums due and to become due hereunder for the full Rental Term of the Lease
immediately due and payable; (iii) demand that Lessee return all Equipment to
Lessor in accordance with Section 14 hereof; (iv) enter the premises where such
Equipment is located and take immediate possession of and remove the same,
without liability to Lessor or its agents for such entry, or for damage to
property or otherwise; (v) sell any or all of the Equipment at public or private
sale, with or without notice to Lessee or advertisement, or otherwise dispose
of, lease to others or keep idle such Equipment, all free and clear of any
rights of Lessee; or (vi) exercise any other right or remedy which may be
available to it under the Uniform Commercial Code or any other applicable law,
or proceed by court action to enforce the terms hereof or to recover damages for
the breach hereof. In addition Lessee shall be liable for all legal fees and
other costs and expenses resulting from the foregoing defaults or the exercise
of Lessor's remedies, including placing any Equipment in the condition required
by Section 13 hereof. If this Lease be deemed at any time to be one intended as
security then Lessee agrees that the Equipment shall secure, in addition to the
indebtedness set forth herein, all other indebtedness at any time owing by
Lessee to Lessor or any of its affiliates. No remedy referred to in this
paragraph is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to above or otherwise available to Lessor
at law or in equity. To the extent permitted by applicable law, Lessee hereby
waives any rights now or hereafter conferred by statute or otherwise which may
require Lessor to sell, lease or otherwise use any Equipment in mitigation of
Lessor's damages as set forth in this paragraph or which may otherwise limit or
modify any of Lessor's rights or remedies under this paragraph.
10. NOTICES. Any notice to be given to Lessor under the terms of this
Lease shall be in writing and shall be personally delivered or sent by
registered or certified mail, postage prepaid, addressed to Lessor at the
address to which rental payments are then being made. Any notice to be given
Lessee under the terms of this Lease shall be in writing and shall be personally
delivered or sent by registered or certified mail, postage prepaid, addressed to
Lessee at the address listed in Section 1 as the location where the Equipment
will be used. Either party may, from time to time, upon ten (10) days advance
written notice to the other party, specify another address to which subsequent
notices shall be sent.
11. REPAIRS, LOSS AND DAMAGE. Lessee, at its own cost and expense, shall
keep all Equipment in good repair, condition and working order, and shall
furnish all parts and servicing required thereof, except to the extent that such
repairs, parts and servicing are covered by Lessor's standard warranty or are
covered under Lessor's standard maintenance agreement, if entered into by
Lessee. All such parts shall immediately become the property of Lessor and part
of the Equipment for all purposes hereof. In the event that any item of
Equipment shall become lost, stolen, or damaged beyond repair for any reason, or
in the event of any condemnation, or seizure or requisition of title to or use
of such item, Lessee shall promptly pay to Lessor the installments of rent for
the remaining unpaid balance hereunder for such item, whereupon Lessor will
transfer to Lessee, without recourse or warranty, all of Lessor's rights, title
and interest, if any, in such item.
3
<PAGE>
12. INSURANCE. Lessee shall obtain and maintain for the entire Rental
Term of this Lease, property damage and liability insurance and insurance
against loss or damage to the Equipment including, without limitation, loss by
fire (including so called extended coverage), theft, collision and such other
risks of loss as are customarily insured against on the type of Equipment leased
hereunder and by the business in which Lessee is engaged, in such amounts, in
such form and with such insurers as shall be satisfactory to Lessor, provided,
however, that the amount of insurance against loss or damage to the Equipment
shall not be less than the installments of rent then remaining unpaid hereunder.
Each insurance policy will name Lessor as an insured and Lessor shall be given
at least ten (10) days prior written notice of any alteration in the terms of
such policy. Lessee further agrees to give Lessor prompt notice of any damage
to, or loss of, the Equipment, or any part thereof.
13. RETURN OF EQUIPMENT. Upon the expiration or termination of the Rental
Term or upon demand of Lessor as set forth in Section 10, Lessee, at its own
risk and expense, will immediately return the Equipment to Lessor in the same
condition as when delivered, ordinary wear and tear excepted, at such location
as Lessor shall designate.
14. FURTHER ASSURANCES. Lessee will promptly execute and deliver to
Lessor such further documents and take such further action as Lessor may request
in order to more effectively carry out the intent and purpose of this Lease.
Lessee represents and warrants that all credit and financial information
submitted to Lessor herewith or at any other time is true and correct.
15. ASSIGNMENT AND SUBLEASE BY LESSEE. Without the prior written consent
of Lessor, Lessee shall not (a) assign, transfer, pledge or hypothecate this
Lease, the Equipment or any part thereof, or any interest therein, or (b) sublet
the Equipment or any part thereof. Any assignment or sublease with the prior
written consent of Lessor shall not relieve Lessee of any of its obligations
under this Lease. Any sublease, assignment, transfer, pledge or hypothecation
without Lessor's consent shall be void.
16. ASSIGNMENT BY LESSOR. Lessee acknowledges that Lessor may sell and/or
assign its interest in the Equipment and/or this Lease. Lessee agrees that upon
notice of such assignment it shall pay directly to Lessor's assignee without
abatement, deduction or setoff all amounts which become due hereunder, and
further covenants and agrees that it will not assert against Lessor's assignee
any defense or counterclaim or setoff on account of breach of warranty or
otherwise in any action for rent or for possession brought by Lessor's assignee.
Lessee agrees to settle all mechanical, service or other claims with respect to
the equipment directly with the Lessor's assignee. Upon the assignment of the
Lease, Lessor's assignee shall have and be entitled to exercise any and all
discretions, rights and remedies of Lessor hereunder, and all references herein
to Lessor shall include Lessor's assignee, except that said assignee shall not
be chargeable with any obligations or liabilities of Lessor hereunder or with
respect thereof.
17. ATTORNEYS' FEES. In the event of any action at law or suit in equity
concerning this Lease, the prevailing party shall be entitled to a reasonable
sum for its attorneys' fees.
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18. NO REFERRALS. Lessor and Lessee agree that the rent payments to
Lessor and the provision of Equipment to Lessee hereunder do not require, are
not payment for, and are not in any way contingent upon the referral, admission,
or any other arrangement for the provision of any item or service offered by
Lessor to the patients of Lessee in any facility, hospital, skilled nursing
facility, or health care service operated, controlled, or managed by Lessor.
19. MISCELLANEOUS. This Lease may not be amended except in writing and
shall be binding upon and inure to the benefit of the parties hereto, their
permitted successors and assigns. This Lease represents the entire agreement
between the parties, and there are no prior or contemporaneous oral or written
agreements between the parties pertaining to the subject matter of this Lease.
Any provision of this Lease which is unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Time is of the
essence with respect to this Lease. The captions in this Lease are for
convenience only and shall not define or limit any of the terms hereof. This
Lease shall be governed by and construed in accordance with the laws of the
State of Texas.
20. TERMINATION. This Lease shall automatically terminate on the
effective date of any termination of the Contract for Services between Lessor,
as Contractor and PhysiCare, L.L.P., dated of even date herewith.
IN WITNESS WHEREOF, this Lease is hereby executed as of the date first
above set forth:
"LESSOR"
NORTHSHORE ORTHOPEDICS, ASSOCIATES
/s/ WILLIAM F. DONOVAN, M.D.
-----------------------------------
By: William F. Donovan, M.D.
President
"LESSEE"
DRCA Houston Clinics, Inc.
By: /s/ JOSE E. KAUACHI
----------------------------
Name: Jose E. Kauachi
----------------------------
Title: President & CEO
----------------------------
5
<PAGE>
EXHIBIT A
SCHEDULE OF EQUIPMENT
(list type of equipment, make, model, serial number
and aggregate rental fee for that type of equipment)
6
<PAGE>
NORTHSHORE ORTHOPEDICS INVENTORY
<TABLE>
<CAPTION>
<S> <C>
PHYSICAL THERAPY CAST ROOM
Magnatherm unit - 2 Chairs - 2
Chairs - 8 Small Cabinet - 1
Desk Work Cubicals - 3 Treatment tables - 1
Ultrasound Units - 2 Foot stool - 1
Electrical Stimulator Units - 1 IV pole - 1
Fluidotherapy - 1 Goose neck lamps - 2
Traction units - 2 Large trash can - 1
Exercise Bikes - 1 Cast saw - 2
Treadmill - 1 NURSES STATION
Utility carts - 2
Hot pack unit - 1 Desk chairs - 4
Cold pack unit - 1 Desk work areas - 2
Stool - 1 Medicine cart - 2
Trash cans - 3 Trash cans - 5
Foot stools - 4 Computer Terminal - 2
Waiting room seating unit - 1 Copy machine - 2
Treatment tables - 7 Fax machine - 2
Refrigerator - 1
JUDY K & J'S ROOM X-RAY DEPT.
Desk units - 2 Daylite loader - 2
Computer terminals - 2 Processor Kodak - 1
Printer - 1 X-ray tube & table unit - 1
Fax - 1 Card flasher - 1
File cabinets (2 dr) - 3 Chair - 1
Typewriter - 1 Utility cart - 3
Roller desk chairs - 2 Wheel stool - 2
Chairs - 2 Foot stool - 1
X-ray duplication machine - 1
2 drawer file cabinet - 8
HALLWAY Cabinet - 1
Card file - 8
Hall chair units - 6 Trash cans - 2
End tables - 3
EXAM ROOMS 1 - 4 (NSO & 6200) KITCHEN
Trash cans - 14 Tables - 2
Stool - 10 Chairs - 8
Foot stool - 10 Trash can - 1
Exam table - 11 Refrigerator - 1
Chair - 13 Microwave - 1
Scale - 2 Lockers - 3
Wheelchair - 2 CONFERENCE ROOM
Skeleton - 2
View box - 10 Conference table - 1
Chairs - 8
Microwave - 1
Coffee pot - 1
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
<S> <C>
FRONT DESK AREA WAITING ROOM AREA
Printer - 1 Glass book shelf - 1
Video Monitor - 1 Childrens chairs - 2
Work units - 2 Television - 1
Computer terminals - 2 End tables - 5
2 drawer file cabinets - 2 Chairs - 19
Trash cans - 2 Trash cans - 1
Calculators - 2
BUSINESS OFFICE
Printers - 1 Timeclock - 1
Typewriter - 2 CMI Computer - 1
Computer terminal - 5 Modems - 2
Dictaphone - 1 Main printer - 1
Work units - 4 CMI printer - 1
Laser printer - 1 Computer table - 1
Desk chair - 4 Microfiche file cabinet - 1
Trash cans - 4 Chair - 1
2 drawer file cabinet - 3 Bookshelf - 1
FILE ROOM MAIL ROOM
File cabinet units - 7 4 drawer file cabinet - 2
Copier - 1 EMG units - 2
Table - 2 Large table - 1
Microfiche viewer - 1 Chair - 3
Desk chair - 1 Microfiche camera unit - 1
Desk - 1 Desk chairs - 2
Trash can - 2 Utility cart - 1
Stool - 1
STORAGE ROOM CHRIS' OFFICE
Large 2 drawer metal cabinet - 1 Chairs - 2
4 drawer file cabinet - 1 Desk chairs - 2
Metal shelf unit - 2 Computer terminal - 1
5 shelf wood unit - 3 Printer - 1
Locker - 4 Typewriter - 1
Telephone system - 17 phones Desk - 1
Paper shredder - 1 4 drawer file cabinet - 2
Trash can - 2
Personal computer - 1
DR. DONOVAN'S OFFICE
Large desk with chair - 2 Fans - 3
Small desk - 1 Space heaters - 2
Large wall book shelf unit - 1 Computer table - 1
Chairs - 4 Desk chairs (wheels) - 2
Safe - 1 Hexagon table - 7
Television - 1 Fire extinguishers - 3
Trash cans - 2
</TABLE>
<PAGE>
EXHIBIT 10.101
LEASE AGREEMENT
THIS LEASE AGREEMENT, is made effective the 1st day of March, 1995, between
WILLIAM F. DONOVAN, hereinafter referred to as "Lessor," and DRCA HOUSTON
CLINICS, INC., a Texas corporation, hereinafter referred to as "Lessee."
W I T N E S S E T H:
1. DEMISED PREMISES:
A. Lessor, in consideration of the covenants and agreements hereinafter
contained, does hereby demise and lease to Lessee a 4,003 square-foot
(approximately) building and the property at 12445 East Freeway, described in
Exhibit "A", hereinafter referred to as the "demised premises" which is attached
hereto and made a part hereof, as if fully rewritten herein, and situated at
Houston, Harris County, Texas.
2. TERM:
To have and to hold the same, together with all improvements and
appurtenances now and thereafter located therein and thereon, including the
right to entrance and exit over all streets, parking lots and areaways adjacent
thereto, for and during a term of three (3) years, commencing on the 1st day of
March, 1995, and expiring on the 28th day of February, 1998, inclusive, subject,
however, to Paragraph 4 hereof as to effective commencement and also subject to
Paragraph 23 concerning extensions or renewals. However, this lease will
automatically terminate upon the effective date of any termination of Northshore
Orthopedics Assoc.'s
<PAGE>
Contract for Services with PhysiCare, L.L.P., or Lessor's Physician Employment
Agreement with Northshore Orthopedics, Assoc., both executed of even date
herewith.
3. RENTAL:
Lessee shall pay to Lessor as rent for said demised premises, a fixed
rent (hereinafter, "Rent"), in the sum of Three Thousand Three Hundred Thirty
and No/100 Dollars ($3,300.00), per month in the first year of the lease term.
In the second year, and in each succeeding year thereafter, the Rent shall be
increased by a factor of 1.02 times (x) the prior year's annual rentals. For
example, in year two (2), Rent payable monthly shall be $5,538.60, (being
$39,600.00 x 1.02 = $40,392.00 / 12 = $3,366.00 per month); in year three (3),
Rent payable monthly shall be $3,433.32 (being $40,392.00 x 1.02 = $41,199.84 /
12 = $3,433.32 per month); and so on.
The Rent shall be payable in equal monthly installments on the first
day of each and every calendar month during the term of this Lease, with the
first payment to be made subject to the provisions of Paragraph 4, relating to
adjustment for a fractional first month.
4. COMMENCEMENT OF TERM AND RENT:
Anything in this Lease to the contrary notwithstanding, in the event the
day of commencement of Rent thereunder shall occur on a day other than the first
day of the month, the first rental payment shall be adjusted for the
proportionate fraction of the whole month so that all rental payments other than
the first shall be made and become due and payable on the first day of each
month.
2
<PAGE>
5. USE OF PREMISES:
It is understood and agreed that the demised premises being leased will be
used by the Lessee in the operation of a medical clinic, but Lessor agrees the
premises may be used for any lawful purpose.
6. MAINTENANCE OF HEATING AND AIR CONDITIONING PLANT:
Lessor and Lessee will jointly maintain the heating plant and an air
conditioning plant, the roof, the exterior walls, the plumbing (excluding
faucets and similar maintenance items), the electrical system (excluding light
bulbs and similar maintenance items), the foundation, and the parking lot in the
demised premises. The Lessor and Lessee shall equally share the cost of all
repairs and provide all maintenance, adjustments, and replacements promptly as
needed.
7. MAINTENANCE BY LESSEE:
Lessee is fully familiar with the condition of the leased property and
accepts said property as is. Lessee further agrees to fully and promptly
maintain and repair those items in the demised premises for which Lessee is
responsible. All such repairs, replacements, and renewals shall be equal in
quality and class to the original work. Lessee further agrees not to do or
permit any act or thing which might impair the value or the usefulness of the
leased property or any part thereof or commit or permit any waste of the leased
property or any part thereof. Lessor makes no representation or warranty with
respect to the condition of the leased property or its fitness or availability
for any particular use, and neither Lessor nor any successor or assignee shall
be liable for any latent or patent defect therein. Lessee agrees to promptly
surrender the leased premises to the Lessor in the same condition as when
received, ordinary wear and tear and destruction by fire or the elements or
other unavoidable casualties excepted.
3
<PAGE>
8. CARE OF PREMISES:
Lessee agrees to keep the demised premises in a neat and clean condition,
free from danger of damage by fire, and shall refrain from permitting any
nuisance or fire hazard thereon, and shall permit no unlawful or immoral
practice to be carried on within said premises within its knowledge or consent
or by it or any person, and that it will at all times comply in its
occupancy and use of said premises with all ordinances of the City of Houston or
Harris County, and with all state and federal laws and regulations relating
thereto.
9. LIABILITY INSURANCE:
Lessee shall procure and pay the premium for liability insurance in the
amounts of One Million and No/100 Dollars ($1,000,000.00) per occurrence in
respect to injuries to any one person, and Two Million and No/100 Dollars
($2,000,000.00) per occurrence in the aggregate, to protect Lessee and Lessor
against liability for such injury to persons and such damage upon or about the
building on the demised premises, and will cause its agent for insurance to
furnish coverage certification at each renewal period thereof. All policies
shall include Lessor and any first mortgagee as a named insured.
10. ACCESS BY LESSOR:
Lessor, and the authorized representatives of Lessor, shall have the right
to enter the demised premises at all reasonable times to examine the condition
thereof, but such rights shall not be exercised in a manner to interfere
unreasonably with the business of the Lessee. At any time within six (6) months
prior to the expiration of this Lease or any extension or renewal hereof,
Lessor, with the express written permission of Lessee, may show said premises to
prospective purchasers or tenants, and within such period, with the express
written permission
4
<PAGE>
of Lessee, may attach to the building or erect on the premises a notice
advertising said property for sale or letting.
11. UTILITIES AND WASTE DISPOSAL:
Lessee agrees to pay for all utilities used upon the demised premises,
including but not limited to electricity, gas, water, sewer charges, provided
suitable meters are installed to measure Lessee's consumption of same. Lessee
shall provide for the regular removal of all trash, rubbish, and garbage from
the demised premises.
12. CONDEMNATION:
If the premises, in whole or in part, shall be taken or condemned by any
competent authority for any public use or purpose during the term of this Lease
or any extension hereof, this Lease shall terminate as of the date the
condemnation award is paid to the Lessor and all rent shall be adjusted to the
date of such payment. Lessee reserves the right to prosecute its claim for an
award based on its leasehold interest for such taking without impairing any of
the rights of the Lessor. Upon termination of the Lease, Lessor shall be
entitled to keep and receive to the extent herein provided, subject to the
rights of the first mortgagee as hereinafter provided, the total awards made in
any condemnation proceedings, unless the condemning authority shall make
separate awards to the Lessor and Lessee for their respective interests. Lessee
shall be responsible for filing any claim which it may desire to make for
damages to its leasehold estate or to its property situated on the demised
premises. The parties agree that the determination of the condemning authority,
or condemnation court or appellate court, if any, shall be final and binding on
the parties and neither shall share or participate in the separate award of the
other.
5
<PAGE>
13. DEFAULT CLAUSE:
If the demised premises shall be deserted for a period of over thirty (30)
days, or if Lessee shall be adjudicated a bankrupt, or if a trustee or receiver
of Lessee's property shall be appointed, or if Lessee shall make an assignment
for the benefit of creditors, or if default shall at any time be made by Lessee
in the payment of the Rent reserved herein, or any installment thereof for more
than ten (10) days after written notice of such default by the Lessor, or if
there shall be default in the performance of any other covenant, agreement,
condition, rule or regulation herein contained or hereafter established on the
part of the Lessee for thirty (30) days after written notice of such default by
the Lessor, this Lease, if the Lessor so elects shall thereupon become null and
void, and the Lessor shall have the right to re-enter or repossess the
leased property, either by force, summary proceedings, surrender or otherwise,
and dispossess and remove therefrom the Lessee or other occupants thereof and
their effects, without being liable to any prosecution therefor. In such case,
the Lessor may, at its option, relet the demised premiss or any part thereof, as
the agent of the Lessee, and the Lessee shall pay the Lessor the amount by which
the Rent and charges equivalent to Rent reserved herein for the balance of the
term shall exceed the rental income so obtained from reletting the demised
premises for the same period.
14. ASSIGNMENT AND SUBLETTING:
Lessee shall not have the right to sublet the demised premises, or any part
thereof, or to assign this Lease, unless Lessee first obtains the prior written
consent of the Lessor's Assignee, if any, provided further that no such
subletting or assignment shall relieve the Lessee of any of its obligations
hereunder. Each sublease or assignment shall provide that it is subject and
subordinate to the
6
<PAGE>
rights of the Lessor under this Lease and to any renewal, amendment, or
modification thereof, and the rights of any mortgage to which this Lease is
subject or subordinate and to all renewals, modifications, consolidations, and
extensions thereof. The provisions for such subordination shall be self-
operative so that no further instrument of subordination need be required by any
mortgagee.
15. CASUALTY INSURANCE:
Lessee agrees at all times during the term of this Lease to keep all
buildings and improvements appurtenant to the premises insured against fire,
lightning, windstorm, other perils and extended coverage, including vandalism
and malicious mischief for the full replacement value of the lease premises.
Said policies shall be written or endorsed so as to fully protect the Lessor and
the Lessee and shall contain the usual mortgagee's loss payable clause covering
any mortgage made by the Lessor, and shall be payable to them as their
respective interests may appear. Said insurance policies shall provide that they
cannot be canceled or amended except on ten (10) days' prior written notice to
the Lessee and any mortgagee, and that there shall be no subrogation against
Lessee, subtenants or licensees.
16. MUTUAL WAIVER OF SUBROGATION:
Lessor and Lessee each hereby releases the other, and their respective
employees, agents, and every person claiming by, through, or under either of
them, from any and all liability or responsibility (to the other or anyone
claiming by, through or under them by way or subrogation or otherwise) for any
loss or damage to any property (real or personal) caused by fire or any other
insured peril to the extent such fire or peril is covered by that respective
party's insurance
7
<PAGE>
policy if such loss or damage shall have been caused by the fault or negligence
of the other party, their employees or agents or such other tenant or any
employees or agent thereof.
17. FIRE CLAUSE:
The phrase "Total Destruction of the Demised Premises" as used in this
Section is defined as damage to or destruction of more than fifty percent (50%)
of the demised premises by fire or other causes covered by the extended coverage
referred to above.
A. In the event of Total Destruction of the Demised Premises, during the
original term, or in the event of damage to the demised premises less than total
destruction at any time during the term of this Lease, Lessee shall promptly
rebuild or restore the demised premises to as nearly as possible their condition
immediately prior to such destruction or damage, such work to be commenced
within sixty (60) days from the time of disaster, and thereafter prosecuted with
due diligence until such restoration is completed. Should the Lessee fail to
prosecute such restoration work, as provided above, then this Lease shall be
terminated. If the proceeds of insurance shall be insufficient to pay the
entire costs of said repair or restoration and rebuilding, Lessee agrees to
first pay all such costs and expenses representing that deficiency.
B. All rent shall be abated during the period the demised premises are
damaged and untenantable, and for a period of thirty (30) days after the date
reconstruction is completed, or until the date upon which Lessee shall reopen
the business, whichever is earlier.
C. In the event of less than total destruction of the demised premises,
during the period the demised premises are damaged and/or undergoing
reconstruction, all rental shall abate unless Lessee chooses to occupy a portion
of the demised premises, in which event Lessee shall
8
<PAGE>
pay rental in such proportion to the entire rental herein reserved as the area
in the demised premises occupied by Lessee bears to the total space in the
demised premises.
D. In the event of termination of this Lease, any unearned rent paid by
Lessee shall be prorated and refunded to Lessee, with insurance proceeds
following said Lease termination to be paid to Lessor.
18. TAXES:
Lessee agrees to pay all taxes assessed against the premises, or which
arise from the operation of its business and could become a lien against the
premises, during the term of this Agreement or any extension hereof. Lessee
covenants and agrees to pay for any special assessments which may be levied upon
the demised premises, as well as any other charges of every description which
during the term of this lease may be levied on or assessed against the leased
premises.
19. LESSEE'S FIXTURES, EQUIPMENT AND GOODS:
Any and all fixtures, equipment (particularly medical equipment) and goods
installed by Lessee shall be and remain the property of Lessee, and Lessee may,
at any time, remove any and all fixtures, goods, and equipment (particularly
medical equipment) installed by it in or on the demised premises. Lessee shall
promptly repair any damage or injury to the demised premises caused by such
removal. Heating and air conditioning equipment and systems are a part of the
building and shall not be removed.
Lessee will, at its own expense, conform the building fixtures and
appurtenances to applicable federal and state laws as to requirements for
health, welfare and safety of employees of the Lessee and hold the Lessor
harmless from any and all fines, costs or damages which may
9
<PAGE>
be levied against Lessee, if any, by reason of a violation of such law. Lessor
warrants, that to his actual knowledge, upon inquiry, that the demised premises
conform in all respects to applicable federal, state, and local laws and
regulations related to the use of the demised premises for the above stated
purpose.
20. ADDITIONS, ALTERATIONS, OR REMODELING:
Lessee, or any of its assignees or subtenants, shall have the right to make
any alterations, improvements or additions to the demised premises for the
purpose of its business or the business of its assignees or subtenants, provided
such alterations, improvements or additions are made in accordance with the
requirements of local ordinances and public authorities having jurisdiction
thereover, and provided that the value of the property shall not be diminished
thereby. In making such alterations, improvements or additions, the Lessee may
salvage any material or equipment which shall be removed or replaced. Lessor
agrees to promptly sign applications, permits, or consents which may be required
by public authorities, in connection with such alterations, improvements or
additions to the demised premises required by Lessee, its assignees or
subtenants. Lessee shall also have the right to erect, install, maintain, and
operate on the demised premises such equipment, fixtures, and signs as Lessee
may deem advisable. It is understood that any work of any kind made and done
under this paragraph shall be made and done at Lessee's own cost, and Lessee
agrees to indemnify and hold Lessor harmless from any and all mechanics' liens
that may be filed by reason thereof. In the event of the ultimate removal of
any personal property, equipment, or fixtures, including signs, the Lessee
agrees to repair any damage resulting therefrom.
10
<PAGE>
21. COVENANT OF TITLE AND QUIET ENJOYMENT:
Lessor covenants and warrants that it has full right and lawful authority
to enter into this Lease for the term thereof; that Lessor is lawfully vested of
the premises, including the demised premises and parking facilities appurtenant
thereto and has good title thereto, except as noted in the title insurance
policy applicable hereto, and except real estate taxes due but not yet payable,
and that, if Lessee is not in default herein, Lessee's quiet and peaceable
enjoyment of the demised premises during the term of this Lease or any extension
hereof shall not be disturbed or interfered with by anyone.
22. RIGHT TO MORTGAGE:
Lessee, upon request of Lessor, will subordinate this Lease to any first
mortgage which now or hereafter affects the demised premises and to any
renewals, modifications, or extensions of such mortgage. At Lessor's request,
Lessee will execute and deliver such instruments subordinating this Lease to any
first mortgage. In the event the Lessor fails to pay the principal or interest
of any installment thereof due on any such mortgage senior to this Lease, the
Lessee may discharge such obligations and deduct the cost thereof from the
rental then or thereafter due hereunder. Mortgagee will provide Lessee, in
consideration of this subordination clause, a letter signed by an officer of
Mortgagee's firm that Lessee's lease, as contained herein, will be recognized as
valid in the event Mortgagee becomes owner of the demised premises.
23. EXTENSION OR RENEWAL:
Lessee shall have the right and option to renew this Lease and extend the
term hereof for three (3) consecutive periods of five (5) years each, upon such
terms and conditions as are agreed between Lessor and Lessee at least 90 days
prior to the expiration of the initial term hereof.
11
<PAGE>
Lessee may exercise this option by giving Lessor at least sixty (60) days
previous written notice of its election to make each such extension.
24. NOTICES:
All notices or requests under this Lease shall be given by Certified Mail,
to the following addresses, or in the alternative to such other addresses as may
be given in writing.
1. WILLIAM F. DONOVAN
903 Creekwood Way
Houston, Texas 77024
2. DRCA HOUSTON CLINICS, INC.
3 Riverway, Suite 1430
Houston, Texas 77056
ATTN: President
25. SHORT FORM LEASE:
Lessor and Lessee agree to execute at any time a short form lease for
recording purposes, setting forth the legal description of the property, the
term of the lease and reference to other pertinent provisions.
26. LESSOR'S AND LESSEE'S CONSENT:
Lessor and Lessee covenant that whenever their respective consent or
approval is required hereunder, it will not unreasonably withhold or delay such
consent or approval.
27. MISCELLANEOUS:
A. Upon the termination of this Lease, whether by lapse of time or
otherwise, all buildings and improvements then and at such time upon said
demised premises shall belong to Lessor, subject to the terms of Paragraphs 19
and 20 regarding fixtures, equipment and goods of Lessee.
12
<PAGE>
B. One or more waiver of any covenant or condition by Lessor or Lessee
shall not be construed as a waiver of the further breach of the same covenant or
condition, or of an other covenant or condition herein contained.
C. The covenants, conditions, and agreements of this Lease shall be
binding upon and shall inure to the benefit of the heirs, representatives,
successors, and assigns of the parties hereto.
D. This Lease and the terms hereof may be changed or modified only by
execution of such change or modification in writing by the parties hereto, or
their successors, heirs or assigns.
E. If Lessee remains in possession of the demised premises after the
expiration of the term of this Lease, or any renewal or renewals hereof, without
the execution of a new Lease, or of an agreement extending the term hereof, or
without the exercise of the renewal options herein granted to Lessee, Lessee
shall be deemed to be occupying the demised premises as a tenant from month to
month, subject to all of the terms of this Lease as may be applicable to a
month-to-month tenancy, and at the annual Rent provided for herein, prorated on
a monthly basis.
F. The captions, section numbers, article numbers and index appearing in
this Lease are inserted only as a matter of convenience and in no way define,
limit, construe or describe the scope or intent of such sections or articles of
this Lease nor in any way affect this Lease. If any term, covenant, or
condition of this Lease or the application thereof to any person or circumstance
shall, to any extent, be invalid or unenforceable, the remainder of this Lease,
or the application of such term, covenant, or condition to persons or
circumstances other than those
13
<PAGE>
as to which it is held invalid or unenforceable, shall not be affected thereby
and each term, covenant, or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
28. HOLD HARMLESS:
Lessee agrees to indemnify and save harmless the Lessor against all claims,
demands, liabilities, damages, suits, actions, and proceedings or judgment
thereon, including the costs of defending against any suit, action, or
proceeding filed against Lessor on any claim, demand or liability.
29. NET PROVISIONS:
Except as otherwise provided herein, it is the intention of the parties
hereto that the Lessor shall receive a net cash rental without offset, deduction
or other expense of any kind, and that the Lessor shall not be required to make
any expenditures whatsoever in connection with this Lease or to improve, repair,
or maintain the leased premises in any way during the term hereof or any
extension thereof, the Lessee being responsible for and paying all amounts,
liabilities and obligations of all forms and types concerning the leased
premises. Except as set forth in this Lease, the obligations and liabilities of
the Lessee under this Lease shall not be affected by any circumstance or
occurrence whatsoever, and except as specifically provided herein, Lessee does
waive any other rights now or hereafter conferred by statute or otherwise to
quit, terminate or surrender this Lease or the leased property or any part
thereof, or to any abatement, suspension, deferment, diminution, or reduction of
the rent on account of any action or occurrence.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease in duplicate the
day and year first hereinabove written.
LESSOR:
WILLIAM F. DONOVAN
By: /s/ WILLIAM F. DONOVAN
---------------------------------------
WILLIAM F. DONOVAN
LESSEE:
DRCA HOUSTON CLINICS, INC.
By: /s/ JEFF R. CASEY
----------------------------------------
Jeff R. Casey
Senior Vice President
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<PAGE>
*** WHERE REFERENCES TO "**CONFIDENTIAL
INFORMATION**" HAVE BEEN MADE WITHIN THIS
AGREEMENT, CERTAIN CONFIDENTIAL
INFORMATION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISION ***
COLLECTION SERVICES AGREEMENT
THIS COLLECTION SERVICES AGREEMENT ("Agreement") is made and entered
into effective as of the 1st day of March, 1995 ("Effective Date"), by and
between DRCA Houston Clinics, Inc., a Texas corporation ("Collection Agent"),
and Northshore Orthopedics Assoc., a Texas professional association ("Medical
Practice").
RECITALS:
This Agreement is made with reference to the following facts:
A. Medical Practice is a validly existing Texas professional
association formed for and engaged in the conduct and provision of medical
services to the general public in the State of Texas through physicians who are
licensed to practice medicine in the State of Texas and who are employed or
otherwise retained by Medical Practice.
B. Collection Agent is a validly existing Texas corporation that
provides administrative and related services to professional associations,
physicians, and other professional health care entities and individuals.
Collection Agent's personnel are experienced in providing collection services
for medical practices.
C. Medical Practice wishes to engage Collection Agent to provide
collection services for Medical Practice, and Collection Agent desires to
provide such services, all upon the terms and conditions hereinafter set forth.
D. Medical Practice and Collection Agent have negotiated at arms-
length and determined a fair market value for the services to be rendered by
Collection Agent. Based on this fair market value, Medical Practice and
Collection Agent have developed a formula to compensate Collection Agent that
will allow the parties to establish a relationship permitting each party to
devote its skills and expertise to the appropriate responsibilities and
functions.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinabove and hereinafter set forth, the parties agree as follows:
I. APPOINTMENT AND AUTHORITY OF COLLECTION AGENT.
1.1 APPOINTMENT. Medical Practice appoints Collection Agent as its
sole and exclusive agent for the provision of collection services on behalf of
Medical Practice, except as otherwise specifically agreed in writing by Medical
Practice and Collection Agent, and Collection Agent accepts the appointment,
subject at all times to the provisions of this Agreement.
<PAGE>
1.2 AUTHORITY.
A. Consistent with the provisions of this Agreement, Collection Agent
shall have the responsibility and commensurate authority to provide collection
services on behalf of Medical Practice. In satisfying its obligations
hereunder, Collection Agent may perform any service or provide any material
directly or Collection Agent may engage an affiliate to perform any service or
provide any material.
B. Collection Agent will have no involvement in nor exercise any
control over Medical Practice's internal activities and management decisions,
including, but not limited to, decisions regarding Medical Practice membership
or the manner or method by which Medical Practice conducts its salary
allocation.
1.3 PATIENT REFERRALS. Collection Agent and Medical Practice agree
that the benefits to Medical Practice hereunder do not require, are not payment
for, and are not in any way contingent upon a referral or any other arrangement
for the provision of any item or service offered by Collection Agent or any
entity affiliated with Collection Agent of any patient of Medical Practice to
any entity controlled, managed, or operated by Collection Agent.
II. COVENANTS AND RESPONSIBILITIES OF COLLECTION AGENT
2.1 COLLECTION. On behalf of and for the account of Medical
Practice, Collection Agent shall establish and maintain collection policies and
procedures, and shall use Collection Agent's reasonable best efforts to collect
timely all professional and other fees for all billable medical services
provided by Medical Practice or its physicians as such amounts are represented
in Medical Practice's accounts receivable ledger dated 2/28/95, which amounts
represent all uncollected billable services of the Medical Practice as of the
date hereof, a copy of which is attached as Exhibit A (the "Accounts
Receivable"). Collection Agent shall not consult with Medical Practice
regarding the fees for medical services provided by Medical Practice; it being
understood that Medical Practice shall establish the fees to be charged for
medical services, and that Collection Agent shall have no authority whatsoever
with respect to the establishment of such fees. In connection with the
collection services to be provided hereunder, and throughout the term of this
Agreement (and thereafter as provided in Section 5.3), Medical Practice grants
Collection Agent a special power of attorney and appoints Collection Agent as
Medical Practice's true and lawful agent and attorney-in-fact, and Collection
Agent accepts such special power of attorney and appointment, for the following
purposes:
A. To collect and receive, in Medical Practice's name and on Medical
Practice's behalf, all Accounts Receivable, to administer such accounts
including, but not limited to, extending the time of payment of any such
accounts for cash, credit or otherwise; discharging or releasing the obligors of
any such accounts; suing, assigning or selling at a discount such accounts to
collection agencies; or taking other measures to require the payment of any such
accounts Medical Practice shall be responsible for fees, if any, to outside
collection agencies.
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<PAGE>
B. To deposit all amounts collected into the bank account of Medical
Practice established pursuant to this Agreement ("Medical Practice Account"),
which shall be and at all times remain in Medical Practice's name. Medical
Practice covenants to transfer and deliver to Collection Agent all funds
received by Medical Practice from patients or third-party payers for medical
services. Upon receipt by Collection Agent of any funds from patients or third-
party payers or from Medical Practice for medical services, Collection Agent
shall immediately deposit the funds into the Medical Practice Account.
Collection Agent may draw checks on the Medical Practice Account as expressly
authorized herein. Medical Practice will not withdraw funds from the Medical
Practice Account without the prior written consent of Collection Agent. Limits
on authority to sign checks shall be mutually agreed upon by Collection Agent
and Medical Practice; and
C. To take possession of, endorse in the name of Medical Practice,
and deposit into the Medical Practice Account any notes, checks, money orders,
insurance payments, and any other instruments received in payment of accounts
receivable for medical services.
Collection Agent shall have access to the Medical Practice Account solely for
the purposes stated in this Agreement. Upon request of Collection Agent,
Medical Practice shall execute and deliver to the financial institution wherein
the Medical Practice Account is maintained any additional documents or
instruments that may be necessary to evidence or effect the special power of
attorney granted to Collection Agent by Medical Practice pursuant to this
Section. The special power of attorney granted in this Agreement shall be
coupled with an interest and shall be irrevocable except with Collection Agent's
written consent.
2.2 COLLECTION REPORTS. By the 30th of each month, Collection
Agent shall prepare and send to Medical Practice Collection Agent's standard
monthly collection reports for the previous month.
2.3 PATIENT FILES. Collection Agent shall establish a mutually
agreed-upon procedure, including documentation, for the request, use,
maintenance, and return of Medical Practice's patient files.
2.4 ASSUMPTION OF CERTAIN COSTS. Collection Agent shall assume all
costs for postage, phone bills, forms, and supplies used by Collection Agent.
2.5 CONFIDENTIALITY. Collection Agent agrees to keep confidential
and not to take, retain, use, or disclose to others during the term of this
Agreement and for a period of two (2) years thereafter, except as expressly
consented in writing by Medical Practice or by law, any secrets or confidential
technology, proprietary information, strategic plans, patient lists or records,
documents pertaining to Medical Practice's business or financial conditions,
trade secrets of Medical Practice, or any matter or thing ascertained by
Collection Agent through Collection Agent's relationship with Medical Practice,
the use or disclosure of which matter or thing might reasonably be construed to
be contrary to the best interests of Medical Practice. Collection Agent further
agrees that upon termination or expiration of this Agreement, Collection
3
<PAGE>
Agent and each and every one of its members, partners, employees, contractors,
or agents will neither take nor retain, without prior written authorization from
Medical Practice, any papers, patient lists, fee books, files, or other
documents or copies thereof or other confidential information of any kind
belonging to Medical Practice or pertaining to Medical Practice's patients,
business, financial condition, or products. Without limiting other possible
remedies to Medical Practice for the breach of this covenant, Collection Agent
agrees that injunctive or other equitable relief shall be available to enforce
this covenant regarding confidentiality of information.
2.6 INDEMNIFICATION BY COLLECTION AGENT. To the extent not otherwise
covered by insurance, Collection Agent shall indemnify and hold harmless Medical
Practice from and against any and all liability, losses, damages, claims, causes
of action, and expenses, including reasonable attorney's fees, associated with
or directly or indirectly resulting from any act or omission of Collection Agent
or the personnel under its supervision. To be entitled to such indemnification,
Medical Practice shall give Collection Agent prompt written notice of the
assertion by a third party of any claim with respect to which Medical Practice
might bring a claim for indemnification hereunder, and in all events must
provide such written notice to Collection Agent within the applicable period for
defense of such claim by Collection Agent. Collection Agent shall have the
right to defend and litigate any such third-party claim.
III. MEDICAL PRACTICE RESPONSIBILITIES AND OBLIGATIONS.
3.1 ORGANIZATION AND OPERATION. Medical Practice, as a continuing
condition of Collection Agent's obligations under this Agreement, shall at all
times during the term of this Agreement be and remain legally organized and
operated to provide medical services in a manner consistent with all Texas and
federal laws.
3.2 COOPERATION. Medical Practice will cooperate and cause its
employees to cooperate with Collection Agent in every reasonable respect to
allow Collection Agent to perform its duties under this Agreement.
3.3 PROVISION OF COLLECTION INFORMATION. Medical Practice will
furnish Collection Agent with all information necessary to enable Collection
Agent to perform the services set forth in this Agreement. As part of such
responsibility, Medical Practice will provide, without limitation, the following
to Collection Agent:
A. All patient and billing information deemed appropriate or necessary
by Collection Agent; and
B. Access to and copies of requested patient files, superbills, face
sheets, itemized bills and other relevant account documentation.
4
<PAGE>
3.4 SOURCE INFORMATION. Medical Practice shall have the sole
responsibility for all source and other information it provides Collection Agent
and Collection Agent shall have no obligation to verify, check or otherwise
inspect the information furnished by Medical Practice.
3.5 INDEMNIFICATION BY PRACTICE. To the extent not otherwise covered
by insurance, Medical Practice shall indemnify and hold harmless Collection
Agent from and against any and all liability, losses, damages, claims, causes of
action, and expenses, including, without limitation, reasonable attorney's fees
and associated costs, associated with or directly or indirectly resulting from
any act or omission of Medical Practice, its employees, agents, or independent
contractors during the term of this Agreement. To be entitled to such
indemnification, Collection Agent shall give Medical Practice prompt written
notice of the assertion by a third party of any claim with respect to which
Collection Agent might bring a claim for indemnification hereunder, and in all
events must provide written notice to Medical Practice within the applicable
period for defense of such claim by Medical Practice. Medical Practice, at its
own expense, has the right to defend and litigate any such third-party claim.
3.6 CONFIDENTIAL AND PROPRIETARY INFORMATION. Medical Practice
acknowledges the confidentiality of its relationship with Collection Agent and
of any confidential information of which it may learn or obtain during the term
of this Agreement. Medical Practice agrees to keep confidential and not to
take, retain, use, or disclose to others during the term of this Agreement and
for a period of two (2) years thereafter, except as expressly consented to in
writing by Medical Practice or by law, any secrets or confidential technology,
proprietary information, strategic plans, documents pertaining to Collection
Agent's business or financial conditions (including the terms of this
Agreement), trade secrets of Collection Agent, or any matter or thing
ascertained by Medical Practice through Medical Practice's relationship with
Collection Agent, the use or disclosure of which matter or thing might
reasonably be construed to be contrary to the best interests of Collection
Agent. Medical Practice further agrees that upon termination or expiration of
this Agreement, Medical Practice and each and every of its members, partners,
employees, contractors, or agents will neither take nor retain, without prior
written authorization from Collection Agent, any papers, programs, fee books,
files, or other documents or copies thereof or other confidential information of
any kind belonging to Collection Agent or pertaining to Collection Agent's
business, sales, financial condition, or products. Without limiting other
possible remedies to Collection Agent for the breach of this covenant, Medical
Practice agrees that injunctive or other equitable relief shall be available to
enforce this covenant regarding confidentiality of information, such relief to
be without necessity of posting bond, cash, or otherwise. Medical Practice
further agrees that if any restriction contained in this Section is held by any
court to be unenforceable or unreasonable, a lesser restriction shall be
enforced in its place and remaining restrictions contained herein shall be
enforced independently of each other.
IV. FINANCIAL ARRANGEMENT.
4.1 COLLECTION FEE. The fees payable to Collection Agent for
providing the collection services to Medical Practice ("Collection Fee") will be
** CONFIDENTIAL INFORMATION ** of the first ** CONFIDENTIAL INFORMATION ** of
collections received hereunder, **
5
<PAGE>
CONFIDENTIAL INFORMATION ** of the next ** CONFIDENTIAL INFORMATION ** collected
hereunder, and ** CONFIDENTIAL INFORMATION ** of collections received hereunder
in excess of ** CONFIDENTIAL INFORMATION ** plus sales tax, payable within five
(5) days of invoice by the Collection Agent.
4.2 REASONABLE VALUE. The fee set forth in Section 4.1 is
----------------
acknowledged as the parties' negotiated agreement to the reasonable fair market
value of the services furnished by Collection Agent pursuant to this Agreement
plus a reasonable return to Collection Agent, considering investment, the risks
assumed, and the nature and volume of the collection services provided by
Collection Agent.
4.3 ** CONFIDENTIAL INFORMATION **
4.4 ** CONFIDENTIAL INFORMATION **
A. ** CONFIDENTIAL INFORMATION **
B. ** CONFIDENTIAL INFORMATION **
C. ** CONFIDENTIAL INFORMATION **
D. ** CONFIDENTIAL INFORMATION **
E. ** CONFIDENTIAL INFORMATION **
6
<PAGE>
4.5 ** CONFIDENTIAL INFORMATION **
4.6 ** CONFIDENTIAL INFORMATION **
V. TERM AND TERMINATION.
5.1 TERM. The term of this Agreement shall be for an initial period
continuing until all Accounts Receivable are collected or the parties agree that
remaining Accounts Receivable are uncollectible.
5.2 TERMINATION.
A. TERMINATION BY AGREEMENT. If Medical Practice and Collection
Agent shall mutually agree in writing, this Agreement may be terminated on the
date specified in the written agreement.
B. TERMINATION BY COLLECTION AGENT. Collection Agent may terminate
this Agreement immediately upon the occurrence of any one of the following
events:
1. The revocation, suspension, cancellation, surrender, or
restriction of the license to practice medicine in the State of Texas of Medical
Practice's sole shareholder;
2. Medical Practice's loss or suspension of its Medicare or Medicaid
provider number and/or Medical Practice's restriction from treating
beneficiaries of the Medicare or Medicaid programs; or
3. The dissolution of Medical Practice or the filing of a petition in
voluntary bankruptcy, an assignment for the benefit of creditors, or any other
action taken voluntarily or involuntarily under any state or federal statute for
the protection of debtors.
7
<PAGE>
C. LEGISLATIVE, REGULATORY, ADMINISTRATIVE, OR THIRD-PARTY PAYMENT
CHANGE. If there shall be a change in the Medicare or Medicaid laws,
regulations or general instructions, the adoption of new legislation, or a
change in any third-party reimbursement system or applicable law, any of which
materially affects the manner in which either party may perform or be
compensated for its services under this Agreement, the parties shall immediately
propose a new service arrangement or basis for compensation for the services
furnished pursuant to this Agreement. If such notice of new service arrangement
or basis for compensation is given and if Collection Agent and Medical Practice
are unable within thirty (30) days thereafter to agree upon a new service
arrangement or basis for compensation, Collection Agent may terminate this
Agreement by thirty (30) days notice to the Medical Practice on any future date
specified in the notice.
5.3 EFFECTS OF TERMINATION. Upon termination of this Agreement,
neither party shall have any further obligations under this Agreement except for
(i) obligations accruing prior to the date of termination, including, without
limitation, payment of Collection Agent's fee relating to services provided
prior to the termination of this Agreement and (ii) obligations, promises, or
covenants set forth in this Agreement that are expressly made to extend beyond
the term of this Agreement, including, without limitation, indemnity and
confidentiality provisions, which provisions shall survive the expiration or
termination of this Agreement. Medical Practice shall have sole authority and
responsibility for collecting and receiving all cash collections from accounts
receivable in existence at the time this Agreement is terminated. Within five
(5) days of the effective date of the expiration or termination of this
Agreement for any reason or cause whatsoever, Collection Agent shall surrender
to Medical Practice all books and records pertaining to Medical Practice's
medical practice, including all patient and account information, and Medical
Practice shall surrender to Collection Agent the originals and all copies of
Collection Agent's programs, specifications, documentation manuals, and other
proprietary information. If conversion from Collection Agent computer format to
Medical Practice's computer is required then such conversion and any associated
expense shall be the responsibility of the Medical Practice.
VI. MISCELLANEOUS.
6.1 COLLECTION SERVICES ONLY. Nothing in this Agreement is intended
or shall be construed to allow Collection Agent to exercise control or direction
over the manner or method by which Medical Practice and its physicians perform
medical services or other professional health care services. The rendition of
all medical services shall be the sole responsibility of Medical Practice and
its physicians, and Collection Agent shall not interfere in any manner or to any
extent therewith. Nothing in this Agreement shall be construed to permit
Collection Agent to engage in the practice of medicine. Collection Agent
renders solely nonmedical collection services to Medical Practice so that
Medical Practice can devote its full time and energies to the professional
conduct of its medical practice and to the provision of medical services to its
patients.
8
<PAGE>
6.2 STATUS OF COLLECTION AGENT. It is expressly acknowledged that
the parties are independent contractors, and nothing in this Agreement is
intended, and nothing shall be construed to create an employer-employee,
partnership, joint-venture, or other type of relationship, or to allow either
party to exercise control or direction over the manner or method by which the
other performs the services that are the subject matter of this Agreement;
provided always that the services to be provided under this Agreement shall be
furnished in a manner consistent with the standards governing those services and
the provisions of this Agreement. Each party understands and agrees that (i)
the other will not be treated as an employee for federal tax purposes, (ii)
neither will withhold on behalf of the other any sums for income tax,
unemployment insurance, social security, or any other withholding pursuant to
any law or requirement of any governmental body or make available any of the
benefits afforded to its employees, (iii) all of such payments, withholdings,
and benefits, if any, are the sole responsibility of the party incurring the
liability, and (iv) each will indemnify and hold the other harmless from any and
all loss or liability arising with respect to such payments, withholdings, and
benefits, if any.
6.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given under this Agreement shall be deemed
effectively given when in writing and personally delivered or mailed by prepaid
certified or registered mail, return receipt requested, addressed as follows:
MEDICAL PRACTICE: Northshore Orthopedics Assoc.
12445 East Freeway
Houston, Texas 77015
Attention: William F. Donovan, M.D.
SOLE SHAREHOLDER OF William F. Donovan, M.D.
MEDICAL PRACTICE: 12445 East Freeway
Houston, Texas 77015
COLLECTION AGENT: DRCA Houston Clinics, Inc.
Three Riverway Suite, 1430
Houston, Texas 77056
Attention:
_________________________
or to another address, or to the attention of another person or officer, that
either party may designate by written notice.
6.4 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Texas and is performable and shall be enforceable in Harris County,
Texas. The federal and state courts of Harris County, Texas shall be the
exclusive courts of jurisdiction and venue for any litigation, special
proceeding, or other proceeding as between the parties that may be brought in
connection with or by reason of, or arise out of, this Agreement.
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<PAGE>
6.5 ARBITRATION. Any controversy, dispute or disagreement arising
out of or relating to this Agreement or of the breach thereof shall be settled
by arbitration, which shall be conducted in Houston, Texas in accordance with
the National Health Lawyers Association Alternative Dispute Resolution Service
Rules of Procedure for Arbitration, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
6.6 ASSIGNMENT. Except as otherwise provider herein, this Agreement
shall not be assignable by Medical Practice without the prior written consent of
Collection Agent. Nothing in this Agreement, expressed or implied, is intended
to confer upon any person, other than the parties hereto and their successors
and permitted assigns, any rights or remedies under or by reason of this
Agreement.
6.7 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Agreement shall not operate as, or be
construed to constitute, a waiver of any subsequent breach of the same or
another provision.
6.8 ENFORCEMENT. If either party resorts to legal action to enforce
or interpret any provision of this Agreement, the prevailing party shall be
entitled to recover the costs and expenses of the action, including, without
limitation, reasonable attorneys' fees.
6.9 ADDITIONAL ASSURANCES. Except as may be specifically provided in
this Agreement to the contrary, the provisions of this Agreement shall be self-
operative and shall not require further agreement by the parties; provided,
however, at the request of either party, the other party shall execute any
additional instruments and take any additional acts that are reasonable and that
the requesting party may deem necessary to effectuate this Agreement.
6.10 FORCE MAJEURE. Neither party shall be liable or deemed to be in
default for any delay or failure in performance under this Agreement or other
interruption of service deemed to result, directly or indirectly, from acts of
God, civil or military authority, acts of public enemy, war, accidents, fires,
explosions, earthquakes, floods, failure of transportation, strikes or other
work interruptions by either party's employees, or any other similar cause
beyond the reasonable control of either party unless the delay or failure in
performance is expressly addressed elsewhere in this Agreement.
6.11 SEVERABILITY. The parties have negotiated and prepared the
terms of this Agreement in good faith and with the intent that every term,
covenant, and condition be binding upon and inure to the benefit of the
respective parties. Accordingly, if any one or more of the terms, provisions,
promises, covenants, or conditions of this Agreement or the application thereof
to any person or circumstance shall be adjudged to any extent invalid,
unenforceable, void, or voidable for any reason whatsoever by a court of
competent jurisdiction, that provision shall be as narrowly construed as
possible, and all the remaining terms, provisions, promises, covenants, and
conditions of this Agreement or their application to other persons or
circumstances shall not be affected thereby and shall be valid and enforceable
to the fullest extent permitted by law. To the extent this Agreement is in
violation of applicable law, then
10
<PAGE>
the parties agree to negotiate in good faith to amend the Agreement, to the
extent possible consistent with its purposes, to conform to applicable law.
6.12 AMENDMENTS AND AGREEMENT EXECUTION. This Agreement and its
amendments, if any, shall be in writing and may be executed in multiple copies
on behalf of Medical Practice by its President and on behalf of Collection Agent
by its duly authorized officer. Each multiple copy shall be deemed an original,
but all multiple copies together shall constitute one and the same instrument.
6.13 ENTIRE AGREEMENT. With respect to the subject matter of this
Agreement, this Agreement supersedes any and all previous contracts and
constitutes the entire agreement between the parties. Neither party shall be
entitled to benefits other than those specified in this Agreement. No prior
oral statements or contemporaneous negotiations or understandings or prior
written material not specifically incorporated in this Agreement shall be of any
force and effect, and no changes in or additions to this Agreement shall be
recognized unless incorporated by amendment as provided in this Agreement, such
amendment(s) to become effective on the date stipulated in the amendment(s).
The parties specifically acknowledge that, in entering into and executing this
Agreement, the parties rely solely upon the representations and agreements in
this Agreement and upon no others.
IN WITNESS WHEREOF, Medical Practice and Collection Agent have caused
this Agreement to be executed by their duly authorized representatives, all as
of the Effective Date.
MEDICAL PRACTICE: NORTHSHORE ORTHOPEDICS ASSOC.
By: /s/ William F. Donovan, M.D.
-----------------------------
Name: William F. Donovan, M.D.
-----------------------------
Title: President
-----------------------------
SOLE SHAREHOLDER OF /s/ William F. Donovan, M.D.
MEDICAL PRACTICE: -----------------------------
William F. Donovan, M.D.
COLLECTION AGENT: DRCA HOUSTON CLINICS, INC.
By: /s/ Jose E. Kauachi
---------------------------
Name: Jose E. Kauachi
---------------------------
Title: President & CEO
---------------------------
11
<PAGE>
EXHIBIT 10.103
PROMISSORY NOTE
Advances up to $500,000 March 1, 1995
in accordance with the terms Houston, Texas
of this Note
On the date hereinafter prescribed, for value received, the undersigned,
Northshore Orthopedics Associates, a Texas professional association ("Maker")
promises to pay, in accordance with the terms hereof, to DRCA Houston Clinics,
Inc., a Texas corporation, or order (the "Holder") at 3 Riverway, Suite 1430,
Houston, Texas, or such other place as the Holder of this Note may designate,
the principal sum of $500,000.00 or so much thereof as shall then be outstanding
to the Maker, with interest at First Interstate Bank of Texas, N.A.'s "Index"
rate plus one and one-half percent on the unpaid balance from the date of
advance to the date of payment and on any unpaid interest payments from the due
date thereof to the date of payment; provided that in no event shall any such
compounding of interest result in a rate of interest exceeding that permitted by
Texas law.
It is the intention of the parties hereto to conform strictly to the
applicable laws of the State of Texas and the United States of America and
judicial and/or administrative interpretations or determinations thereof
("Law"), regarding the contracting for, charging and receiving of interest for
the use and detention of money. The owner and holder hereof shall have no right
to claim, charge or receive any interest in excess of the maximum rate allowable
under the Law on that portion of the face amount representing principal which is
outstanding and unpaid from time to time. Determination of the rate of interest
for the purpose of determining whether this note is usurious under the Law shall
be made by amortizing, prorating, allocating and spreading in equal parts during
the period of the actual time of this note, all interest or other sums deemed to
be interest (hereinafter referred to as "Interest") at any time contracted for,
charged or received from the Maker in connection with this note. Any interest
contracted for, charged or received in excess of the maximum lawful rate shall
be deemed as a result of mathematical error and a mistake; if this note is paid
in part by the Maker prior to the end of the full stated term of this note and
the interest received for the actual period of existence of this note exceeds
the maximum lawful rate, the Holder shall credit the amount of the excess
against any amount owing under this note, or if this note has been paid in full,
or in the event that it has been accelerated prior to maturity, the Holder shall
refund to the Maker the amount of such excess, and shall not be subject to any
of the penalties provided by Law for contracting for, charging or receiving
Interest in excess of the maximum lawful rate. Any such excess which is unpaid
shall be cancelled.
Advances made hereunder shall be repaid from time to time by the Maker as
specified in Section IV of the Collection Services Agreement between Maker and
Holder of even date herewith, the relevant terms of which Collection Services
Agreement are incorporated herein by reference with the full force and effect as
if restated herein.
<PAGE>
Any remaining principal balance of such loans plus accrued interest shall
be due and payable in full on the fifteenth (15th) day of the twenty-fourth
(24th) month of this Agreement or upon termination of this Agreement, whichever
is sooner.
Principal and interest are payable in lawful money of the United States.
The Maker may prepay without penalty at any time or from time to time all or any
portion of the amounts due hereunder.
In the event that advances made by Holder to Maker are greater than
$500,000.00, this Note and the Security Agreement entered into pursuant to this
Note will be automatically deemed to be amended to cover the revised amount.
The obligation of the Maker to pay all sums due hereunder shall be absolute
and shall not be subject to any offset, counterclaim, or defense whatsoever that
the Maker may have against the Holder.
The Maker hereby waives diligence, presentment, protest, demand, notice of
protest, notice of demand, notice of dishonor, and notice of nonpayment of this
Note, and expressly agrees that this Note or any payment made hereunder may be
extended from time to time, and that the Holder hereof may accept security or
release any security for this Note, all without in any way affecting the
liability of the Maker.
As collateral security for the timely payment and performance of all
obligations of the Maker under this Note and all costs and expenses, including
reasonable attorneys' fees, incurred in collection of amounts owning or the
enforcement of performance due under this Note and any exercise, preservation,
or enforcement of any right, power, or remedy hereunder, the Maker hereby grants
to the Holder a security interest in and to all accounts receivable of the Maker
which are the subject of the Collection Services Agreement between Maker and
Holder dated of even date herewith.
The times for the payment of any installment hereunder shall be strictly
construed, time being of the essence. At the option of the Holder hereof, the
unpaid balance of this Note, including all accrued interest, shall become
immediately due and payable on demand (a) in the event that the Maker shall
default in the payment of any indebtedness due hereunder, or (b) in the event of
a transfer of any shares of the outstanding common stock of the Maker without
the prior written consent of the Holder. The Maker shall pay to the Holder, on
demand, all costs and expenses incurred to collect any indebtedness evidenced
hereby, including, without limitation, reasonable attorneys' fees.
This Note and the rights of the parties hereunder shall be governed by and
construed in accordance with the laws of the State of Texas.
CO-MAKER CO-MAKER
NORTHSHORE OTHOPEDICS ASSOC. WILLIAM F. DONOVAN, M.D.
By: /s/ WILLIAM F. DONOVAN, M.D. /s/ WILLIAM F. DONOVAN, M.D.
---------------------------- ----------------------------
Its: President
----------------------------
<PAGE>
SCHEDULE OF ADVANCES AND PAYMENTS OF PRINCIPAL
UNDER PROMISSORY NOTE DATED MARCH 1, 1995
<TABLE>
<CAPTION>
Date of Advance Amount of Outstanding
or Payment Advance Principal
of Principal (Payment) Balance
<S> <C> <C>
------------------- ---------------- --------------------
------------------- ---------------- --------------------
------------------- ---------------- --------------------
------------------- ---------------- --------------------
------------------- ---------------- --------------------
------------------- ---------------- --------------------
</TABLE>
<PAGE>
EXHIBIT 10.104
SECURITY AGREEMENT
March 1, 1995
--------------------
(Date)
I. PARTIES, COLLATERAL AND OBLIGATIONS.
Northshore Orthopedics Associates ("Debtor"), whose street and mailing
address is _________________________________________________________________ for
valuable consideration, receipt of which is hereby acknowledged, hereby grants
to DRCA Houston Clinics, Inc. (along with any assignees, transferees, or
endorsees thereof, the "Secured Party"), whose street and mailing address is
Three Riverway, Suite 1430, Houston, Texas, 77056, a security interest in all
tangible and intangible assets of Debtor including but not limited to accounts,
notes, drafts, receivables, acceptances, instruments, chattel paper, contracts,
agreements, and general intangibles now or hereafter owned or held by Debtor,
and in all guarantees and suretyship agreements relating thereto and all
security for the payment thereof, and in and to all the proceeds, monies,
income, benefits, collections, and products thereof and thereon and attributable
or accruing thereto, and all rights of Debtor earned or yet to be earned under
contracts to sell or lease goods or render services and all proceeds thereof,
all hereinafter collectively called the "Collateral."
The security interest granted herein secures the payment and
performance of all indebtedness, obligations and liabilities of Debtor to
Secured Party (collectively, the "Obligations"), whether direct or indirect,
joint or several, absolute or contingent, due or to become due, now existing or
hereafter arising, and all renewals, extensions, and rearrangements of all such
obligations, liabilities, items of indebtedness and of any part thereof,
including indebtedness evidenced by a promissory note of even date herewith
(herein called the "Note") executed by Debtor in the principal amount of
$500,000.00, payable to the order of Secured Party, and including costs and
expenses and attorneys' fees and legal expenses, all in accordance with the
terms of the Note and this Security Agreement. In the event that advances made
by Secured Party to Debtor are greater than $500,000.00, the Promissory Note and
this Security Agreement will be automatically deemed to be amended to cover the
revised amount. Unless otherwise agreed, all of the Obligations shall be
payable at the offices of Secured Party at 3 Riverway, Suite 1430, Houston,
Texas, 77056.
Each term used in this Security Agreement, unless the context
otherwise requires, and in all events subject to any express definitions set
forth in this Security Agreement, shall be deemed to have the same meaning
herein as that given each such term under the Uniform Commercial Code, as
adopted and as amended in the State of Texas.
II. WARRANTIES, COVENANTS AND AGREEMENTS OF DEBTOR.
Debtor hereby warrants, covenants and agrees that:
(1) Except for the security interest granted hereby, Debtor is the
owner and holder of all the Collateral free from any adverse claim, security
interest, encumbrance, lien, charge, or any other right, title, or interest of
any person other than Secured Party; Debtor has full power and lawful authority
to sell, transfer, and assign the Collateral to
<PAGE>
Secured Party and to grant to Secured Party a first, prior, and valid security
interest therein as herein provided; the execution and delivery and the
performance hereof are not in contravention of any indenture, agreement, or
undertaking to which Debtor is a party or by which Debtor is bound; and Debtor
will defend the Collateral against all claims and demands of all persons at any
time claiming the same or any interest therein. Any officers, agents, or
representatives acting for or on behalf of Debtor in connection with this
Security Agreement or any aspect thereof, or entering into or executing this
Security Agreement on behalf of Debtor, have been duly authorized thereto and
therefor, and are fully empowered to act for and represent Debtor in connection
with this Security Agreement and all matters related thereto or in connection
therewith.
(2) (a) Debtor has not heretofore signed any financing statement or
security agreement which covers any property of Debtor of any kind, real or
personal, tangible or intangible, or in which Debtor is named as or has
signed as "debtor," and no such financing statement or security agreement
is now on file in any public office.
(b) As long as any of the Obligations remain unperformed, or as long
as any amount remains unpaid on any of the Obligations or on any
indebtedness or liabilities of Debtor to Secured Party, or as long as any
credit from Secured Party to Debtor under the Note is in use by or
available to Debtor, (i) Debtor will not enter into or execute any security
agreement or any financing statement other than those security agreements
and financing statements in favor of Secured Party hereunder, and further
(ii) there will not be on file in any public office any financing statement
or statements (or any documents or papers filed as such) other than
financing statements in favor of Secured Party hereunder, unless in any
case subject to this paragraph (b) the specific prior written consent and
approval of Secured Party shall have been obtained, and except, in all
cases described in clauses (i) and (ii) above, for such items as relate
solely to purchase money liens securing purchase money obligations
aggregating not more than $25,000.
(c) Debtor authorizes Secured Party to file, in jurisdictions where
this authorization will be given effect, a financing statement signed only
by Secured Party covering the Collateral. At the request of Secured Party,
Debtor will join Secured Party in executing such documents as Secured Party
may determine, from time to time, to be necessary or desirable under
provisions of the Uniform Commercial Code.
(3) Debtor will not sell or offer to sell or otherwise transfer, encumber,
or dispose of the Collateral or any interest therein without the written consent
of Secured Party.
(4) Debtor will keep the Collateral free from any adverse lien, security
interest, or encumbrance.
(5) Debtor will not release or surrender any of the Collateral at any time
or times.
2
<PAGE>
(6) Debtor will not release or surrender any guaranty, suretyship
agreement, or security for any of the Collateral at any time or times except
incident to payment in full thereof.
(7) Debtor will take all action necessary to maintain and preserve all
security for the Collateral at all times as valid, subsisting, and perfected as
to all the property affected and covered thereby and to maintain the priority
and validity of the security for the Collateral as against the rights, claims,
and interests of all other persons and parties whomsoever.
(8) Except as otherwise provided in Section III(2) hereof, any instruments,
chattel paper, money or monies, or documents that are, at any time or times,
included in the Collateral, whether as proceeds or otherwise, will promptly be
delivered by Debtor to Secured Party upon (i) the default by Debtor hereunder,
or (ii) the default by Debtor in the payment of any principal of or interest on
any indebtedness to Secured Party or any of the Obligations.
III. SPECIAL PROVISIONS - ACCOUNTS RECEIVABLE.
(1) The terms "account," "accounts," or "accounts receivable" as used
hereinafter in this Article III include all accounts, notes, drafts,
acceptances, instruments, and chattel paper in which at any time or from time to
time Secured Party has or is intended to have a security interest under or
pursuant hereto.
(2) At any time upon request, Secured Party shall have the privilege of
inspecting during reasonable business hours any of the business locations or
premises of Debtor and the books and records of Debtor relating to said accounts
or the collection thereof as well as those relating to Debtor's general business
and financial condition; and Debtor will make such books and records available
for such inspection and reasonably assist Secured Party in its inspection of
same. Debtor further agrees from time to time to furnish such other reports,
data, and financial statements in respect of its business and financial
condition as Secured Party may reasonably require. Secured Party shall have the
right, exercisable at any time, after default by Debtor as hereinafter
described, to notify any and all account debtors, lessees, or obligors to make
payment on any and all accounts, leases, or obligations directly to Secured
Party; and Debtor will, upon request of Secured Party, likewise notify all such
account debtors, lessees, or obligors to make payment directly to Secured Party;
but to the extent Secured Party does not so elect, Debtor shall continue to
collect the accounts, lease payments, and obligations. Except as otherwise
permitted by the proviso to this sentence, all proceeds of accounts received by
Debtor, whether such proceeds be cash proceeds, non-cash proceeds, or the
proceeds of original proceeds, shall be held in trust by Debtor for the account
of Secured party, shall not be commingled with any other funds, accounts,
monies, or property of Debtor, and shall be forthwith accounted for, paid over,
transmitted, and delivered to Secured Party in the form as received by Debtor
promptly upon receipt thereof by Debtor; provided, however, that prior to the
happening of any of (i) default by Debtor hereunder, or (ii) default by Debtor
in the payment of any principal of or interest on any indebtedness to Secured
Party or any of the Obligations, Debtor may collect and use for its own purposes
the proceeds of any accounts covered
3
<PAGE>
hereby. All proceeds of Collateral received by Secured Party shall be applied
on the Obligations secured hereby, whether or not such indebtedness shall have
by its terms matured, such application to be made at such intervals, and first
to allowable and recoverable costs of Secured Party in enforcing the Obligations
and/or this Security Agreement, then to interest, and then to principal, or
exclusively to principal (the interest from time to time accruing to be charged
to the general account of Debtor or to be paid separately by Debtor) as Secured
Party may determine; but such application shall not be made less often than once
each month, except that Secured Party need not apply or given credit for any
item included in such proceeds until Secured Party has received final payment
thereof at its office in cash or solvent credits accepted as such by Secured
Party. Any Collateral remaining after payment in full of the Obligations
secured hereby shall be reassigned or paid to Debtor, as the case may be, in
accordance with Section IV(4) hereof.
(3) Secured Party shall have the right in its own name or in the name of
Debtor, upon default by Debtor as hereinafter described, to demand, collect,
receive, receipt for, sue for, compound, and give acquittance for any and all
amounts due or to become due on the accounts and to endorse the name of Debtor
on all commercial paper given in payment or part payment thereof, and in its
discretion to file any claim or take any other action or proceedings which
Secured Party may deem necessary or appropriate to protect and preserve and
realize upon the security interest of Secured party in the accounts and proceeds
thereof and security therefor.
(4) Debtor shall from time to time execute such further instruments and do
such further acts and things as Secured Party may reasonably require by way of
further assurance to Secured Party of the matters and things herein provided for
or intended so to be.
IV. FURTHER AGREEMENTS BETWEEN DEBTOR AND SECURED PARTY.
(1) Secured Party shall never be under any obligation to collect, attempt
to collect, protect, or enforce the Collateral or any security therefor, which
Debtor agrees and undertakes to do at Debtor's expense; but Secured Party may do
so in its discretion at any time or times, and Secured Party shall have the
right to take any steps by judicial process or otherwise it may deem proper from
time to time to effect the collection of all or any portion of the Collateral or
to protect or to enforce the Collateral or any security therefor. All expenses
(including, without limitation, attorneys' fees and legal expenses) incurred or
paid by Secured Party in connection with or incident to any such collection or
attempt to collect the Collateral or actions to protect or enforce the
Collateral or any security therefor shall be borne by Debtor or reimbursed by
Debtor to Secured Party upon demand. The proceeds of collection of the
Collateral shall be held by Secured Party without liability for interest thereon
and may be applied by Secured party as Secured Party may deem appropriate toward
payment of any of the Obligations secured hereby, whether or not then due, in
such order or manner as Secured Party may elect.
(2) If any taxes or governmental assessments of any kind or character shall
be levied upon or against the Collateral or the Obligations, except for federal
or state income or franchise taxes imposed on Secured Party as a result of
income derived from the Obligations, the same shall be promptly paid before
delinquency by Debtor, and if any of such taxes or governmental assessments are
not paid by Debtor prior to delinquency
4
<PAGE>
thereof, Secured Party may at its option pay such taxes or assessments and any
interest, costs, or penalties in connection therewith, or any part thereof; and
Secured Party shall be the sole judge of the legality or validity thereof and of
the amount necessary to discharge same.
(3) In the event Secured Party shall pay any such taxes, assessments,
interest, costs, penalties, or expenses affecting, or incident to or in
connection with the collection of, the Collateral or protection or enforcement
of the Collateral or any security therefor, Debtor, upon demand of Secured
Party, shall pay to Secured Party the full amount thereof with interest at the
maximum nonusurious rate permitted by applicable law from their respective dates
of payment by Secured Party until repaid to Secured Party in full; and so long
as Secured Party shall be entitled to any such payment, this Security Agreement
shall operate as security therefor as fully and to the same extent as it
operates as security for payment of the other obligations secured hereunder, and
for the enforcement of such repayment Secured Party shall have every right and
remedy provided for enforcement of payment of the Obligations secured hereunder.
(4) When all of the Obligations shall have been paid, performed, or
satisfied in full, if this Security Agreement has not theretofore been
foreclosed, Secured Party or other holder of the Obligations shall reassign to
Debtor, without recourse or warranty, express or implied, the then existing
rights, title, and interest of Secured Party in and to the Collateral, the costs
of such reassignment to be borne by Debtor, and Secured Party shall pay to
Debtor the surplus money and proceeds, if any, then in the hands of Secured
Party representing collections on or proceeds of the Collateral not theretofore
applied toward payment of the Obligations.
V. EVENTS OF DEFAULT.
Debtor shall be in default under this Security Agreement upon the happening
of any of the following events or conditions:
(1) Default in the payment when due of the principal of, or interest on,
any of the Obligations, or any default in the performance of the Obligations, of
any of them;
(2) Failure or refusal of Debtor to perform or observe any of the
covenants, duties, or agreements herein imposed upon or agreed to be performed
or observed by Debtor;
(3) Default in the performance of any agreement or obligation of Debtor or
of any maker, endorser, guarantor, or surety of any liability or obligation of
Debtor to the holder of the Obligations;
(4) The levy of any attachment, execution, or other process against Debtor
or any of the Collateral;
(5) Dissolution, termination of existence, or business failure of Debtor or
any endorser, guarantor, or surety of any of the Obligations, commission of any
act of bankruptcy by, or appointment of receiver or other legal representative
for any part of the
5
<PAGE>
property of, assignment for the benefit of creditors by, or the commencement of
any proceedings under any bankruptcy or insolvency law by or against Debtor or
any endorser, guarantor, or surety for any of the Obligations; or
(6) Any warranty, representation, or statement made in this Security
Agreement or made or furnished to Secured Party by or on behalf of Debtor in
connection with this Security Agreement or to induce Secured Party to make any
loan to Debtor proves to have been false in any material respect when made or
furnished; or any financial statement of Debtor which has been or may be
furnished to Secured Party by or on behalf of Debtor shall prove to be false in
any materially detrimental respect.
VI. REMEDIES.
In the event of default in the performance or payment of any of the
Obligations or any principal, interest, or other amount payable thereunder, when
due, or upon the happening of any of the events of default specified above, and
at any time thereafter, at the option of the holder thereof, any or all of the
Obligations shall be immediately matured and shall become immediately due and
payable without presentment or demand or any notice to Debtor or any other
person obligated thereon and Secured Party shall have and may exercise with
reference to the Collateral and Obligations any or all of the rights and
remedies of a secured party under the Uniform Commercial Code as adopted and as
amended in the State of Texas, and as otherwise granted herein or under any
other applicable law or under any other agreement executed by Debtor, including,
without limitation, the right and power to sell, at public or private sale or
sales, or otherwise dispose of, lease, or otherwise utilize the Collateral and
any part or parts thereof in any manner authorized or permitted under said
Uniform Commercial Code after default by a debtor, and to apply the proceeds
thereof toward payment of any costs and expenses and attorneys' fees and legal
expenses thereby incurred by Secured Party and toward payment of the Obligations
in such order or manner as Secured Party may elect. Specifically, but without
omitting the foregoing, Secured Party may require Debtor to assemble the
Collateral or any security therefor and make it available to Secured Party at a
place to be designated by Secured Party which is reasonably convenient to both
parties; and Secured Party shall have the right to take possession of all or any
part of the Collateral or any security therefor and of all books, records,
papers, and documents of Debtor or in Debtor's possession or control relating to
the Collateral which are not already in Secured Party's possession, and for such
purpose may enter upon any premises upon which any of the Collateral or any
security therefor or any of said books, records, papers, and documents are
situated and remove the same therefrom without any liability for trespass or
damages thereby occasioned. To the extent permitted by law, Debtor expressly
waives any notice of sale or other disposition of the Collateral and all other
rights or remedies of Debtor or formalities prescribed by law relative to sale
or disposition of the Collateral or exercise of any other right or remedy of
Secured Party existing after default hereunder; and to the extent any such
notice is required and cannot be waived, Debtor agrees that if such notice is
mailed, postage prepaid, to Debtor either at the street address first shown
hereinabove or at the mailing address, if any, shown for Debtor, at least ten
(10) days before the time of such sale or disposition, such notice shall be
deemed reasonable and shall fully satisfy any requirement for giving of said
notice.
6
<PAGE>
Secured Party is expressly granted the right, at its option, to transfer at
any time to itself or to its nominee the Collateral, or any part thereof, and to
receive the payments, collections, monies, income, proceeds, or benefits
attributable or accruing thereto and to hold the same as security for the
Obligations or to apply it on the principal and interest or other amounts owing
on any of the Obligations whether or not then due, in such order or manner as
Secured Party may elect.
All rights to marshalling of assets of Debtor, including any such right
with respect to the Collateral, are hereby waived by Debtor.
All recitals in any instrument of assignment or any other instrument
executed by Secured Party incident to sale, lease, transfer, assignment, or
other disposition, lease, or utilization of the Collateral or any part thereof
hereunder shall be full proof of the matters stated therein and no other proof
shall be requisite to establish full legal propriety of the sale or other action
taken by Secured Party or of any fact, condition, or thing incident thereto and
all prerequisites of such sale or other action or of any fact, condition, or
thing incident thereto shall be presumed conclusively to have been performed or
to have occurred.
The right of Secured Party to take possession or control of the Collateral
upon the happening of any of the events or conditions constituting a default may
be exercised without resort to any court proceeding or judicial process whatever
and without any hearing whatever thereon; and, in this connection, DEBTOR
EXPRESSLY WAIVES ANY CONSTITUTIONAL RIGHTS OF DEBTOR WITH REGARD TO NOTICE, ANY
JUDICIAL PROCESS OR ANY HEARING PRIOR TO THE EXERCISE OF THE RIGHT OF SECURED
PARTY TAKE POSSESSION OR CONTROL OF THE COLLATERAL UPON THE HAPPENING OF ANY OF
THE EVENTS OR CONDITIONS CONSTITUTING A DEFAULT.
VII. GENERAL.
The execution and delivery of this Security Agreement shall in no manner
impair or affect any other security (by endorsement or otherwise) for the
payment or performance of the Obligations and no security taken hereafter as
security for payment or performance of the Obligations shall impair in any
manner or affect this Security Agreement, all such present and future additional
security to be considered as cumulative security. Any of the Collateral may be
released from this Security Agreement without altering, varying, or diminishing
in any way the force, effect, lien, security interest, or charge of this
Security Agreement as to the Collateral not expressly released, and this
Security Agreement shall continue as a first and prior lien, security interest,
and charge on all of the Collateral not expressly released until all the
Obligations secured hereby have been paid or performed in full. Any future
assignment or attempted assignment of the interest of Debtor in and to any of
the Collateral shall not deprive Secured Party of the right to sell or otherwise
dispose of or utilize all of the disposition thereof in parcels or in severalty.
This Security Agreement shall not be construed as relieving Debtor from
full personal liability on the Obligations and any and all future and other
indebtedness secured hereby and for any deficiency thereon.
7
<PAGE>
In protecting, exercising, or assuring its interests, rights, and remedies
under this Security Agreement, after any default by Debtor hereunder or in the
payment by Debtor of any principal or interest on any indebtedness to Secured
Party or any of the Obligations, Secured Party may receive, open, and dispose of
mail addressed to Debtor and execute, sign, and endorse negotiable and other
instruments for the payment of money, documents of title, and other evidences of
payment, shipment, or storage for any form of Collateral or proceeds on behalf
of and in the name of Debtor.
Secured Party is hereby subrogated to all of Debtor's interests, rights,
and remedies in respect to the Collateral and all security now or hereafter
existing with respect thereto and all guaranties and endorsements thereof and
with respect thereto.
Any notice or demand to Debtor hereunder or in connection herewith may be
given and shall conclusively be deemed and considered to have been given and
received upon the deposit thereof in writing in the U.S. Mails, duly stamped and
addressed to Debtor either at the address first shown hereinabove or such other
address as Debtor may provide to Secured Party by written notice thereof; but
actual notice to Debtor, however given or received, shall always be effective.
Any deposit, deposit account, certificate of indebtedness, certificate of
deposit, or other sums at any time due from the holder of the Obligations to
Debtor or any endorser, guarantor, or surety of any of the Obligations and any
securities or other property of Debtor or any endorser, guarantor, or surety of
any of the Obligations in the possession of the holder of the Obligations may at
all times be held and treated as additional and cumulative collateral security
for the payment of the Obligations and Debtor grants Secured Party a security
interest in all such deposits, deposit accounts, certificates of indebtedness or
deposit, sums, securities, and other properties as additional and cumulative
security for payment of the Obligations. The holder of the Obligations may
apply or set-off such deposits, deposit accounts, certificates of indebtedness
or deposit, securities or other sums or properties against the Obligations at
any time in the case of Debtor but only with respect to matured liabilities in
the case of the endorsers, guarantors, or sureties of any of the Obligations.
Secured Party may, at its option, upon default by Debtor hereunder or in
the payment of any principal of or interest on any indebtedness to Secured Party
or any of the Obligations, demand, sue for, collect, or make any compromise,
settlement, or adjustment it deems desirable with reference to the Collateral or
any security therefor. Secured Party shall not be obligated to take any steps
necessary to preserve any rights in the Collateral or in any security therefor
against other parties, which Debtor hereby assumes to do.
No delay or omission on the part of Secured Party in exercising any right
hereunder shall operate as a waiver of any such right or any other right. A
waiver on any one or more occasions shall not be construed as a bar to or waiver
of any right or remedy on any future occasion. The remedies of Secured Party
hereunder are cumulative, and the exercise of any one or more of the remedies
provided for herein shall not be construed as an election or as a waiver of any
of the other remedies of Secured Party provided for herein or existing by law or
otherwise.
8
<PAGE>
All rights of Secured Party hereunder shall inure to the benefit of its
successors and assigns; and all obligations of Debtor shall bind its successors
or assigns.
The law governing this secured transaction shall be that of the State of
Texas existing as of the date hereof; provided that if any additional rights or
remedies are hereafter granted to secured parties by the law of Texas, Secured
Party shall also have and may exercise any such additional rights or remedies.
Effective the day and year first above written.
NORTHSHORE ORTHOPEDICS ASSOCIATES
By: /s/ WILLIAM F. DONOVAN
-----------------------------
Its: President
--------------------------
DRCA HOUSTON CLINICS, INC.
By: /s/ JOSE E. KAUACHI
-----------------------------
Its: President
---------------------------
9
<PAGE>
EXHIBIT 10.105
PROMISSORY NOTE
Advances up to $1,000,000 March 1, 1995
in accordance with the terms Houston, Texas
of this Note
On the date hereinafter prescribed, for value received, the undersigned,
PhysiCare, LLP, a Texas registered limited liability partnership ("Maker")
promises to pay, in accordance with the terms hereof, to DRCA Houston Clinics,
Inc., a Texas corporation, or order (the "Holder") at 3 Riverway, Suite 1430,
Houston, Texas, or such other place as the Holder of this Note may designate,
the principal sum of $1,000,000.00 or so much thereof as shall have been
advanced to the Maker, with interest at the maximum nonusurious rate to be
determined on a quarterly basis on the unpaid balance from the date of advance
to the date of payment and on any unpaid interest payments from the due date
thereof to the date of payment; provided that in no event shall any such
compounding of interest result in a rate of interest exceeding that permitted by
Texas law.
It is the intention of the parties hereto to conform strictly to the
applicable laws of the State of Texas and the United States of America and
judicial and/or administrative interpretations or determinations thereof
("Law"), regarding the contracting for, charging and receiving of interest for
the use and detention of money. The owner and holder hereof shall have no right
to claim, charge or receive any interest in excess of the maximum rate allowable
under the Law on that portion of the face amount representing principal which is
outstanding and unpaid from time to time. Determination of the rate of interest
for the purpose of determining whether this note is usurious under the Law shall
be made by amortizing, prorating, allocating and spreading in equal parts during
the period of the actual time of this note, all interest or other sums deemed to
be interest (hereinafter referred to as "Interest") at any time contracted for,
charged or received from the Maker in connection with this note. Any interest
contracted for, charged or received in excess of the maximum lawful rate shall
be deemed as a result of mathematical error and a mistake; if this note is paid
in part by the Maker prior to the end of the full stated term of this note and
the interest received for the actual period of existence of this note exceeds
the maximum lawful rate, the Holder shall credit the amount of the excess
against any amount owing under this note, or if this note has been paid in full,
or in the event that it has been accelerated prior to maturity, the Holder shall
refund to the Maker the amount of such excess, and shall not be subject to any
of the penalties provided by Law for contracting for, charging or receiving
Interest in excess of the maximum lawful rate. Any such excess which is unpaid
shall be cancelled.
Advances made hereunder are at Holder's sole discretion and shall be repaid
from time to time by the Maker as follows:
a. on demand; or
<PAGE>
b. if no demand is made, in the amount of the total cash reserves of the
Maker until principal and interest are paid in full. Loan payments due Holder
shall take priority for payment over all financial obligations of Maker other
than compensation or fees otherwise due Holder.
c. Any remaining principal balance of such loans plus accrued interest
shall be due and payable in full on demand, and if no demand is made, on the
fifteenth (15th) day of the two hundred fortieth (240th) month following the
effective date of this Note or upon termination of this Note, whichever is
sooner.
Principal and interest are payable in lawful money of the United States.
The Maker may prepay without penalty at any time or from time to time all or any
portion of the amounts due hereunder.
In the event that advances made by Holder to Maker are greater than
$1,000,000.00, this Note and the Security Agreement entered into pursuant to
this Note will be automatically deemed to be amended to cover the revised
amount.
The obligation of the Maker to pay all sums due hereunder shall be absolute
and shall not be subject to any offset, counterclaim, or defense whatsoever that
the Maker may have against the Holder.
The Maker hereby waives diligence, presentment, protest, demand, notice of
protest, notice of demand, notice of dishonor, and notice of nonpayment of this
Note, and expressly agrees that this Note or any payment made hereunder may be
extended from time to time, and that the Holder hereof may accept security or
release any security for this Note, all without in any way affecting the
liability of the Maker.
As collateral security for the timely payment and performance of all
obligations of the Maker under this Note and all costs and expenses, including
reasonable attorneys' fees, incurred in collection of amounts owning or the
enforcement of performance due under this Note and any exercise, preservation,
or enforcement of any right, power, or remedy hereunder, the Maker hereby grants
to the Holder a security interest in and to all tangible and intangible property
of the Maker.
The times for the payment of any installment hereunder shall be strictly
construed, time being of the essence. At the option of the Holder hereof, the
unpaid balance of this Note, including all accrued interest, shall become
immediately due and payable on demand (a) in the event that the Maker shall
default in the payment of any indebtedness due hereunder, or (b) in the event of
a transfer of any shares of the outstanding common stock of the Maker
constituting a controlling interest in the Maker ("controlling interest" meaning
the ability to elect a majority of the board of directors of the Maker) without
the prior written consent of the Holder. The Maker shall pay to the Holder, on
demand, all costs and expenses incurred to collect any indebtedness evidenced
hereby, including, without limitation, reasonable attorneys' fees.
<PAGE>
SCHEDULE OF ADVANCES AND PAYMENTS OF PRINCIPAL
UNDER PROMISSORY NOTE DATED ____________, 199_
<TABLE>
<CAPTION>
Date of Advance Amount of Outstanding
or Payment Advance Principal
of Principal (Payment) Balance
<S> <C> <C>
-------------------- ------------------- ------------------
-------------------- ------------------- ------------------
-------------------- ------------------- ------------------
-------------------- ------------------- ------------------
-------------------- ------------------- ------------------
-------------------- ------------------- ------------------
</TABLE>
<PAGE>
This Note and the rights of the parties hereunder shall be governed by and
construed in accordance with the laws of the State of Texas.
PHYSICARE, LLP
Occupational Medicine Associates of Houston, P.A.,
an Authorized Partner
By: /s/ WILLIAM F. DONOVAN, M.D.
------------------------------------------------
William F. Donovan, M.D.
Its: President
---------------------------------------
<PAGE>
EXHIBIT 10.106
SECURITY AGREEMENT
March 1, 1995
----------------------
(Date)
I. PARTIES, COLLATERAL AND OBLIGATIONS.
PhysiCare, LLP, a Texas registered limited liability partnership
("Debtor"), whose street and mailing address is Three Riverway, Suite 1430,
Houston, Texas, 77056 for valuable consideration, receipt of which is hereby
acknowledged, hereby grants to DRCA Houston Clinics, Inc. (along with any
assignees, transferees, or endorsees thereof, the "Secured Party"), whose street
and mailing address is Three Riverway, Suite 1430, Houston, Texas, 77056, a
security interest in all tangible and intangible assets of Debtor, including but
not limited to Debtor's accounts, notes, drafts, receivables, acceptances,
instruments, chattel paper, contracts, agreements, and general intangibles now
or hereafter owned or held by Debtor, and in all guarantees and suretyship
agreements relating thereto and all security for the payment thereof, and in and
to all the proceeds, monies, income, benefits, collections, and products thereof
and thereon and attributable or accruing thereto, and all rights of Debtor
earned or yet to be earned under contracts to sell or lease goods or render
services and all proceeds thereof, all hereinafter collectively called the
"Collateral."
The security interest granted herein secures the payment and
performance of all indebtedness, obligations and liabilities of Debtor to
Secured Party (collectively, the "Obligations"), whether direct or indirect,
joint or several, absolute or contingent, due or to become due, now existing or
hereafter arising, and all renewals, extensions, and rearrangements of all such
obligations, liabilities, items of indebtedness and of any part thereof,
including indebtedness evidenced by a promissory note of even date herewith
(herein called the "Note") executed by Debtor in the principal amount of
$1,000,000.00, payable to the order of Secured Party, and including costs and
expenses and attorneys' fees and legal expenses, all in accordance with the
terms of the Note and this Security Agreement. In the event that advances made
by Secured Party to Debtor are greater than $1,000,000.00, the Promissory Note
and this Security Agreement will be automatically deemed to be amended to cover
the revised amount. Unless otherwise agreed, all of the Obligations shall be
payable at the offices of Secured Party at 3 Riverway, Suite 1430, Houston,
Texas, 77056.
Each term used in this Security Agreement, unless the context
otherwise requires, and in all events subject to any express definitions set
forth in this Security Agreement, shall be deemed to have the same meaning
herein as that given each such term under the Uniform Commercial Code, as
adopted and as amended in the State of Texas.
II. WARRANTIES, COVENANTS AND AGREEMENTS OF DEBTOR.
Debtor hereby warrants, covenants and agrees that:
(1) Except for the security interest granted hereby, Debtor is the
owner and holder of all the Collateral free from any adverse claim, security
interest, encumbrance, lien, charge, or any other right, title, or interest of
any person other than Secured Party;
<PAGE>
Debtor has full power and lawful authority to sell, transfer, and assign the
Collateral to Secured Party and to grant to Secured Party a first, prior, and
valid security interest therein as herein provided; the execution and delivery
and the performance hereof are not in contravention of any indenture, agreement,
or undertaking to which Debtor is a party or by which Debtor is bound; and
Debtor will defend the Collateral against all claims and demands of all persons
at any time claiming the same or any interest therein. Any officers, agents, or
representatives acting for or on behalf of Debtor in connection with this
Security Agreement or any aspect thereof, or entering into or executing this
Security Agreement on behalf of Debtor, have been duly authorized thereto and
therefor, and are fully empowered to act for and represent Debtor in connection
with this Security Agreement and all matters related thereto or in connection
therewith.
(2) (a) Debtor has not heretofore signed any financing statement or
security agreement which covers any property of Debtor of any kind, real or
personal, tangible or intangible, or in which Debtor is named as or has
signed as "debtor," and no such financing statement or security agreement
is now on file in any public office.
(b) As long as any of the Obligations remain unperformed, or as long
as any amount remains unpaid on any of the Obligations or on any
indebtedness or liabilities of Debtor to Secured Party, or as long as any
credit from Secured Party to Debtor under the Note is in use by or
available to Debtor, (i) Debtor will not enter into or execute any security
agreement or any financing statement other than those security agreements
and financing statements in favor of Secured Party hereunder, and further
(ii) there will not be on file in any public office any financing statement
or statements (or any documents or papers filed as such) other than
financing statements in favor of Secured Party hereunder, unless in any
case subject to this paragraph (b) the specific prior written consent and
approval of Secured Party shall have been obtained, and except, in all
cases described in clauses (i) and (ii) above, for such items as relate
solely to purchase money liens securing purchase money obligations
aggregating not more than $25,000.
(c) Debtor authorizes Secured Party to file, in jurisdictions where
this authorization will be given effect, a financing statement signed only
by Secured Party covering the Collateral. At the request of Secured Party,
Debtor will join Secured Party in executing such documents as Secured Party
may determine, from time to time, to be necessary or desirable under
provisions of the Uniform Commercial Code.
(3) Debtor will not sell or offer to sell or otherwise transfer, encumber,
or dispose of the Collateral or any interest therein without the written consent
of Secured Party.
(4) Debtor will keep the Collateral free from any adverse lien, security
interest, or encumbrance.
2
<PAGE>
(5) Debtor will not release or surrender any of the Collateral at any time
or times.
(6) Debtor will not release or surrender any guaranty, suretyship
agreement, or security for any of the Collateral at any time or times except
incident to payment in full thereof.
(7) Debtor will take all action necessary to maintain and preserve all
security for the Collateral at all times as valid, subsisting, and perfected as
to all the property affected and covered thereby and to maintain the priority
and validity of the security for the Collateral as against the rights, claims,
and interests of all other persons and parties whomsoever.
(8) Except as otherwise provided in Section III(2) hereof, any instruments,
chattel paper, money or monies, or documents that are, at any time or times,
included in the Collateral, whether as proceeds or otherwise, will promptly be
delivered by Debtor to Secured Party upon (i) the default by Debtor hereunder,
or (ii) the default by Debtor in the payment of any principal of or interest on
any indebtedness to Secured Party or any of the Obligations.
III. SPECIAL PROVISIONS - ACCOUNTS RECEIVABLE.
(1) The terms "account," "accounts," or "accounts receivable" as used
hereinafter in this Article III include all accounts, notes, drafts,
acceptances, instruments, and chattel paper in which at any time or from time to
time Secured Party has or is intended to have a security interest under or
pursuant hereto.
(2) At any time upon request, Secured Party shall have the privilege of
inspecting during reasonable business hours any of the business locations or
premises of Debtor and the books and records of Debtor relating to said accounts
or the collection thereof as well as those relating to Debtor's general business
and financial condition; and Debtor will make such books and records available
for such inspection and reasonably assist Secured Party in its inspection of
same. Debtor further agrees from time to time to furnish such other reports,
data, and financial statements in respect of its business and financial
condition as Secured Party may reasonably require. Secured Party shall have the
right, exercisable at any time, after default by Debtor as hereinafter
described, to notify any and all account debtors, lessees, or obligors to make
payment on any and all accounts, leases, or obligations directly to Secured
Party; and Debtor will, upon request of Secured Party, likewise notify all such
account debtors, lessees, or obligors to make payment directly to Secured Party;
but to the extent Secured Party does not so elect, Debtor shall continue to
collect the accounts, lease payments, and obligations. Except as otherwise
permitted by the proviso to this sentence, all proceeds of accounts received by
Debtor, whether such proceeds be cash proceeds, non-cash proceeds, or the
proceeds of original proceeds, shall be held in trust by Debtor for the account
of Secured party, shall not be commingled with any other funds, accounts,
monies, or property of Debtor, and shall be forthwith accounted for, paid
3
<PAGE>
over, transmitted, and delivered to Secured Party in the form as received by
Debtor promptly upon receipt thereof by Debtor; provided, however, that prior to
the happening of any of (i) default by Debtor hereunder, or (ii) default by
Debtor in the payment of any principal of or interest on any indebtedness to
Secured Party or any of the Obligations, Debtor may collect and use for is own
purposes the proceeds of any accounts covered hereby. All proceeds of Collateral
received by Secured Party shall be applied on the Obligations secured hereby,
whether or not such indebtedness shall have by its terms matured, such
application to be made at such intervals, and first to allowable and recoverable
costs of Secured Party in enforcing the Obligations and/or this Security
Agreement, then to interest, and then to principal, or exclusively to principal
(the interest from time to time accruing to be charged to the general account of
Debtor or to be paid separately by Debtor) as Secured Party may determine; but
such application shall not be made less often than once each month, except that
Secured Party need not apply or given credit for any item included in such
proceeds until Secured Party has received final payment thereof at its office in
cash or solvent credits accepted as such by Secured Party. Any Collateral
remaining after payment in full of the Obligations secured hereby shall be
reassigned or paid to Debtor, as the case may be, in accordance with Section
IV(4) hereof.
(3) Secured Party shall have the right in its own name or in the name of
Debtor, upon default by Debtor as hereinafter described, to demand, collect,
receive, receipt for, sue for, compound, and give acquittance for any and all
amounts due or to become due on the accounts and to endorse the name of Debtor
on all commercial paper given in payment or part payment thereof, and in its
discretion to file any claim or take any other action or proceedings which
Secured Party may deem necessary or appropriate to protect and preserve and
realize upon the security interest of Secured party in the accounts and proceeds
thereof and security therefor.
(4) Debtor shall from time to time execute such further instruments and do
such further acts and things as Secured Party may reasonably require by way of
further assurance to Secured Party of the matters and things herein provided for
or intended so to be.
IV. FURTHER AGREEMENTS BETWEEN DEBTOR AND SECURED PARTY.
(1) Secured Party shall never be under any obligation to collect, attempt
to collect, protect, or enforce the Collateral or any security therefor, which
Debtor agrees and undertakes to do at Debtor's expense; but Secured Party may do
so in its discretion at any time or times, and Secured Party shall have the
right to take any steps by judicial process or otherwise it may deem proper from
time to time to effect the collection of all or any portion of the Collateral or
to protect or to enforce the Collateral or any security therefor. All expenses
(including, without limitation, attorneys' fees and legal expenses) incurred or
paid by Secured Party in connection with or incident to any such collection or
attempt to collect the Collateral or actions to protect or enforce the
Collateral or any security therefor shall be borne by Debtor or reimbursed by
Debtor to Secured Party upon demand. The proceeds of collection of the
Collateral shall be held by Secured Party without liability for interest thereon
and may be applied by Secured party as Secured Party may deem
4
<PAGE>
appropriate toward payment of any of the Obligations secured hereby, whether or
not then due, in such order or manner as Secured Party may elect.
(2) If any taxes or governmental assessments of any kind or character shall
be levied upon or against the Collateral or the Obligations, except for federal
or state income or franchise taxes imposed on Secured Party as a result of
income derived from the Obligations, the same shall be promptly paid before
delinquency by Debtor, and if any of such taxes or governmental assessments are
not paid by Debtor prior to delinquency thereof, Secured Party may at its option
pay such taxes or assessments and any interest, costs, or penalties in
connection therewith, or any part thereof; and Secured Party shall be the sole
judge of the legality or validity thereof and of the amount necessary to
discharge same.
(3) In the event Secured Party shall pay any such taxes, assessments,
interest, costs, penalties, or expenses affecting, or incident to or in
connection with the collection of, the Collateral or protection or enforcement
of the Collateral or any security therefor, Debtor, upon demand of Secured
Party, shall pay to Secured Party the full amount thereof with interest at the
maximum nonusurious rate permitted by applicable law from their respective dates
of payment by Secured Party until repaid to Secured Party in full; and so long
as Secured Party shall be entitled to any such payment, this Security Agreement
shall operate as security therefor as fully and to the same extent as it
operates as security for payment of the other obligations secured hereunder, and
for the enforcement of such repayment Secured Party shall have every right and
remedy provided for enforcement of payment of the Obligations secured hereunder.
(4) When all of the Obligations shall have been paid, performed, or
satisfied in full, if this Security Agreement has not theretofore been
foreclosed, Secured Party or other holder of the Obligations shall reassign to
Debtor, without recourse or warranty, express or implied, the then existing
rights, title, and interest of Secured Party in and to the Collateral, the costs
of such reassignment to be borne by Debtor, and Secured Party shall pay to
Debtor the surplus money and proceeds, if any, then in the hands of Secured
Party representing collections on or proceeds of the Collateral not theretofore
applied toward payment of the Obligations.
V. EVENTS OF DEFAULT.
Debtor shall be in default under this Security Agreement upon the happening
of any of the following events or conditions:
(1) Default in the payment when due of the principal of, or interest on,
any of the Obligations, or any default in the performance of the Obligations, of
any of them;
(2) Failure or refusal of Debtor to perform or observe any of the
covenants, duties, or agreements herein imposed upon or agreed to be performed
or observed by Debtor;
5
<PAGE>
(3) Default in the performance of any agreement or obligation of Debtor or
of any maker, endorser, guarantor, or surety of any liability or obligation of
Debtor to the holder of the Obligations;
(4) The levy of any attachment, execution, or other process against Debtor
or any of the Collateral;
(5) Dissolution, termination of existence, or business failure of Debtor or
any endorser, guarantor, or surety of any of the Obligations, commission of any
act of bankruptcy by, or appointment of receiver or other legal representative
for any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceedings under any bankruptcy or insolvency law by or
against Debtor or any endorser, guarantor, or surety for any of the Obligations;
or
(6) Any warranty, representation, or statement made in this Security
Agreement or made or furnished to Secured Party by or on behalf of Debtor in
connection with this Security Agreement or to induce Secured Party to make any
loan to Debtor proves to have been false in any material respect when made or
furnished; or any financial statement of Debtor which has been or may be
furnished to Secured Party by or on behalf of Debtor shall prove to be false in
any materially detrimental respect.
VI. REMEDIES.
In the event of default in the performance or payment of any of the
Obligations or any principal, interest, or other amount payable thereunder, when
due, or upon the happening of any of the events of default specified above, and
at any time thereafter, at the option of the holder thereof, any or all of the
Obligations shall be immediately matured and shall become immediately due and
payable without presentment or demand or any notice to Debtor or any other
person obligated thereon and Secured Party shall have and may exercise with
reference to the Collateral and Obligations any or all of the rights and
remedies of a secured party under the Uniform Commercial Code as adopted and as
amended in the State of Texas, and as otherwise granted herein or under any
other applicable law or under any other agreement executed by Debtor, including,
without limitation, the right and power to sell, at public or private sale or
sales, or otherwise dispose of, lease, or otherwise utilize the Collateral and
any part or parts thereof in any manner authorized or permitted under said
Uniform Commercial Code after default by a debtor, and to apply the proceeds
thereof toward payment of any costs and expenses and attorneys' fees and legal
expenses thereby incurred by Secured Party and toward payment of the Obligations
in such order or manner as Secured Party may elect. Specifically, but without
omitting the foregoing, Secured Party may require Debtor to assemble the
Collateral or any security therefor and make it available to Secured Party at a
place to be designated by Secured Party which is reasonably convenient to both
parties; and Secured Party shall have the right to take possession of all or any
part of the Collateral or any security therefor and of all books, records,
papers, and documents of Debtor or in Debtor's possession or control relating to
the Collateral which are not already in Secured Party's
6
<PAGE>
possession, and for such purpose may enter upon any premises upon which any of
the Collateral or any security therefor or any of said books, records, papers,
and documents are situated and remove the same therefrom without any liability
for trespass or damages thereby occasioned. To the extent permitted by law,
Debtor expressly waives any notice of sale or other disposition of the
Collateral and all other rights or remedies of Debtor or formalities prescribed
by law relative to sale or disposition of the Collateral or exercise of any
other right or remedy of Secured Party existing after default hereunder; and to
the extent any such notice is required and cannot be waived, Debtor agrees that
if such notice is mailed, postage prepaid, to Debtor either at the street
address first shown hereinabove or at the mailing address, if any, shown for
Debtor, at least ten (10) days before the time of such sale or disposition, such
notice shall be deemed reasonable and shall fully satisfy any requirement for
giving of said notice.
Secured Party is expressly granted the right, at its option, to transfer at
any time to itself or to its nominee the Collateral, or any part thereof, and to
receive the payments, collections, monies, income, proceeds, or benefits
attributable or accruing thereto and to hold the same as security for the
Obligations or to apply it on the principal and interest or other amounts owing
on any of the Obligations whether or not then due, in such order or manner as
Secured Party may elect.
All rights to marshalling of assets of Debtor, including any such right
with respect to the Collateral, are hereby waived by Debtor.
All recitals in any instrument of assignment or any other instrument
executed by Secured Party incident to sale, lease, transfer, assignment, or
other disposition, lease, or utilization of the Collateral or any part thereof
hereunder shall be full proof of the matters stated therein and no other proof
shall be requisite to establish full legal propriety of the sale or other action
taken by Secured Party or of any fact, condition, or thing incident thereto and
all prerequisites of such sale or other action or of any fact, condition, or
thing incident thereto shall be presumed conclusively to have been performed or
to have occurred.
The right of Secured Party to take possession or control of the Collateral
upon the happening of any of the events or conditions constituting a default may
be exercised without resort to any court proceeding or judicial process whatever
and without any hearing whatever thereon; and, in this connection, DEBTOR
EXPRESSLY WAIVES ANY CONSTITUTIONAL RIGHTS OF DEBTOR WITH REGARD TO NOTICE, ANY
JUDICIAL PROCESS OR ANY HEARING PRIOR TO THE EXERCISE OF THE RIGHT OF SECURED
PARTY TAKE POSSESSION OR CONTROL OF THE COLLATERAL UPON THE HAPPENING OF ANY OF
THE EVENTS OR CONDITIONS CONSTITUTING A DEFAULT.
VII. GENERAL.
7
<PAGE>
The execution and delivery of this Security Agreement shall in no manner
impair or affect any other security (by endorsement or otherwise) for the
payment or performance of the Obligations and no security taken hereafter as
security for payment or performance of the Obligations shall impair in any
manner or affect this Security Agreement, all such present and future additional
security to be considered as cumulative security. Any of the Collateral may be
released from this Security Agreement without altering, varying, or diminishing
in any way the force, effect, lien, security interest, or charge of this
Security Agreement as to the Collateral not expressly released, and this
Security Agreement shall continue as a first and prior lien, security interest,
and charge on all of the Collateral not expressly released until all the
Obligations secured hereby have been paid or performed in full. Any future
assignment or attempted assignment of the interest of Debtor in and to any of
the Collateral shall not deprive Secured Party of the right to sell or otherwise
dispose of or utilize all of the disposition thereof in parcels or in severalty.
This Security Agreement shall not be construed as relieving Debtor from
full personal liability on the Obligations and any and all future and other
indebtedness secured hereby and for any deficiency thereon.
In protecting, exercising, or assuring its interests, rights, and remedies
under this Security Agreement, after any default by Debtor hereunder or in the
payment by Debtor of any principal or interest on any indebtedness to Secured
Party or any of the Obligations, Secured Party may receive, open, and dispose of
mail addressed to Debtor and execute, sign, and endorse negotiable and other
instruments for the payment of money, documents of title, and other evidences of
payment, shipment, or storage for any form of Collateral or proceeds on behalf
of and in the name of Debtor.
Secured Party is hereby subrogated to all of Debtor's interests, rights,
and remedies in respect to the Collateral and all security now or hereafter
existing with respect thereto and all guaranties and endorsements thereof and
with respect thereto.
Any notice or demand to Debtor hereunder or in connection herewith may be
given and shall conclusively be deemed and considered to have been given and
received upon the deposit thereof in writing in the U.S. Mails, duly stamped and
addressed to Debtor either at the address first shown hereinabove or such other
address as Debtor may provide to Secured Party by written notice thereof; but
actual notice to Debtor, however given or received, shall always be effective.
Any deposit, deposit account, certificate of indebtedness, certificate of
deposit, or other sums at any time due from the holder of the Obligations to
Debtor or any endorser, guarantor, or surety of any of the Obligations and any
securities or other property of Debtor or any endorser, guarantor, or surety of
any of the Obligations in the possession of the holder of the Obligations may at
all times be held and treated as additional and cumulative collateral security
for the payment of the Obligations and Debtor grants Secured Party a security
interest in all such deposits, deposit accounts, certificates of indebtedness or
deposit, sums, securities, and other properties as additional and cumulative
security for payment of the Obligations. The holder of the Obligations may
apply or set-off such
8
<PAGE>
deposits, deposit accounts, certificates of indebtedness or deposit, securities
or other sums or properties against the Obligations at any time in the case of
Debtor but only with respect to matured liabilities in the case of the
endorsers, guarantors, or sureties of any of the Obligations.
Secured Party may, at its option, upon default by Debtor hereunder or in
the payment of any principal of or interest on any indebtedness to Secured Party
or any of the Obligations, demand, sue for, collect, or make any compromise,
settlement, or adjustment it deems desirable with reference to the Collateral or
any security therefor. Secured Party shall not be obligated to take any steps
necessary to preserve any rights in the Collateral or in any security therefor
against other parties, which Debtor hereby assumes to do.
No delay or omission on the part of Secured Party in exercising any right
hereunder shall operate as a waiver of any such right or any other right. A
waiver on any one or more occasions shall not be construed as a bar to or waiver
of any right or remedy on any future occasion. The remedies of Secured Party
hereunder are cumulative, and the exercise of any one or more of the remedies
provided for herein shall not be construed as an election or as a waiver of any
of the other remedies of Secured Party provided for herein or existing by law or
otherwise.
All rights of Secured Party hereunder shall inure to the benefit of its
successors and assigns; and all obligations of Debtor shall bind its successors
or assigns.
The law governing this secured transaction shall be that of the State of
Texas existing as of the date hereof; provided that if any additional rights or
remedies are hereafter granted to secured parties by the law of Texas, Secured
Party shall also have and may exercise any such additional rights or remedies.
Effective the day and year first above written.
PHYSICARE, LLP
Occupational Medicine Associates of
Houston, P.A., an Authorized Partner
By: /s/ WILLIAM F. DONOVAN, M.D.
-----------------------------
William F. Donovan, M.D.
President
-----------------------------
DRCA HOUSTON CLINICS, INC.
By: /s/ JOSE E. KAUACHI
-----------------------------
-----------------------------
9
<PAGE>
*** WHERE REFERENCES TO "**CONFIDENTIAL
INFORMATION**" HAVE BEEN MADE WITHIN THIS
AGREEMENT, CERTAIN CONFIDENTIAL
INFORMATION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISION ***
MASTER TRANSACTION AGREEMENT
BY AND AMONG
DRCA MEDICAL CORPORATION
DRCA HOUSTON CLINICS, INC.
OCCUPATIONAL MEDICINE ASSOCIATES OF HOUSTON, P.A.
NORTHSHORE ORTHOPEDICS ASSOC.
PHYSICARE, L.L.P.
WILLIAM F. DONOVAN, M.D.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
RECITALS.............................. 1
1.1 Partnership.................... 1
1.2 Management Services Agreement.. 1
1.3 Contract for Service........... 1
1.4 Employment..................... 2
1.5 Medical Director Agreement..... 2
1.6 Real Property Lease............ 2
1.7 Equipment Lease................ 2
1.8 Transaction Agreements......... 2
ARTICLE II. TERMINATION.............. 2
2.1 Termination Without Cause...... 2
2.2 Effect of Termination.......... 3
ARTICLE III. MISCELLANEOUS............ 3
3.1 Parties Bound.................. 3
3.2 Choice of Law.................. 3
3.3 Assignment..................... 3
3.4 Multiple Counterparts.......... 3
3.5 Headings....................... 3
3.6 Mediation and Arbitration...... 3
</TABLE>
i
<PAGE>
MASTER TRANSACTION AGREEMENT
This Master Transaction Agreement ("Master Transaction Agreement")
dated as of May 11, 1995 is by and among DRCA Medical Corporation, a Texas
corporation, ("DRCA"); DRCA Houston Clinics, Inc., a Texas corporation ("DRCA
Houston"); Occupational Medicine Associates of Houston, P.A., a Texas
professional association ("OMA"); Northshore Orthopedics Assoc., a Texas
professional association ("Northshore"); PhysiCare, L.L.P., a Texas registered
limited liability partnership ("PhysiCare"); and William F. Donovan, M.D.
("Physician").
RECITALS:
A. Physician is a physician licensed to practice medicine in the State
of Texas.
B. Physician is the sole shareholder of OMA and Northshore.
C. Physician desires to restructure his medical practice by the
consummation of the transactions described in this Master Transaction Agreement.
D. The Parties to this Master Transaction Agreement desire to set
forth certain terms and conditions upon which the restructuring described above
shall be accomplished and to agree upon other matters set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound hereby, the
Parties agree as follows:
ARTICLE I. RESTRUCTURE
1.1 Partnership. Concurrently herewith OMA and Northshore will enter
into a partnership agreement of PhysiCare (the "Partnership Agreement"), whereby
PhysiCare will become a provider of medical and ancillary services. The
Partnership Agreement is attached hereto as Exhibit A, and made a part of this
Master Transaction Agreement.
1.2 Management Services Agreement. Concurrently herewith PhysiCare
and DRCA Houston will enter into a Management Services Agreement (the
"Management Services Agreement"), whereby DRCA Houston will be the exclusive
provider of management services to PhysiCare. The Management Services Agreement
is attached hereto as Exhibit B, and made a part of this Master Transaction
Agreement.
1.3 Contract for Service.
a. Concurrently herewith PhysiCare, Northshore and Physician will
enter into a Contract for Services ("Northshore Contract"), whereby
Physician
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or other physicians will provide medical services to the patients
of PhysiCare. The Northshore Contract is attached hereto as Exhibit
C, and made a part of this Master Transaction Agreement.
b. Concurrently herewith PhysiCare and OMA will enter into a Contract
for Services ("OMA Contract"), whereby Physician or other
physicians will provide medical services to the patients of
PhysiCare. The OMA Contract is attached hereto as Exhibit D, and
made a part of this Master Transaction Agreement .
1.4 Employment. Concurrently herewith Northshore and Physician will
enter into an Employment Agreement (the "Employment Agreement"), whereby
Physician will be exclusively employed by Northshore. The Employment Agreement
is attached hereto as Exhibit E, and made a part of this Master Transaction
Agreement.
1.5 Medical Director Agreement. Concurrently herewith DRCA and
Physician will enter into a Professional Services Agreement Medical Director
(the "Medical Director Agreement"), whereby Physician will be the medical
director for DRCA. The Medical Director Agreement is attached hereto as Exhibit
F, and made a part of this Master Transaction Agreement.
1.6 Real Property Lease. Concurrently herewith DRCA Houston and
Physician will enter into a Lease Agreement (the "Lease Agreement"), whereby
DRCA Houston will lease certain property for the use of PhysiCare. The Lease
Agreement is attached hereto as Exhibit G, and made a part of this Master
Transaction Agreement.
1.7 Equipment Lease. Concurrently herewith DRCA Houston and
Northshore will enter into an Equipment Lease Agreement (the "Equipment Lease
Agreement"), whereby DRCA Houston will lease certain equipment from Northshore
for use in PhysiCare's practice. The Equipment Lease Agreement is attached
hereto as Exhibit H, and made a part of this Master Transaction Agreement.
1.8 Transaction Agreements. The Partnership Agreement, the
Management Services Agreement, the Northshore Contract, the OMA Contract, the
Employment Agreement, the Medical Director Agreement, the Lease Agreement, and
the Equipment Lease Agreement are collectively referred to herein as the
"Transaction Agreements."
ARTICLE II. TERMINATION
2.1 ** CONFIDENTIAL INFORMATION **
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2.2 ** CONFIDENTIAL INFORMATION **
ARTICLE III. MISCELLANEOUS
3.1 Parties Bound. Except to the extent otherwise expressly provided
herein, this Master Transaction Agreement shall be binding upon and inure to the
benefit of the Parties and their respective heirs, representatives,
administrators, guardians, successors and assigns; and no other person shall
have any right, benefit or obligation hereunder.
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3.2 Choice of Law. This Master Transaction Agreement shall be
construed, interpreted, and the rights of the Parties determined in accordance
with, the laws of the State of Texas.
3.3 Assignment. The Master Transaction Agreement may not be assigned
by operation of law or otherwise except that DRCA shall have the right to assign
this Master Transaction Agreement, at any time, to any direct or indirect wholly
owned subsidiary of DRCA or to any company which acquires all or substantially
all of DRCA's operations or which is the surviving company of a merger with
DRCA. No such assignment shall relieve DRCA of its obligations hereunder.
3.4 Multiple Counterparts. This Master Transaction Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
3.5 Headings. The headings of the several Articles and Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Master Transaction
Agreement.
3.6 Mediation and Arbitration. Any dispute, controversy or claim
(including without limitation tort claims, requests for provisional remedies or
other interim relief, and issues as to arbitrability of any matter) arising out
of or relating to this Master Transaction Agreement, or the breach thereof, that
cannot be settled through negotiation shall be settled (a) first, by the parties
trying in good faith to settle the dispute by mediation under the Commercial
Mediation Rules of the National Health Lawyers Association ("NHL") (such
mediation session to be held in Houston, Texas and to commence within 15 days of
the appointment of the mediator by the NHL), and (b) if the controversy, claim
or dispute cannot be settled by mediation, then by arbitration administered by
the NHL under its Commercial Arbitration Rules (such arbitration to be held in
Houston, Texas before a single arbitrator and to commence within 15 days of the
appointment of the arbitrator by the NHL), and judgment on the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
IN WITNESS WHEREOF, the parties have caused this Master Transaction
Agreement to be duly executed as of May 11, 1995, but effective for all purposes
as of March 1, 1995.
DRCA MEDICAL CORPORATION,
a Texas corporation
By: /s/ Jose E. Kauachi
---------------------------------------
Name: Jose E. Kauachi
---------------------------------------
Title: President & CEO
---------------------------------------
4
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DRCA HOUSTON CLINICS, INC.,
a Texas Corporation
By: /s/ Jose E. Kauachi
--------------------------------------
Name: Jose E. Kauachi
--------------------------------------
Title: President & CEO
--------------------------------------
OCCUPATIONAL MEDICINE ASSOCIATES OF
HOUSTON, P.A.,
a Texas Professional Association
By: /s/ William F. Donovan, M.D.
--------------------------------------
Name: William F. Donovan, M.D.
--------------------------------------
Title: President
--------------------------------------
NORTHSHORE ORTHOPEDICS, ASSOC.,
a Texas Professional Association
By: /s/ William F. Donovan, M.D.
--------------------------------------
Name: William F. Donovan, M.D.
--------------------------------------
Title: President
--------------------------------------
PHYSICARE, L.L.P.,
Occupational Medicine Associates of Houston, P.A.,
an Authorized Partner
By: /s/ William F. Donovan, M.D.
--------------------------------------
Name: William F. Donovan, M.D.
--------------------------------------
Title: President
--------------------------------------
PHYSICIAN:
By: /s/ William F. Donovan, M.D.
--------------------------------------
William F. Donovan, M.D.
5
<PAGE>
*** WHERE REFERENCES TO "**CONFIDENTIAL
INFORMATION**" HAVE BEEN MADE WITHIN THIS
AGREEMENT, CERTAIN CONFIDENTIAL
INFORMATION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISION ***
PROFESSIONAL SERVICES AGREEMENT MEDICAL DIRECTOR
THIS AGREEMENT is made this 11th day of May, 1995, effective as of March 1,
1995, by and between William F. Donovan, M.D. (hereinafter referred to as
"Physician"), and DRCA Medical Corporation, a Texas corporation, located in
Houston, Texas (hereinafter referred to as "DRCA").
R E C I T A L S:
WHEREAS, DRCA manages a registered limited liability partnership (the
"Medical Practice") located at Three Riverway, Suite 1430, Houston, Texas 77056;
and
WHEREAS, DRCA desires to engage Physician to perform professional services
for DRCA as described in this Agreement and on Exhibit A attached hereto, and
Physician desires to perform such services, all on the terms and conditions
specified in this Agreement.
WHEREAS, Physician's employer, Northshore Orthopedics, Assoc. has consented
to allow Physician to execute this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. ENGAGEMENT.
DRCA hereby engages Physician to perform the services for DRCA as described
in this Agreement and on Exhibit A attached hereto.
2. TERM.
This Agreement shall become effective upon execution hereof and shall have
a term ending on the last day of the third term year (the "Initial Term"). At
the end of such Initial Term, this Agreement shall extend automatically unless
it is terminated by either party 90 days prior to the end of the Initial Term.
3. OBLIGATIONS OF PHYSICIAN.
3.1 STATUS AND MEMBERSHIP. Physician shall remain in full compliance with
all of the following conditions continuously during the entire term of this
Agreement. Failure of Physician to satisfy any or all of the following
conditions shall constitute grounds for automatic termination of this Agreement
as set forth in Section 8.
<PAGE>
(a) Physician shall be licensed to practice medicine in the State of
Texas without restriction or subject to any disciplinary or corrective action;
(b) Physician shall be an employee of Northshore Orthopedics, Assoc.
(the "PA");
(c) Physician shall have all customary narcotics and controlled
substances numbers and licenses.
3.2 DUTIES AND RESPONSIBILITIES. Physician shall be responsible for
all administrative matters involving the Medical Practice, and those duties and
responsibilities set forth on Exhibit A attached hereto and incorporated hereby
and, in addition, the following:
(a) Physician shall (i) advise DRCA on general medical issues, (ii)
act as Physician liaison and maintain Physician relations in all medical
practices managed by DRCA, its subsidiaries and affiliates, (iii) advise DRCA on
clinic management and operations issues, and (iv) assist in development of
medical service programs and products in support of medical practices managed by
DRCA, its subsidiaries and affiliates. Physician shall perform all services and
duties under this Agreement in strict accordance with all laws, rules,
regulations, ordinances, and judicial and administrative interpretations
thereof, of the United States, the State of Texas, the City of Houston, and all
political subdivisions, agencies and instrumentalities of any of them.
Particularly, and not by way of limitation, Physician shall comply with the
Texas Medical Practice Act and all rules and regulations of the Texas State
Board of Medical Examiners and shall do everything necessary to maintain in
effect Physician's license to practice medicine within the State of Texas.
Periodic medical reviews shall be conducted by Physician to ensure compliance
with the foregoing and with quality assurance and medical audit programs of
DRCA.
(b) Physician shall be available at reasonable times for consultation
with the individual members of the Medical Staff of the Medical Practice (and
physicians consulting with such staff members), committees of the Medical Staff
and nursing and administrative employees of DRCA who work at the Center.
Physician shall participate actively in the affairs of the Medical Staff of the
Medical Practice, shall participate for reasonable periods of time in
educational and teaching functions and programs of the Medical Practice and the
Medical Staff, and perform such tasks and provide such services as the Medical
Staff, or any committee thereof, may from time to time request.
(c) Physician shall assist DRCA in the training of any Medical
Practice personnel required for operation of the Medical Practice.
(d) Physician shall devote such time and attention as is necessary,
but in no event less than ten (10) hours per week, to fulfillment of his duties
and responsibilities. Physician shall be available during normal business hours
for on-call consultation,
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<PAGE>
assistance and decisions regarding patient care or emergency issues at any
Medical Practice location.
(e) Physician shall have the title of "Medical Director."
3.3 PHYSICIAN'S WARRANTIES. Physician represents and warrants to
DRCA that (a) Physician's license to practice medicine in any state has never
been suspended or revoked; (b) Physician has never been reprimanded, sanctioned
or disciplined by any licensing board or state or local medical society or
specialty board; (c) except as disclosed on Schedule 3.3 attached hereto, there
has never been entered against Physician a final judgment in a malpractice
action having an aggregate award to the plaintiff in excess of $10,000, and no
action, based on an allegation of malpractice by Physician, has ever been
settled by payment to the plaintiff of an aggregate of more than $10,000; (d)
Physician has never been denied membership or reappointment of membership on the
medical staff of any hospital and no hospital medical staff membership or
clinical privileges of Physician have ever been suspended, curtailed or revoked;
and (e) Physician is not in breach of any other contract, obligation, or
covenant that would affect Physician's ability to perform hereunder and, as a
result of entering into this Agreement, will not breach any such contract,
obligation or covenant.
3.4 EMPLOYMENT OF OTHER PHYSICIANS BY PHYSICIAN. In order to provide
for DRCA the services described in Section 3.2, Physician shall provide services
by other physicians during vacations or illnesses of Physician, when Physician
attends seminars and meetings, and as may otherwise be necessary to perform
Physician's obligations under Section 3.2. Physicians who provide services on
behalf of Physician shall be employees or independent contractors of Physician.
Physician shall be responsible for recruiting, contracting, scheduling,
compensating and supervising all such other physicians; however, prior approval
of any physician providing coverage for Physician must be obtained from DRCA.
Physicians engaged by Physician shall meet the same license, certification and
membership requirements required of Physician under this Agreement and shall
have and maintain professional insurance in a type and amount equivalent to that
which Physician is required to have and maintain under Section 3.5.
3.5 INSURANCE. Physician and all physicians who may provide services
hereunder for Physician will at all times throughout the term of this Agreement
maintain general and professional liability insurance, including malpractice
insurance, in an amount no less than One Million Dollars ($1,000,000) per
occurrence for each claim and Three Million Dollars ($3,000,000) annual
aggregate. Such insurance shall be obtained from a reputable insurance company
authorized to sell liability insurance policies in Texas, rated A or better and
satisfactory to DRCA. Such insurance may be in a combination of primary and
excess amounts. Moreover, in the event that Physician (or any physician
providing services hereunder for Physician) ceases to provide services
hereunder, or upon the termination or expiration of this Agreement, Physician
and each physician whose insurance is "claims made" insurance rather than
"occurrence" insurance will either (i) purchase "tail" coverage to continue the
liability insurance coverage for the period during which Physician or any
physician rendered services hereunder or (ii) continue in full force and effect
the same level of liability insurance coverage on a claims made basis until the
longest statute of limitations for professional liability has expired
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<PAGE>
(recognizing that the statute of limitations for minors is tolled until they
reach the age of majority). This requirement shall be deemed continuing and
shall survive any termination or expiration of this Agreement. Said insurance
shall cover all of Physician's professional services provided to patients, his
private medical practice, as well as his activities and responsibilities as a
member of the Medical Staff of the Medical Practice. On or before the effective
date of this Agreement and thereafter on the first day of each year of the term
of this Agreement, Physician and each physician will deliver to DRCA a
certificate of insurance evidencing the required coverage and the payment of
premiums by Physician for the ensuing year. Physician's insurer or insurers
shall provide written notice to DRCA of the cancellation or proposed
cancellation of any such liability insurance policy.
3.6 DISCLOSURE OF INFORMATION. Physician recognizes and acknowledges
that he will have access to certain confidential information of DRCA and that
such information constitutes valuable, special and unique property of DRCA.
Physician will not, during or after the term of this Agreement, without the
consent of DRCA, disclose any such confidential information to any other person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever except as may be ordered by a court or governmental agency or as may
otherwise be required by law. In the event of a breach or a threatened breach
by Physician of the provisions of this paragraph, DRCA shall be entitled to an
injunction restraining Physician from disclosing in whole or in part any
confidential information. Nothing herein shall be construed as prohibiting DRCA
from pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages from Physician.
3.7 FINANCIAL OBLIGATION. Physician shall incur no financial
obligation on behalf of DRCA or for which DRCA shall be responsible without
prior approval of DRCA.
3.8 BILLING. Physician shall not charge patients for services rendered
as Medical Director of DRCA.
3.9 SERVICES. Physician shall perform all obligations of Physician
under this Agreement at Physician's principal place of business.
4. OBLIGATIONS OF DRCA.
4.1 SUPPORT SERVICES. DRCA shall provide Physician clerical
assistance at the Medical Practice as necessary for Physician to fulfill his
responsibilities as Medical Director.
4.2 FACILITIES. DRCA shall furnish Physician with an office for the
performance of services under this Agreement.
4.3 INSURANCE. DRCA shall furnish at its own cost insurance required
of Physician pursuant to Section 3.5 hereof.
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<PAGE>
5. COMPENSATION.
In consideration of the administrative and supervisory services to be
provided to DRCA under this Agreement, DRCA agrees to pay to Physician monthly
compensation in the amount of ** CONFIDENTIAL INFORMATION **
Physician, as an independent contractor, agrees to pay in a timely manner all
social security and other payroll taxes relating to such compensation.
6. RESTRICTIVE COVENANTS.
During the term of this Agreement and for a period of one (1) year
after the effective date of the termination or expiration of this Agreement,
except as otherwise agreed in writing by DRCA, Physician shall not, directly or
indirectly, in any capacity (whether as an owner, shareholder, employee,
independent contractor, consultant, or otherwise) provide or enter into
negotiations to provide any services as a Medical Director for any person
engaged in a competing business with DRCA, its subsidiaries or affiliates within
Harris County, Texas or within thirty (30) miles of any other medical practice
managed by DRCA, its subsidiaries or affiliates, including but not limited to
the development, management or operation of any facility or part thereof.
Physician further covenants that during the term of this covenant, Physician
will not interfere with, solicit, disrupt or attempt to disrupt any past,
present or prospective relationship, contractual or otherwise, between DRCA and
any contractor, third party payor, or employee of DRCA. Physician acknowledges
that the foregoing restriction is reasonable and necessary to protect the
legitimate interest of DRCA and that DRCA would not have entered into this
Agreement without the Physician non-compete covenant contained herein, that the
violation of this covenant will result in irreparable injury to DRCA, that the
remedy at law for any such violation or threatened violation would be inadequate
and that in the event of any such breach or violation, DRCA, in addition to any
other remedies or damages available to it, shall be entitled to temporary
injunctive relief before trial from any court of competent jurisdiction as a
matter of course and to permanent injunctive relief without the necessity of
proving actual damages.
7. INDEPENDENT CONTRACTOR.
In the performance of all services pursuant to this Agreement,
Physician is at all times acting as an independent contractor engaged in the
profession and practice of medicine. Physician shall employ his own means and
methods and exercise his own professional judgment in the performance of such
services, and DRCA shall have no right of control or direction with respect to
such means, methods or judgments, or with respect to the details of such
services. The only concern of DRCA under this Agreement or otherwise is that,
irrespective of the means selected, such services shall be provided in a
competent, efficient and satisfactory manner. It is expressly agreed that
Physician shall not for any purpose be deemed to be an employee, agent, partner,
joint venturer, ostensible or apparent agent, servant, or borrowed servant of
DRCA. Physician, and all physicians and other individuals providing services
pursuant to this Agreement, shall not have any claim against DRCA for vacation
pay, sick leave, retirement
5
<PAGE>
benefits, social security, workers' compensation, disability or unemployment
insurance benefits, or employee benefits of any kind.
8. TERMINATION.
8.1 TERMINATION. DRCA at any time may terminate this Agreement, with
or without cause, by giving written notice of such termination to Physician at
least sixty (60) days prior to the date on which the termination is to be
effective, such date to be specified in the notice; provided, however, that in
such event, ** CONFIDENTIAL INFORMATION **
Notwithstanding the above, if Physician fails to comply with any or all of the
requirements set forth in Section 3 of this Agreement at any time during this
Agreement, DRCA shall be entitled to terminate this Agreement effective
immediately.
9. INDEMNIFICATION.
Physician hereby agrees to indemnify and hold harmless DRCA from and
against any claim, loss, damage, cost, expense or liability arising out of or
related to the performance or nonperformance by Physician, or such other
physicians as Physician employs or contracts with to provide coverage on
Physician's behalf, of any services (including supervision), to be performed or
provided by Physician under this Agreement, including but not limited to the
practice of the profession of medicine by Physician or such other physicians.
This covenant shall be deemed continuing and shall survive any termination or
expiration of this Agreement.
10. MISCELLANEOUS.
10.1 GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of Texas.
10.2 REMEDIES. All rights, powers and remedies granted to either
party by any particular term of this Agreement are in addition to, and not in
limitation of, any rights, powers or remedies which it has under any other term
of this Agreement, at common law, in equity, by statute, or otherwise. All such
rights, powers and remedies may be exercised separately or concurrently, in such
order and as often as may be deemed expedient by either party. No delay or
omission by either party to exercise any right, power or remedy shall impair
such right, power or remedy or be construed to be a waiver of or an acquiescence
to any breach or default. A waiver by either party of any breach or default
hereunder shall not constitute a waiver of any subsequent breach or default.
10.3 AMENDMENT. No amendment or variation of the terms of this
Agreement shall be valid unless in writing and signed by both parties.
6
<PAGE>
10.4 ASSIGNMENT. DRCA may assign this Agreement to any subsidiary or
affiliate without Physician's consent. Physician may not assign his rights or
obligations under this Agreement. Further, Physician may not subcontract or
otherwise arrange for another individual or entity to perform his duties under
this Agreement, with the exception of the limited coverage provisions set out in
Section 3.4 of this Agreement.
10.5 CAPTIONS. The captions for each Section of this Agreement are
included for convenience of reference only and are not to be considered a part
hereof, and shall not be deemed to modify, restrict or enlarge any of the terms
of provisions of this Agreement.
10.6 NOTICE. Any notices or payments required or permitted to be
given under this Agreement shall be deemed given when in writing and hand
delivered or deposited in the United States mail, certified or registered,
postage prepaid, return receipt requested, to the other party at the address set
forth below or as the party may designate in writing:
To Physician: William F. Donovan, M.D.
12445 East Freeway
Houston, Texas 77515
To DRCA: DRCA Medical Corporation
Three Riverway, Suite 1430
Houston, Texas 77504
Attn: President
With a copy to: Ronald G. Pearson, Esq.
Jenkens & Gilchrist
1100 Louisiana, Suite 1800
Houston, Texas 77002
All notices shall be deemed to have been given on the date of actual delivery,
as evidenced by the return receipt or courier record.
10.7 SEVERABILITY. In the event that any provision of this Agreement
is held to be unenforceable for any reason, the unenforceability of that
provision shall not affect the remainder of this Agreement, which shall remain
in full force and effect in accordance with its terms.
10.8 FRAUD AND ABUSE. The parties enter into this Agreement with the
intent of conducting their relationship in full compliance with applicable
state, local, and federal law including the Medicare/Medicaid Anti-fraud and
Abuse Amendments. Notwithstanding any unanticipated effect of any of the
provisions herein, neither party will intentionally conduct itself under the
terms of this Agreement in a manner to constitute a violation of the Medicare
and Medicaid fraud and abuse provisions. Further, if legislation is passed, the
effect of which would be to hinder DRCA's ability to obtain reimbursement from
Medicare or Medicaid due to the existence of this Agreement, or in the event
that this Agreement does not comply in all respects with any applicable
exemption or "safe harbor" promulgated under the Medicare and Medicaid
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Patient and Program Protection Act of 1987 when and if such regulations become
effective, then DRCA may, at its option, terminate this Agreement.
10.9 ACCESS TO BOOKS AND RECORDS OF SUBCONTRACTOR. Upon the written
request of the Secretary of Health and Human Services or the Comptroller General
or any of their duly authorized representatives, Physician will make available
those contracts, books, documents, and records necessary to verify the nature
and extent of the costs of providing services under this Agreement. Such
inspection shall be available up to four (4) years after the rendering of such
services. If Physician carries out any of the duties of this Agreement through
a subcontract with a value of $10,000 or more over a 12-month period with a
related individual or organization, Physician agrees to include this requirement
in any such subcontract. This Section is included pursuant to and is governed
by the requirements of Public Law 96-499, Sec. 952 (Sec. 1861(v) (I) of the
Social Security Act) and the regulations promulgated thereunder. No attorney-
client, accountant-client or other legal privilege will be deemed to have been
waived by DRCA or Physician by virtue of this Agreement.
10.10 POLICY. Nothing contained in this Agreement shall require
Physician or any Physician to admit or refer any Patients to any facility in
which DRCA may own, operate or manage as a precondition to receiving the
benefits set forth herein.
10.11 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
supersedes any and all other agreements, understandings, negotiations, or
representations, oral or written, between them. All continuing covenants shall
survive the termination or expiration of this Agreement.
10.12 EXECUTION IN COUNTERPARTS. This Agreement and any amendments
hereto may be executed in multiple counterparts by Physician and by an
appropriate officer of DRCA. Each counterpart shall be deemed an original, but
all counterparts together shall constitute one and the same instrument.
10.13 AUTHORIZATION FOR AGREEMENT. The execution and performance of
this Agreement by DRCA and Physician have been duly authorized by all necessary
laws, resolutions, and corporate or partnership action, and this Agreement
constitutes the valid and enforceable obligations of Physician and DRCA in
accordance with its terms.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
DRCA Medical Corporation William F. Donovan, M.D.
By: /s/ Jose E. Kauschi /s/ William F. Donovan, M.D.
-------------------------------- ----------------------------------
Name: Jose E. Kauschi
--------------------------------
Title: President & CEO
--------------------------------
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EXHIBIT A
RESPONSIBILITIES OF PHYSICIAN
Physician shall:
1. Establish and continually review policies and procedures related to
medical education.
2. Be responsible for ensuring that established non-medical policies,
bylaws, rules and regulations of DRCA are followed in the Medical
Practice.
3. Meet regularly with Medical Practice employees and quality
assurance staff for discussion of clinical issues to ensure proper
treatment.
4. Develop and continually review criteria to monitor the quality of
educational programs provided to physicians.
5. Evaluate quality assurance audits to identify medical education
needs.
6. Propose programs to address those needs (with the assistance and
input of consultants of the specialties where medical education
needs were identified).
7. Assist in physician, consumer and patient education, marketing and
recruitment.
A-1
<PAGE>
SCHEDULE 3.3
Malpractice Judgments
<PAGE>
EXHIBIT 10.109
[LOGO OF FIRST INTERSTATE BANK APPEARS HERE]
PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$600,000.00 05-15-1995 05-15-1996 570 002 2504194603 3047
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BORROWER: DRCA MEDICAL CORPORATION (TIN: 76-0203483) LENDER: FIRST INTERSTATE BANK OF TEXAS N.A.
THREE RIVERWAY, SUITE 1430 E & P BANKING
HOUSTON, TX 77056 1000 LOUISIANA (77002)
P.O. BOX 3326 MS 150
HOUSTON, TX 77253-3326
</TABLE>
================================================================================
PRINCIPAL AMOUNT: INITIAL RATE: DATE OF NOTE:
$600,000.00 10.250% May 15, 1995
PROMISE TO PAY. DRCA MEDICAL CORPORATION ("BORROWER") PROMISES TO PAY TO FIRST
INTERSTATE BANK OF TEXAS N.A. ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE
UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF SIX HUNDRED THOUSAND & 00/100
DOLLARS ($600,000.00), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL BALANCE
FROM MAY 15, 1995, UNTIL MATURITY.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN IN 11 REGULAR PAYMENTS OF $52,875.74 EACH AND ONE
IRREGULAR LAST PAYMENT ESTIMATED AT $52,875.80. BORROWER'S FIRST PAYMENT IS DUE
JUNE 15, 1995, AND ALL SUBSEQUENT PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH
AFTER THAT. BORROWER'S FINAL PAYMENT DUE MAY 15, 1996, WILL BE FOR ALL PRINCIPAL
AND ALL ACCRUED INTEREST NOT YET PAID. PAYMENTS INCLUDE PRINCIPAL AND INTEREST.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding, unless such calculation would
result in a usurious rate, in which case interest shall be calculated on a per
diem basis of a year of 365 or 366 days, as the case may be. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied in any order at Lender's sole discretion, including the
following order: first to all past due amounts; then to accrued unpaid interest;
then to principal; and any remaining amount to any unpaid collection costs and
other charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the First Interstate Bank of
Texas, N.A. prime rate (the "Index"). As used herein the term "Index" shall mean
and refer to the interest rate from time to time set by Lender as its prime
rate. Without notice to Borrower or any other party, the Index shall
automatically fluctuate upward or downward as and in the amount by which prime
rate set by Lender fluctuates. Lender will tell Borrower the current Index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 9.000% PER ANNUM. THE INTEREST RATE TO BE
APPLIED PRIOR TO MATURITY TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE
AT A RATE OF 1.250 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL
RATE OF 10.250% PER ANNUM. NOTICE: Under no circumstances will the interest rate
on this Note be more than the maximum rate allowed by applicable law. For
purposes of this Note, the "maximum rate allowed by applicable law" means the
greater of (a) the maximum rate of interest permitted under federal or other law
applicable to the indebtedness evidenced by this Note, or (b) the "Indicated
Rate Ceiling" as referred to in Article 5069-1.04 (a)(1) V.T.C.S. Whenever
increases occur in the interest rate, Lender, at its option, may do one or more
of the following: (a) increase Borrower's payments to ensure Borrower's loan
will pay off by its original final maturity date, (b) increase Borrower's
payments to cover accruing interest, (c) increase the number of Borrower's
payments, and (d) continue Borrower's payments at the same amount and increase
Borrower's final payment.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments under the payment schedule.
Rather, they will reduce the principal balance due and may result in Borrower
making fewer payments.
POST MATURITY RATE. The Post Maturity Rate on this Note is the lesser of the
maximum rate allowed by applicable law or 9.250 percentage points over the
Index. Borrower will pay interest on all sums due after final maturity, whether
by acceleration or otherwise, at that rate, with the exception of any amounts
added to the principal balance of this Note based on Lender's payment of
insurance premiums, which will continue to accrue interest at the pre-maturity
rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to perform promptly at the time
and strictly in the manner provided in this Note or any agreement related to
this Note, or in any other agreement or loan Borrower has with Lender. (c) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien on security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (f) Any of the events described in this
default section occurs with respect to any guarantor of this Note.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorney's fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor vehicle
or other titled collateral offered as security for this loan, or premiums or
identifiable charges received in connection with the sale of authorized
insurance. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE
STATE OF TEXAS. IF THERE IS A LAWSUIT, AND IF THE TRANSACTION EVIDENCED BY THIS
NOTE OCCURRED IN HARRIS COUNTY, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT
TO THE JURISDICTION OF THE COURTS OF HARRIS COUNTY, THE STATE OF TEXAS. SUBJECT
TO THE PROVISIONS ON ARBITRATION, THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.
DISHONORED CHECK CHARGE. Borrower will pay a processing fee of $25.00 if any
check given by Borrower to Lender as a payment on this loan is dishonored.
<PAGE>
05-15-1995 PROMISSORY NOTE Page 2
Loan No (CONTINUED)
================================================================================
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future to the extent of my ownership or beneficial
interest in such accounts, excluding however all IRA and Keogh accounts.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing pursuant to this Note or related loan documents against
any and all such accounts.
AGREEMENT FOR BINDING ARBITRATION. THE PARTIES AGREE TO BE BOUND BY THE TERMS
AND PROVISIONS OF THE CURRENT ARBITRATION PROGRAM OF FIRST INTERSTATE BANK OF
TEXAS N.A. WHICH IS INCORPORATED BY REFERENCE HEREIN AND IS ACKNOWLEDGED AS
RECEIVED BY THE PARTIES, PURSUANT TO WHICH ANY AND ALL DISPUTES SHALL BE
RESOLVED BY MANDATORY BINDING ARBITRATION UPON THE REQUEST OF ANY PARTY.
DEFAULT RATE OF INTEREST. Lender may, at its option and without notice, charge
interest at a rate (the "Default Rate") equivalent to the Post Maturity Rate
(not to exceed the maximum lawful rate) on any past due amounts of the
Indebtedness for the number of days said amounts are past due. Amounts shall be
considered past due when not paid on the date due, whether said amounts become
due pursuant to the payment schedule or as a result of acceleration, or
otherwise. Further, if Lender gives written notice to Borrower of any one or
more defaults under the Note or any related Loan Documents and such defaults are
not cured completely and strictly in accordance with the terms of the notice of
default within the period of time allowed by Lender for cure of same, Lender may
charge interest at the Default Rate on the entire amount of the Indebtedness
until two business days after such defaults are cured and that fact is
communicated to and confirmed by Lender. Lender's use of the remedies available
to Lender upon the occurrence of an event of default shall not constitute an
election of remedies or otherwise limit Lender's rights concerning other
remedies available to Lender upon the occurrence of an event of default.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. In particular, this section means (among other
things) that Borrower does not agree or intend to pay, and Lender does not agree
or intend to contract for, charge, collect, take, reserve or receive
(collectively referred to herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for this loan, which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
charge or collect more for this loan than the maximum Lender would be permitted
to charge or collect by federal law or the law of the State of Texas (as
applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to charge or
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of the loan evidenced by
this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES
TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE
NOTE.
BORROWER:
DRCA MEDICAL CORPORATION
/s/ JOSE E. KAUACHI
---------------------------------------------------
Name: Jose E. Kauachi Title: President & CEO
--------------- ---------------
<PAGE>
EXHIBIT 10.110
[LOGO OF FIRST INTERSTATE APPEARS HERE]
FIRST INTERSTATE BANK
OF TEXAS, N.A.
P.O. Box 3326
Houston, TX 77253-3326
713 224-6611
AMENDMENT TO LOAN AGREEMENT DATED JANUARY 30, 1995
This amendment to the loan agreement dated January 30, 1995 is made and executed
on the following terms and conditions to include:
a) Borrowing base on the new facility in the amount of $600,000.00 will be
calculated monthly by adding the two following calculations.
Total Collectible A/R less than 120 days, less Attorney Receivables*
Less Allowance for Doubtful Accounts (10%)
Equals Collectible Accounts
Less Advance Factor (80%)
Equals Borrowing Base-Total Collectible A/R less Attorney Receivables
Attorney Receivables less than 180 days
Less Allowance for Doubtful Accounts (25%)
Equals Collectible Accounts
Less Advance Factor (70%)
Equals Borrowing Base-Total Collectible Attorney Receivables
*Medicare/Medicaid receivables are excluded from the calculation.
**Receivables are existing receivables of Northshore Orthopedic Assoc. and all
future receivables of Physical LLP's which are a result of the services rendered
by Northshore Orthopedic Assoc.
b) In the event that borrowing base calculation is not sufficient to cover
the outstanding loan balance the shortfall will be paid by the company on a
monthly basis.
AGREEMENT FOR BINDING ARBITRATION. THE PARTIES AGREE TO BE BOUND BY THE TERMS
AND PROVISIONS OF THE CURRENT ARBITRATION PROGRAM OF FIRST INTERSTATE BANK OF
TEXAS, N.A. WHICH IS INCORPORATED BY REFERENCE HEREIN AND IS ACKNOWLEDGED AS
RECEIVED BY THE PARTIES, PURSUANT TO WHICH ANY AND ALL DISPUTES SHALL BE
RESOLVED BY MANDATORY BINDING ARBITRATION UPON THE REQUEST OF ANY PARTY.
<PAGE>
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AMENDMENT TO THE
LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
MAY 15, 1995.
DRCA MEDICAL CORPORATION
/s/ JOSE E. KAUACHI
-------------------
BY: Jose E. Kauachi
Northshore Orthopedic Assoc.
/s/ WILLIAM F. DONOVAN, M.D.
----------------------------
BY: William F. Donovan, M.D.
PhysiCare, LLP
Occupational Medicine Associates of
Houston, P.A.,
PhysiCare L.L.P. an Authorized Partner
/s/ WILLIAM F. DONOVAN, M.D. By: /s/ WILLIAM F. DONOVAN, M.D.
---------------------------- ----------------------------
BY: Name: William F. Donovan, M.D.
------------------------- Title: President
First Interstate Bank of Texas, N.A.
/s/ FREDDY HURST
----------------------------
BY:
-------------------------
<PAGE>
EXHIBIT 10.111
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
570 002 2504194603 3047
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BORROWER: DRCA MEDICAL CORPORATION (TIN: 76-0203483) LENDER: FIRST INTERSTATE BANK OF TEXAS N.A.
THREE RIVERWAY, SUITE 1430 E & P BANKING
HOUSTON, TX 77056 1000 LOUISIANA (77002)
P.O. BOX 3326 MS 150
HOUSTON, TX 77253-3326
GUARANTOR: PHYSICARE, LLP
-------------------------------------
, TX
----------------------- ---------
</TABLE>
================================================================================
AMOUNT OF GUARANTY. THE AMOUNT OF THIS GUARANTY IS UNLIMITED.
CONTINUING UNLIMITED GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, PHYSICARE,
LLP ("GUARANTOR") ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY
TO FIRST INTERSTATE BANK OF TEXAS N.A. ("LENDER") OR ITS ORDER, IN LEGAL TENDER
OF THE UNITED STATES OF AMERICA THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW)
OF DRCA MEDICAL CORPORATION ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS
SET FORTH IN THIS GUARANTY. UNDER THIS GUARANTY, THE LIABILITY OF GUARANTOR IS
UNLIMITED AND THE OBLIGATIONS OF GUARANTOR ARE CONTINUING.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means DRCA Medical Corporation.
GUARANTOR. The word "Guarantor" means PhysiCare, LLP.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated May 15, 1995.
INDEBTEDNESS. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of the Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, attorneys' fees, debts, overdraft indebtedness, credit
card indebtedness, lease obligations, other obligations, and liabilities of
Borrower, or any of them, and any present or future judgments against
Borrower, or any of them; and whether any such indebtedness is voluntarily
or involuntarily incurred, due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined; whether Borrower
may be liable individually or jointly with others, or primarily or
secondarily, or as guarantor or surety; whether recovery on the
Indebtedness may be or may become barred or unenforceable against Borrower
due to bankruptcy.
LENDER. The word "Lender" means First Interstate Bank of Texas, N.A., its
successors and assigns.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
guaranties, security agreements, mortgages, deeds of trust, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open and
continuous for so long as this Guaranty remains in force. Guarantor intends to
guarantee at all times the performance and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of all Indebtedness.
Accordingly, no payments made upon the Indebtedness will discharge or diminish
the continuing liability of Guarantor in connection with any remaining portions
of the Indebtedness or any of the Indebtedness which subsequently arises or is
thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice of revocation
shall have been fully and finally paid and satisfied and all other obligations
of Guarantor under this Guaranty shall have been performed in full. If Guarantor
elects to revoke this Guaranty, Guarantor may only do so in writing. Guarantor's
written notice of revocation must be delivered to Lender at the address of
Lender listed above or such other place as Lender may designate in writing. This
Guaranty may be revoked only with respect to Indebtedness incurred or contracted
by Borrower, or acquired by Lender thirty (30) days or more after the date on
which written notice of revocation is actually received by Lender. No notice of
revocation hereof shall be effective as to any Indebtedness: (a) existing at the
date of receipt of such notice; (b) incurred or contracted by Borrower, or
acquired by Lender, within thirty (30) days after receipt of such notice; (c)
now existing or hereafter created pursuant to or evidenced by a loan agreement
or commitment under which Borrower is or may become obligated to Lender; or (d)
renewals, extensions, consolidations, substitutions, and refinancings of the
foregoing. Any revocation of this Guaranty by less than all guarantors of the
Indebtedness shall not affect the liability hereunder of the remaining
guarantors as to any present or future transactions or Indebtedness. The death
of any guarantor of the Indebtedness shall not operate as a revocation of
liability hereunder of the estate of any such guarantor as to transactions
entered into or Indebtedness created subsequent to such death until actual
receipt by Lender of written notice of the death of such guarantor. Guarantor
waives notice of revocation given by any other guarantor of the Indebtedness.
Any payment by Guarantor with respect to the Indebtedness guaranteed shall not
reduce the maximum obligation hereunder, unless written notice to that effect be
actually received by Lender at or prior to the time of such payment. This
Guaranty shall bind the estate of Guarantor as to Indebtedness created both
before and after the death or incapacity of Guarantor regardless of Lender's
actual notice of Guarantor's death. Subject to the foregoing, Guarantor's
executor or administrator or other legal representative may terminate this
Guaranty in the same manner in which Guarantor might have terminated it and with
the same effect. Release of any other guarantor or termination of any other
guaranty of the Indebtedness shall not affect the liability of Guarantor under
this Guaranty. A revocation received by Lender from any one or more Guarantors
shall not affect the liability of any remaining Guarantors under this Guaranty.
IT IS ANTICIPATED THAT FLUCTUATIONS MAY OCCUR IN THE AGGREGATE AMOUNT OF
INDEBTEDNESS COVERED BY THIS GUARANTY, AND IT IS SPECIFICALLY ACKNOWLEDGED AND
AGREED BY GUARANTOR THAT REDUCTIONS IN THE AMOUNT OF INDEBTEDNESS, EVEN TO ZERO
DOLLARS ($0.00), PRIOR TO WRITTEN REVOCATION OF THIS GUARANTY BY GUARANTOR SHALL
NOT CONSTITUTE A TERMINATION OF THIS GUARANTY. THIS GUARANTY IS BINDING UPON
GUARANTOR AND GUARANTOR'S HEIRS, SUCCESSORS AND ASSIGNS SO LONG AS ANY OF THE
GUARANTEED INDEBTEDNESS REMAINS UNPAID AND EVEN THOUGH THE INDEBTEDNESS
GUARANTEED MAY FROM TIME TO TIME BE ZERO DOLLARS ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before
or after any revocation hereof, WITHOUT NOTICE OR DEMAND AND WITHOUT LESSENING
OR OTHERWISE AFFECTING GUARANTOR'S LIABILITY UNDER THIS GUARANTY, FROM TIME TO
TIME: (A) PRIOR TO REVOCATION AS SET FORTH ABOVE, TO MAKE ONE OR MORE ADDITIONAL
SECURED OR UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO
BORROWER, OR OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER,
COMPROMISE, RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE
TIME FOR PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE
INDEBTEDNESS, INCLUDING INCREASES AND DECREASES OF THE RATE OF INTEREST ON THE
INDEBTEDNESS; EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL
LOAN TERM; (C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE
INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, FAIL OR DECIDE NOT TO PERFECT, AND
RELEASE ANY SUCH SECURITY
<PAGE>
05-15-1995 COMMERCIAL GUARANTY Page 2
Loan No (CONTINUED)
==============================================================================
WITH OR WITHOUT THE SUBSTITUTION OF NEW COLLATERAL; (D) TO RELEASE, SUBSTITUTE,
AGREE NOT TO SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES,
ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE;
(E) TO DETERMINE HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE
MADE ON THE INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR
MANNER OF SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE
PERMITTED BY THE TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST,
AS LENDER IN ITS DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR
GRANT PARTICIPATIONS IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN
OR TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has not and will not, without the prior written consent of
Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein except in the normal course of business; (d) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; (e) upon
Lender's request, Guarantor will provide to Lender financial and credit
information in form acceptable to Lender, and all such financial information
provided to Lender is true and correct in all material respects and fairly
presents the financial condition of Guarantor as of the dates thereof, and no
material adverse change has occurred in the financial condition of Guarantor
since the date of the financial statements; and (f) Guarantor has established
adequate means of obtaining from Borrower on a continuing basis information
regarding Borrower's financial condition. Guarantor agrees to keep adequately
informed from such means of any facts, events, or circumstances which might in
any way affect Guarantor's risks under this Guaranty, and Guarantor further
agrees that, absent a request for information, Lender shall have no obligation
to disclose to Guarantor any information or documents acquired by Lender in the
course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower except as in the Loan Agreement and related documents; (b) to
make any presentment, protest, demand, or notice of any kind, including notice
of any nonpayment of the Indebtedness or of any nonpayment related to any
collateral, or notice of any action or nonaction on the part of Borrower,
Lender, any surety, endorser, or other guarantor in connection with the
Indebtedness or in connection with the creation of new or additional loans or
obligations; (c) to resort for payment or to proceed directly or at once against
any person, including Borrower or any other guarantor; (d) to proceed directly
against or exhaust any collateral held by Lender from Borrower, any other
guarantor, or any other person; (e) to give notice of the terms, time, and place
of any public or private sale of personal property security held by Lender from
Borrower or to comply with any other applicable provisions of the Uniform
Commercial Code; (f) to pursue any other remedy within Lender's power; or (g) to
commit any act or omission of any kind, or at any time, with respect to any
matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" or Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws, except that Guarantor may be
a creditor subordinate to Lender in such bankruptcy case.
Guarantor waives all rights of Guarantor under Chapter 34 of the Texas Business
and Commerce Code. Guarantor also waives any and all rights or defenses arising
by reason of (a) any "one action" or "anti-deficiency" law or any other law
which may prevent Lender from bringing any action, including a claim for
deficiency, against Guarantor, before or after Lender's commencement or
completion of any foreclosure action, either judicially or by exercise of a
power of sale; (b) any election of remedies by Lender which destroys or
otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights
to proceed against Borrower for reimbursement, including without limitation, any
loss of rights Guarantor may suffer by reason of any law limiting, qualifying,
or discharging the Indebtedness; (c) any disability or other defense of
Borrower, of any other guarantor, or of any other person, or by reason of the
cessation of Borrower's liability from any cause whatsoever, other than payment
in full in legal tender, of the Indebtedness; (d) any right to claim discharge
of the Indebtedness on the basis of unjustified impairment of any collateral for
the Indebtedness; (e) any statute of limitations, if at any time any action or
suit brought by Lender against Guarantor is commenced there is outstanding
Indebtedness of Borrower to Lender which is not barred by any applicable statute
of limitations; or (f) any defenses given to guarantors at law or in equity
other than actual payment and performance of the Indebtedness. If payment is
made by Borrower, whether voluntarily or otherwise, or by any third party, on
the Indebtedness and thereafter Lender is forced to remit the amount of that
payment to Borrower's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of this
Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of
setoff, counterclaim, counter demand, recoupment or similar right, whether such
claim, demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT TO SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property or Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual possessory
security interest in and a right of setoff against, the Guarantor hereby
assigns, conveys, delivers, pledges, and transfers to Lender all of Guarantor's
right, title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided, however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
<PAGE>
05-15-1995 COMMERCIAL GUARANTY PAGE 3
LOAN NO. (CONTINUED)
================================================================================
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty shall be
effective unless given in writing and signed by the party or parties sought to
be charged or bound by the alteration or amendment.
APPLICABLE LAW. This guaranty has been delivered to Lender and accepted by
Lender in the State of Texas. If there is a lawsuit, and if the transaction
evidenced by this Guaranty occurred in Harris County, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Harris County,
State of Texas. Subject to the provisions on arbitration, this Guaranty shall
be governed by and construed in accordance with the laws of the State of Texas
and applicable Federal laws.
AGREEMENT FOR BINDING ARBITRATION. THE PARTIES AGREE TO BE BOUND BY THE TERMS
AND PROVISIONS OF THE CURRENT ARBITRATION PROGRAM OF FIRST INTERSTATE BANK OF
TEXAS N.A. WHICH IS INCORPORATED BY REFERENCE HEREIN AND IS ACKNOWLEDGED AS
RECEIVED BY THE PARTIES, PURSUANT TO WHICH ANY AND ALL DISPUTES SHALL BE
RESOLVED BY MANDATORY BINDING ARBITRATION UPON THE REQUEST OF ANY PARTY.
ATTORNEYS' FEES. In addition to the amount of this Guaranty set forth above,
Lender may hire an attorney to help enforce this Guaranty if Guarantor does not
pay, and Guaranty will pay Lender's reasonable attorneys' fees. Guarantor also
will pay Lender all other amounts actually incurred by Lender as court costs,
lawful fees for filing, recording, or releasing to any public office any
instrument securing this Guaranty; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor
vehicle offered as security for this Guaranty.
NOTICES. Except for revocation notices by Guarantor, all notices required to be
given by either party to the other under this Guaranty shall be in writing and
shall be effective when actually delivered or when deposited with a nationally
recognized overnight courier, or when deposited in the United States mail,
first class postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by Guarantor shall be
in writing and shall be effective only upon delivery to Lender as provided
above in the section titled "DURATION OF GUARANTY." If there is more than one
Guarantor, notice to any Guarantor will constitute notice to all Guarantors.
For notice purposes, Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be deemed
to have been used in the plural where the context and construction so require;
and where there is more than one Borrower named in this Guaranty or when this
Guaranty is executed by more than one Guarantor, the words "Borrower" and
"Guarantor" respectively shall mean all and any or more of them. The words
"Guarantor," "Borrower," and "Lender" include the heirs, successors, assigns,
and transferees to each of them. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Guaranty. If a court of competent jurisdiction finds any
provision of this Guaranty to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances, and all provisions of
this Guaranty in all other respects shall remain valid and enforceable. If any
one or more of Borrower or Guarantor are corporations or partnerships, it is
not necessary for Lender to inquire into the powers of Borrower or Guarantor or
of the officers, directors, partners, or agents acting or purporting to act on
their behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Guaranty shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other
provision of this Guaranty. No prior waiver by Lender, nor any course of
dealing between Lender and Guarantor, shall constitute a waiver of any of
Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this Guaranty,
the granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and
in all cases such consent may be granted or withheld in the sole discretion of
Lender.
ADDITIONAL PROVISIONS. Notwithstanding anything in this Guaranty to the
contrary Lender agrees not to seek recourse or personal liability against
either of Northshore Orthopedic Associates or Houston Physical Medicine
Associates, P.A., for payment or performance of the obligations of Guarantor
under this Guaranty. Lender, however, reserves the right to realize upon any
collateral or security pledged, granted or given by either of such parties as
security for the obligations of the Guarantor or the Borrower.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY
IS DATED MAY 15, 1995.
GUARANTOR:
PhysiCare, LLP
Occupational Medicine Associates of Houston, P.A.,
an Authorized Partner
By: /s/ William F. Donovan, M.D.
-----------------------------
Name: William F. Donovan, M.D.
Title: President
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 88,887
<SECURITIES> 0
<RECEIVABLES> 5,708,436
<ALLOWANCES> 765,402
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<CURRENT-ASSETS> 5,770,434
<PP&E> 6,341,947
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<TOTAL-ASSETS> 9,599,299
<CURRENT-LIABILITIES> 3,284,513
<BONDS> 1,254,575
<COMMON> 5,302
0
0
<OTHER-SE> 4,879,197
<TOTAL-LIABILITY-AND-EQUITY> 9,599,299
<SALES> 7,943,572
<TOTAL-REVENUES> 7,943,572
<CGS> 5,539,036
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<INCOME-TAX> 321,060
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