EXHIBIT 10.5
PRACTICE MANAGEMENT AGREEMENT
THIS PRACTICE MANAGEMENT AGREEMENT (this "Agreement") is made and executed
to be effective as of the 31st day of August, 1997 (the "Effective Date"), by
and among Physician Health Corporation, a Delaware corporation ("PHC") as to
Section 16 only; PHC Ohio, Inc., a Georgia corporation ("PHC-SUB"); and GCGA
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Physicians, Inc., an Ohio corporation (the "Practice").
RECITALS:
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A. Pursuant to the terms of that certain Agreement and Plan of
Reorganization dated as of August 31, 1997 (the "Reorganization Agreement") by
and among PHC, PHC-SUB and the former stockholders (the "Stockholders") of
Greater Cincinnati Gastroenterology Associates, Inc. (the "Former Practice"),
PHC acquired the Former Practice (the "Reorganization").
B. Prior to the Reorganization, each of the current physician employees
of the Practice had practiced medicine as a physician employee of the Former
Practice.
C. PHC-SUB and its Affiliates (as defined herein) are engaged in the
business of providing high quality healthcare management services in the form of
(1) physician practice management, development and administration, and (2)
physician network development, marketing, management and administration.
D. In conjunction with the Reorganization, but prior to its effective
time, physician employees terminated their employment relationships with the
Former Practice and entered into relationships with the Practice, which will
continue to practice medicine and provide medical services to patients at
various medical offices in the metropolitan Cincinnati area with practice
management services being provided by PHC-SUB pursuant to this Agreement.
E. PHC-SUB and the Practice desire to enter into this Agreement for (1)
the provision of practice management and development services by PHC-SUB to the
Practice and (2) the provision by PHC-SUB of facilities, personnel, equipment
and supplies necessary to operate the Practice, pursuant to the terms and
conditions hereof, to permit the Practice and each of its physician employees to
devote their respective efforts on a concentrated and continuous basis to the
rendering of medical services to their patients.
F. PHC owns all the issued and outstanding capital stock of PHC-SUB and
is a party to this Agreement for the sole purpose of guaranteeing the full and
complete performance by PHC-SUB of the obligations, duties and covenants of PHC-
SUB owed to the Practice hereunder.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
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SECTION 1. GENERAL PRACTICE GOVERNANCE AND MUTUAL PLEDGE OF SUPPORT.
(a) As described more fully in this Agreement, the Practice will continue
to operate independently of PHC-SUB with broad control over the day-to-day
operations of the Practice remaining with the directors and officers of, and the
physicians employed by, the Practice. PHC-SUB shall (i) consult with the
Practice and its physician employees as to the method of PHC-SUB's performance
of the General Management Services (as defined herein) and (ii) follow the
reasonable advice thereon of the Practice in a cooperative effort to promote the
future development and success of the Practice.
(b) The Practice acknowledges that among the reasons it is entering into
this Agreement is to gain access to the strategic planning, financing, ancillary
services development, managed care, purchasing groups, information systems,
consulting and other practice management and development, expertise that PHC-SUB
can make available to the Practice, as well as the potential greater
efficiencies and economies of scale to be recognized by centralizing certain
management services to be provided by PHC-SUB to the Practice and the formation
of multi-specialty or single specialty physician practice groups within the
Practice. Consistent with the Practice's control and direction over its day-to-
day operations, the Practice and PHC-SUB pledge to work together to identify and
take advantage of such opportunities for the achievement of greater efficiency
and economies in the operation of the Practice. With the support of PHC-SUB
through the establishment and operation of the Joint Policy Board (as described
in Section 6 hereof), the Practice and PHC-SUB will work together to develop
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and implement strategic plans related to expansion of ancillary and other
services provided by, and the addition of medical offices, physicians and other
professional personnel to, the Practice.
SECTION 2. DEFINITIONS.
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principals, as in effect from time
to time ("GAAP") applied on a consistent basis.
As used herein, the following capitalized terms shall have the meanings
ascribed to such terms below:
2.1. "ADJUSTED NET PRACTICE REVENUE" means, for any period, the Net
Practice Revenues minus the New Practice Employee Expenses.
2.2. "AFFILIATE" of a corporation means (a) any person or entity directly
or indirectly controlled by such corporation, (b) any person or entity directly
or indirectly controlling such corporation, (c) any subsidiary of such
corporation if the corporation has a fifty percent (50%) or greater equity
ownership interest in the subsidiary, or (d) such corporation's parent
corporation if the parent has a fifty percent (50%) or greater ownership
interest in the corporation.
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2.3. "AGENT" means such person or entity as may be appointed by PHC-SUB
in writing to the Practice from time to time to serve as Agent hereunder.
2.4. "CHAMPUS" means, collectively, the Civilian Health and Medical
Program of the Uniformed Service, a program of medical benefits covering former
and active members of the uniformed services and certain of their dependents,
financed and administered by the United States Departments of Defense, Health
and Human Services and Transportation, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program including
(a) all federal statutes (whether set forth in 10 U.S.C. (S)(S)1071-1106 or
elsewhere) affecting such program; and (b) all rules, regulations, (including 32
C.F.R. (S)199), manuals, orders and administrative, reimbursement and other
guidelines of all governmental authorities promulgated in connection with such
program (whether or not having the force of law), in each case as the same may
be amended, supplemented or otherwise modified from time to time.
2.5. "CHAMPUS RECEIVABLE" means a Receivable payable pursuant to CHAMPUS.
2.6. "CHAMPVA" means, collectively, the Civilian Health and Medical
Program of the Department of Veteran Affairs, a program of medical benefits
covering retirees and dependents of former members of the armed services
administered by the United States Department of Veteran Affairs, and all laws,
rules, regulations, manuals, orders, guidelines or requirements pertaining to
such program, including (a) all federal statutes (whether set forth in 38 U.S.C.
(S)1713 or elsewhere) affecting such program or, to the extent applicable to
CHAMPVA, CHAMPUS; and (b) all rules, regulations (including 38 C.F.R. (S)17.54),
manuals, orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
2.7. "CHAMPVA RECEIVABLE" means a Receivable payable pursuant to CHAMPVA.
2.8. "COLLATERAL" means all property mortgaged, pledged or otherwise
purported to be subject to a lien pursuant to the Credit Agreement.
2.9. "CREDIT AGREEMENT" means any credit, lending or financing agreement
entered into by PHC in connection with the financing of the transactions
contemplated by the Reorganization Agreement.
2.10. "DEPOSITORY BANK" has the meaning set forth in SECTION 7.4(B).
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2.11. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.12. "GOVERNMENT ADVANCE" has the meaning set forth in SECTION 7.4(C).
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2.13. "GOVERNMENT RECEIVABLES" means, collectively, any and all
Receivables which are (a) Medicare Receivables, (b) Medicaid Receivables, (c)
CHAMPUS Receivables, (d) CHAMPVA Receivables, or (e) any other Receivable
payable by a governmental authority approved by the Agent.
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2.14. "GOVERNMENT RECEIVABLES PAYMENT AMOUNT" means, for any month, the
product of (a) the Practice Government Collection Percentage for the twelve (12)
month period immediately preceding such month, times (b) the total amount of all
Government Receivables arising during such month.
2.15. "GROSS MONTHLY PAYMENT AMOUNT" means the sum of the Private
Receivables Payment Amount plus the Government Receivables Payment Amount.
2.16. "HCFA" means the Health Care Financing Administration, an agency of
the United States Department of Health and Human Services, and any successor
thereto.
2.17. "MATERIAL ADVERSE EFFECT" means, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related, a material
adverse change in, or a material adverse effect upon, any of the financial
condition, operations, business, properties or prospects of the Practice.
2.18. "MEDICAID" means, collectively, the healthcare assistance program
established by Title XIX of the Social Security Act (42 USC (S)(S)1396 et seq.)
and any statutes succeeding thereto, and all laws, rules, regulations, manuals,
orders, guidelines or requirements pertaining to such program including (a) all
federal statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting such program; (b) all state statues and plans for medical
assistance enacted in connection with such program and federal rules and
regulations promulgated in connection with such program; and (c) all applicable
provisions of all rules, regulations, manuals, orders and administrate,
reimbursement, guidelines and requirements of all government authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
2.19. "MEDICAID PROVIDER AGREEMENT" means an agreement entered into
between a state agency or other entity administering Medicaid in such state and
a healthcare facility or physician under which the healthcare facility or
physician agrees to provide services or merchandise for Medicaid patients.
2.20. "MEDICAID RECEIVABLE" means a Receivable payable pursuant to a
Medicaid Provider Agreement.
2.21. "MEDICARE" means, collectively, the health insurance program for the
aged and disabled established by Title XVIII of the Social Security Act (42 USC
(S)(S)1395 et seq.) and any statutes succeeding thereto, and all laws, rules,
regulations, manuals, orders or guidelines pertaining to such program including
(a) all federal statutes (whether set forth in Title XVIII of the Social
Security Act or elsewhere) affecting such program; and (b) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all governmental authorities
promulgated in connection with such program
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(whether or not having the force of law), in each case as the same may be
amended, supplemented or otherwise modified from time to time.
2.22. "MEDICARE PROVIDER AGREEMENT" means an agreement entered into
between a state agency or other entity administering Medicare in such state and
a healthcare facility or physician under which the healthcare facility or
physician agrees to provide services or merchandise for Medicare patients.
2.23. "MEDICARE RECEIVABLE" means a Receivable payable pursuant to
Medicare Provider Agreement.
2.24. "MEDICAL OFFICE" means any of the medical offices provided by PHC-SUB
that are utilized, in whole or in part, by the Practice.
2.25. "NET PRACTICE REVENUES" means, for any fiscal period, (i) all
revenues recognized by or on behalf of the Practice or any of its Practice
Employees, including New Practice Employees, as a result of professional medical
services furnished to patients, ancillary services furnished to patients,
pharmaceuticals and other items and supplies sold to patients; (ii) revenues
received by the Practice from the purchase of its accounts receivable by PHC-SUB
as provided in Section 7 hereof; and (iii) other fees or income received by the
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Practice or its Practice Employees in their capacity as Practice Employees,
whether rendered in an inpatient or outpatient setting and whether rendered to
health maintenance organizations, preferred provider organizations, Medicare,
Medicaid or other patients, including, but not limited to, payments received
under any capitation arrangement (including, without limitation, monthly
capitation payments, bonus payments, risk pool payments, etc.). For the
purposes of this Agreement, only the professional component of New Ancillary
Service Revenue shall be included in Net Practice Revenues.
2.26. "NEW ANCILLARY SERVICE EXPENSES" means, for any fiscal period, all
expenses paid during such period by PHC-SUB in generating New Ancillary Service
Revenue, including, without limitation, the costs of facilities, equipment,
supplies, staff and technicians directly associated therewith and the direct
capital expenses (not to exceed the sum of interest expense plus depreciation
attributable to the capital expenditure in question) associated therewith.
2.27. "NEW ANCILLARY SERVICE REVENUE" means, for any fiscal period, all
revenue generated during such period by the Practice as a result of new
ancillary services furnished to patients unlike in nature or in scope the
ancillary services that were provided by the Practice immediately prior to the
Effective Date (excluding, in any event, services in connection with Consultants
for Clinical Research, "New Ancillary Services"), except for the professional
medical services revenue component of such new ancillary services, which
component shall constitute a portion of Net Practice Revenue or New Practice
Employee Revenue, as applicable, for such period.
2.28. "NEW PRACTICE EMPLOYEE" means any physician Practice Employee who
was not employed by or under contract with the Practice as of the Effective
Date.
2.29. "NEW PRACTICE EMPLOYEE EXPENSES" means, for any fiscal period, the
aggregate
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amount of salaries, benefits and recruitment expenses paid by the Practice
relating to the employment or engagement by the Practice of each New Practice
Employee.
2.30. "OPERATIONAL EXPENSES" means, for any fiscal period, all the
expenses and capitalized costs (other than PHC-SUB Expenses, Practice Expenses,
New Ancillary Service Expenses, and New Practice Employee Expenses) incurred by
PHC-SUB in the provision of the General Management Services and the Practice
Development Services to the Practice pursuant to this Agreement and such other
expenses of a kind set forth in the Annual Budget (as defined in Section 41)
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for provision of services by PHC-SUB to the Practice (provided that, with
respect to any Operational Expenses required to be capitalized under GAAP, the
capitalized cost of the item shall not be an Operational Expense, but the
depreciation or amortization of such expense by PHC-SUB shall be an Operational
Expense), including, but not limited to, the following:
(a) salaries, benefits (including any deferred compensation) and other
costs relating to the employment or engagement by PHC-SUB of employees or
independent contractors to provide services for the Practice, including a pro-
rata share of expenses relating to employees or independent contractors who
provide services to the Practice and to other persons or entities;
(b) professional liability insurance premiums and deductibles to the extent
provided in Section 10 hereof, including premiums and deductibles related to
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policies obtained pursuant to Section 103 hereof;
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(c) Practice Employee licensure fees, board certification fees, and
hospital staff privilege dues;
(d) obligations under leases or subleases for the Medical Offices and
equipment used by the Practice;
(e) personal property and intangible taxes assessed against assets used by
the Practice and state and local business taxes, fees and charges of the
Practice or of PHC-SUB and related to the Practice;
(f) charitable contributions approved in the Annual Budget or by a
unanimous vote of the Joint Policy Board (as defined in Section 6);
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(g) depreciation, amortization and all other expenses related to FF&E (as
defined in Section 34 hereof);
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(h) interest expenses or other costs of funds on indebtedness incurred by
PHC-SUB or PHC to finance or refinance any of its obligations hereunder or
services provided under this Agreement, including such expenses related to
salary advances for Practice Employees as approved by the Joint Policy Board;
(i) medical and office supply expenses, including pharmaceutical products;
(j) utility expenses and all other costs relating to the Medical Offices,
including without limitation, costs of repairs, maintenance, telephone, normal
janitorial services, refuse
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disposal;
(k) insurance premiums for general comprehensive liability insurance
(including without limitation insurance relating to the potential liability of
PHC-SUB arising out of the operation of the Practice) and workers' compensation
insurance for PHC-SUB's employees described in Section 232 hereof;
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(l) expenses related to billing and collecting for payment for services
rendered by the Practice;
(m) expenses relating to the recruitment of physicians and any other
personnel for the Practice; and
(n) all dues and fees for hospital and medical staff memberships for
Practice Employees.
2.31. "PAYOR INSTRUCTION LETTER" has the meaning set forth in SECTION
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7.4(B).
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2.32. "PHC-SUB EXPENSE" means any expense paid by PHC-SUB not directly
related to the Practice or the provision by PHC-SUB of the General Management
Services including, but not limited to, the following:
(a) corporate overhead charge of or allocated to PHC-SUB other than the
kind of items listed in Section 229 hereof, except as may be otherwise agreed
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upon by PHC-SUB and the Practice;
(b) amortization expense resulting from the amortization of Management
Agreement Costs (as defined in Section 84 hereof) in connection with this
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Agreement or the Reorganization Agreement;
(c) interest expense or other cost of funds on indebtedness incurred by PHC
or PHC-SUB to finance the purchase price paid or withheld pursuant to any
liabilities assumed by PHC-SUB under the Reorganization Agreement;
(d) federal and state income taxes of PHC-SUB, PHC, or any of their
Affiliates and the costs of preparing their respective federal and state income
and employment tax returns and other related filings; and
(e) liability judgments assessed against PHC-SUB, PHC or any of that
affiliates or any employees or agents thereof in excess of applicable insurance
policy limits.
PHC-SUB Expense shall not include any New Ancillary Service Expenses and
any New Practice Employee Expenses.
2.33. "PRACTICE EMPLOYEE" means any individual:
(1) who is (a) duly licensed to practice medicine and (b) an employee
or independent contractor of the Practice, including the physician
shareholders of the Practice, or
(2) who is (a) required by contract, law or regulatory authority to be
employed by or whose services are required to be billed through a licensed
physician for purposes of obtaining payment or reimbursement for such
services or otherwise and (b) provides medical services to patients of the
Practice, including, without limitation, nurse practitioners, certified
registered nurse anesthetists, physician assistants, fellows, surgical
assistants, certified nurse midwives, individuals with a masters degree in
social work, physical therapists, psychologists, and any other similar
individuals.
Notwithstanding, anything contained here to the contrary, the Practice may,
at its discretion, retain other non-professional employees to provide other
services to the Practice or its Practice Employees, provided that all expenses
related to such non-professional employees shall constitute Practice Expenses
and not Operational Expenses, and such non-professional employees shall not be
considered "Practice Employees" for the purposes of this Agreement.
2.34. "PRACTICE EXPENSE" means any expense of the Practice which is not an
Operational Expense, a PHC-SUB Expense, a New Ancillary Service Expense, or a
New Practice Employee Expense. Practice Expenses shall include, without
limitation, the following:
(a) all salaries or benefits (including, for example, deferred compensation
benefits and health insurance benefits) payable with respect to Practice
Employees or compensation paid or payable to physician independent contractors,
including New Practice Employee Expenses;
(b) all federal, state or local income and employment taxes of the Practice
and the costs of preparing its federal, state or local income and employment tax
returns;
(c) all costs of membership in professional associations and continuing
professional education expenses, including subscriptions, for Practice
Employees;
(d) all liability judgments assessed against the Practice or Practice
Employees in excess of policy limits;
(e) all costs of employees providing personal services to particular
Practice Employees and like expenses personal in nature;
(f) the General Management Fee;
(g) the Practice Development Fee;
(h) the Payor Contracting Development Fee;
(i) automobile allowances for physician Practice Employees;
(j) entertainment expenses; and
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(k) all other expenses to be taken as Practice Expenses as specifically set
forth herein.
2.35. "PRE-DISTRIBUTION PROFIT MARGIN" means, for any fiscal period, the
amount equal to the Adjusted Net Practice Revenue minus the Operational Expenses
for such period.
2.36. "PRACTICE GOVERNMENT COLLECTION PERCENTAGE" means the ratio,
expressed as a percentage, of (a) payments received by the Practice or PHC-SUB
on the account of the Practice's Government Receivables during the twelve (12)
month period immediately preceding any date of determination to (b) the total
amount of the Practice's Government Receivables billed during such twelve (12)
month period.
2.37. "PRACTICE LOCKBOX" has the meaning set forth in SECTION 7.4(B).
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2.38. "PRACTICE MANAGEMENT SECURITY AGREEMENT" means the security
agreement between the Agent and the Practice in the form prescribed by the
Credit Agreement or, in lieu thereof or in addition thereto, any security
agreement required by PHC-SUB to secure any advances made by it under this
Agreement.
2.39. "PRACTICE PRIVATE COLLECTION PERCENTAGE" means the ratio, expressed
as a percentage, of (a) payments received by the Practice or PHC-SUB on the
account of the Practice's Private Receivables during the twelve (12) month
period immediately preceding any date of determination to (b) the total amount
of the Practice's Private Receivables billed during such twelve (12) month
period.
2.40. "PRIVATE RECEIVABLE" shall have the meaning given to such term in
Section 7.4.
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2.41. "PRIVATE RECEIVABLES PAYMENT AMOUNT" means, for any month, the
product of (a) the Practice Private Collection Percentage for the twelve (12)
month period immediately preceding such month, times (b) the total amount of all
Private Receivables arising during such month.
2.42. "PUBLIC OFFERING" means any method or means by which PHC initially
accesses any public capital market for any shares of its capital stock,
including without limitation, an initial public offering of the shares of the
common stock of PHC.
2.43. "RECEIVABLE" means, as at any date of determination thereof, the
unpaid portion of the obligation, as stated in the receptive invoice, of a
patient of the Practice or any of the Practice Employees in respect of Inventory
(as defined in Article 9 of the Uniform Commercial Code of the State of Ohio) or
services rendered in the ordinary course of business, which amount has been
earned by performance under the terms of the related contract and recognized as
revenue on the books of the Practice, net of any credits, rebates or offsets
owed to such patient or any Third Party Payor in respect thereof and also net of
any commissions payable to any person or entity other than PHC-SUB, any of its
Affiliates, the Practice, or any of their employees.
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2.44. "SECURED PARTY" means any of the secured parties to the Practice
Management Security Agreement(s).
2.45. "THIRD PARTY PAYORS" means any governmental entity, insurance
company, health maintenance organization, preferred provider organization
employer or other person or similar entity that is obligated to make payments
with respect to a Receivable.
SECTION 3. GENERAL MANAGEMENT SERVICES.
PHC-SUB shall render to the Practice the general management services and
provide personnel, office space, equipment and supplies as set out in this
Section 3 (collectively the "General Management Services").
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3.1. PHC-SUB PERSONNEL.
(a) PHC-SUB shall employ and provide to the Practice, as reasonably
requested by the Practice: (i) all nurses (except for nurses who shall be
Practice Employees pursuant to Section 2.33 hereof), medical records personnel
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and other medical support personnel as shall be reasonably necessary for the
operation of the Practice at the Medical Offices; (ii) all business office
personnel (i.e., clerical, secretarial, bookkeeping and revenue collection
personnel) as shall be reasonably necessary for the maintenance of patient
records, collection of accounts receivable and upkeep of the financial records
of the Practice; and (iii) an office administrator (the "Administrator") as
shall be reasonably necessary to manage and administer, subject to the terms and
conditions hereof, all of the day-to-day routine business functions and services
of the Practice.
(b) As to the personnel provided by PHC-SUB to the Practice under Section
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3.1, (a) PHC-SUB shall consult with the Practice as to the salaries of all such
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personnel and shall follow the Practice's reasonable advice thereon. As of the
Effective Date, the Stockholders shall cause the plans, agreements, arrangements
and understandings set forth in Schedule 2.12 to the Reorganization Agreement to
be amended to provide for the eligibility of the Transferred Employees (as
defined in the Reorganization Agreement) as "leased employees" in accordance
with the applicable provisions of the Internal Revenue Code of 1986 (the "Code")
and ERISA. Notwithstanding the foregoing, the Practice shall not maintain a
self-insured group health plan after the Effective Date which provides benefits
to the Transferred Employees. As requested by the Practice, PHC-SUB shall
identify and recommend personnel candidates for all such positions to perform
services at the Medical Offices; provided, however, that the Practice shall have
the right to direct and approve, based solely on professional competence, the
assignment of all non-physician medical support personnel to provide services at
the Medical Offices. PHC-SUB shall, at the Practice's request, remove from the
Practice and reassign or replace any such personnel who are not, in the
Practice's professional judgment, adequately performing the required services.
In providing its consultation and advice with regard to personnel as provided to
the Practice pursuant to Section 3.1 (a) hereof, neither the Practice nor
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PHC-SUB shall discriminate against such personnel on the basis of race,
religion, age, sex, disability or national origin in violation of any applicable
federal or state law. All the Practice's and PHC-SUB's obligations regarding
staff
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of the Practice shall be governed by the overriding principle and goal of
providing high quality medical care. Employee assignments shall be made to
assure consistent and continued rendering of high quality medical support
services and to ensure prompt availability and accessibility of individual
medical support personnel to physicians in order to develop constant, familiar
and routine working relationships between individual physicians and individual
members of the medical support personnel.
3.2. MEDICAL OFFICES.
PHC-SUB shall lease or sublease the Medical Offices, and hereby grants the
Practice the exclusive right in conjunction with PHC-SUB, during the term of
this Agreement, to use, subject to the terms and conditions of such lease or
sublease, the Medical Offices for the practice of medicine and the performance
of services ancillary thereto. PHC-SUB shall provide, manage and maintain the
Medical Offices in good condition and repair, including the provision of routine
janitorial services and maintenance services, subject to the terms of the
various leases. PHC-SUB shall pay rent as due, provide utilities, and pay
other related expenses, consistent with the Annual Budget.
3.3. LICENSE OF PRACTICE NAME.
PHC-SUB hereby licenses the Practice to use the name "Greater Cincinnati
Gastroenterology Associates" during the term of this Agreement; provided,
however, such license shall terminate upon any termination of this Agreement.
3.4. FURNITURE, FIXTURES AND EQUIPMENT.
PHC-SUB agrees to provide to the Practice those supplies and items of
furniture, fixtures and equipment reasonably determined in the Practice's
discretion to be necessary and/or appropriate for the Practice's operations at
the Medical Offices during the term of this Agreement (all such items of
furniture, fixtures and equipment are collectively referred to hereinafter as
the "FF&E"). Title to the existing, additional and replacement FF&E shall be in
the name of PHC-SUB or its nominee or a leasing company. PHC-SUB shall be
responsible for all repairs and maintenance of the FF&E. The FF&E provided
shall be at least reasonably equivalent to that of the Practice immediately
prior to the Effective Date.
The Practice acknowledges that PHC-SUB makes no warranties or
representations, express or implied, as to the fitness, suitability or adequacy
of any furniture, fixtures, equipment, inventory, or supplies which are leased
or provided to the Practice pursuant to this Agreement, for the conduct of a
medical practice or for any other particular purpose.
3.5. BUSINESS OFFICE SERVICES.
(a) PHC-SUB shall provide or cause to be provided all management and
administrative business functions and services related to the Practice's
services during the term of this Agreement as reasonably requested or approved
by the Practice, including but not limited to all reasonable and necessary
computer, bookkeeping, billing and collection services, accounts
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receivable and accounts payable management services, laundry, linen, janitorial
and cleaning services and management services. The provision of all such
management and administrative business functions and services shall be performed
in a manner and by such PHC-SUB personnel as shall be reasonably requested by
the Practice. At the reasonable request or with the approval of the Practice,
certain management and administrative business functions and services related to
the Practice may be centralized in PHC-SUB, PHC or affiliated sites located
outside the Medical Offices. Without limiting the generality of the foregoing,
PHC-SUB shall perform the following functions:
(i) Administer all managed care contracts on behalf of the
Practice, all such managed care contracts being subject to approval by the
Joint Policy Board as set forth in Section 6.1;
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(ii) Provide ongoing assessment of business activity including
product line analysis, outcomes monitoring and patient satisfaction;
(iii) Order and purchase all medical and office supplies reasonably
required in the day-to-day operation of the Practice at the Medical
Offices;
(iv) Negotiate for and cause premiums to be paid with respect to the
insurance provided for in Section 10 hereof;
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(v) Xxxx and collect from patients all professional fees for
medical services and for ancillary services performed at or on behalf of
the Practice and the Practice Employees. The Practice hereby appoints PHC-
SUB for the term of this Agreement as its true and lawful attorney in fact
for the following purposes:
(1) To xxxx patients in the Practice's name and on the
Practice's behalf, and in the name and on behalf of all Practice
Employees;
(2) To collect accounts receivable generated by such xxxxxxxx
in the Practice's name and on the Practice's behalf, and in the name
and on behalf of all Practice Employees;
(3) To receive, on behalf of the Practice and all Practice
Employees, payments from patients, insurance companies, Medicare,
Medicaid and all other payers with respect to services rendered by the
Practice and Practice Employees, and the Practice hereby covenants to
forward such payments to PHC-SUB for deposit;
(4) To take possession of and endorse in the name of the
Practice, or in the name of any Practice Employee, any notes, checks,
money orders, insurance payments and any other instruments received as
payment of such accounts receivable; and
(5) To initiate and pursue legal proceedings in the name of the
12
Practice, to collect any accounts and moneys owed to the Practice or
any Practice Employee, to enforce the rights of the Practice as
creditors under any contract or in connection with the rendering of any
service, and to contest adjustments and denials by governmental
agencies (or its fiscal intermediaries) as third-party payors.
(b) PHC-SUB agrees that the Practice and only the Practice will perform the
medical functions of its practice. PHC-SUB will have no authority, directly or
indirectly, to perform, and will not perform, any medical function. PHC-SUB
may, however, advise the Practice as to the relationship (if any) between its
performance of medical functions and the overall administrative and business
functioning of its practice. To the extent that they assist the Practice in
performing medical functions, all clinical personnel provided by PHC-SUB who
perform patient care services shall be subject to the professional direction and
supervision of the Practice and, in the performance of such medical functions,
shall not be subject to any direction or control by, or create any liability on
behalf of, PHC-SUB, except as may be specifically authorized by PHC-SUB.
3.6. PATIENT AND FINANCIAL RECORDS.
PHC-SUB shall own and maintain all files and records (other than medical
records) relating to the operation of the Practice in such manner and method as
reasonably directed by the Practice, including, but not limited to, customary
financial records and patient files. PHC-SUB shall use its best efforts to
manage all files and records in compliance with all applicable federal, state
and local statutes and regulations, and all files and records shall be located
so that they are readily accessible for patient care, consistent with ordinary
records management practices.
The Practice shall supervise the preparation of, and direct the contents
of, patient medical records, all of which shall be and remain confidential and
the property of the Practice. PHC-SUB shall have reasonable access to such
records and, subject to applicable laws, regulations and accreditation policies,
PHC-SUB shall be permitted to retain true and complete copies of such records.
PHC-SUB shall maintain all medical records owned by it at the Effective
Date, will provide the Practice with full access to such medical records and
will not relocate or destroy such medical records without the Practice's prior
written consent.
3.7. FINANCIAL STATEMENTS.
PHC-SUB shall prepare and deliver to the Practice monthly financial
statements within thirty (30) days after the end of each month and a year-end
financial statement within one hundred twenty (120) days after the end of each
calendar year, in a form mutually acceptable to PHC-SUB and the Practice,
reflecting Net Practice Revenue, Operational Expenses, the General Management
Fee, the Practice Development Fee, the Payor Contracting Development Fee, PHC-
SUB Expenses, Adjusted Net Practice Revenue, New Ancillary Service Expenses, New
Ancillary Service Revenue, New Practice Employee Expenses, and the Pre-
Distribution Profit Margin, for such period.
13
3.8. PAYMENT OF OPERATIONAL EXPENSES AND PHC-SUB EXPENSES.
All Net Practice Revenues shall be deposited in a bank account in the name
of the Practice. PHC-SUB shall have the authority to pay all Practice Expenses
from such account, including without limitation, all fees due and payable to
PHC-SUB hereunder and to reimburse itself for all expenses advanced by PHC-SUB
to or on behalf of the Practice, including without limitation, Operational
Expenses and New Practice Employee Expenses.
SECTION 4. PRACTICE DEVELOPMENT SERVICES.
PHC-SUB shall provide to the Practice the practice development services
provided for in this Section 4 which are intended to identify and evaluate for
---------
the Practice opportunities for: (i) expanding ancillary and other services and
adding Medical Offices and Practice Employees; and (ii) creating greater
efficiency and economy in the operation of the Practice (collectively the
"Practice Development Services") in a manner consistent with the provisions of
this Section 4 and the other provisions of this Agreement.
---------
4.1. FINANCIAL PLANNING AND GOALS.
PHC-SUB will prepare, in consultation with the Practice, an annual budget
(the "Annual Budget") for the Practice, reflecting in reasonable detail
anticipated revenues, expenses, sources and uses of capital for growth,
personnel staffing, and anticipated ancillary services. The Annual Budget shall
be subject to review and approval by the Joint Policy Board, in accordance with
Section 6 hereof. Subject to such approval, the access to needed working
---------
capital and capital expenditures provided therein shall be provided by PHC-SUB.
4.2. RECRUITMENT OF NEW PRACTICE EMPLOYEES.
At the request of the Practice, PHC-SUB shall perform administrative
services relating to the recruitment of Practice Employees. The decision to
retain a New Practice Employee shall be made by the Joint Policy Board, as set
forth in Section 6, provided the Practice shall interview and hire each
---------
individual New Practice Employee and all such personnel shall be employees,
independent contractors or agents of the Practice.
4.3. MANAGED CARE RELATIONSHIPS.
PHC-SUB shall assist the Practice in evaluating and developing
relationships and affiliations with other physicians, physician practices,
physician networks, hospitals, integrated delivery systems and managed care
organizations ("Managed Care Relationships") that may expand or increase the
business or value of the Practice. The Practice shall cooperate with PHC-SUB
and contribute reasonable efforts to assist PHC-SUB in its efforts to pursue
Managed Care Relationships. All decisions regarding initiating or terminating
Managed Care Relationships shall be subject to the review and approval of the
Joint Policy Board.
14
4.4. EXPANSION OF THE PRACTICE.
PHC-SUB shall assist the Practice in evaluating and adding additional
office space, new Medical Offices, new office-based procedures and services, and
new ancillary services, as provided for in the Annual Budget or otherwise
approved by the Joint Policy Board. PHC-SUB and the Practice hereby pledge
their mutual intention and support for such reasonable expansion of the
Practice.
4.5. PRACTICE ASSESSMENT AND CONSULTING SERVICES.
PHC-SUB shall assess Practice performance including product line analysis,
outcomes monitoring and patient satisfaction. PHC-SUB shall develop systems to
track revenues, expenses, utilization, quality improvement, Practice and
physician productivity, and patient satisfaction. PHC-SUB shall arrange for or
provide business and financial management consultation and advice reasonably
requested by the Practice and directly related to the operations of the Practice
pursuant to this Agreement.
4.6. PAYOR CONTRACTING DEVELOPMENT SERVICES.
Directly or through an Affiliate, PHC-SUB shall dedicate reasonable efforts
to develop and xxxxxx payor relationships and secure additional and more
favorable managed care contracts on behalf of the Practice, including, but not
limited to, marketing services, physician network development services, and
contract development services on behalf of the Practice (the "Payor Contracting
Development Services").
SECTION 5. OBLIGATIONS OF THE PRACTICE.
5.1. PRACTICE EXPENSES.
The Practice shall be solely responsible for the payment of all of Practice
Expenses, as herein defined. The Practice shall pay all Practice Expenses as
they fall due; provided, however, the Practice may contest in good faith any
such claimed expense as to which there is any dispute.
5.2. PROFESSIONAL STANDARDS.
The professional services provided by the Practice and the Practice
Employees shall be performed solely by or under the supervision of physicians
licensed to practice medicine and shall at all times be provided in accordance
with applicable ethical standards, laws and regulations applying to the medical
profession. The Practice shall, with the assistance of PHC-SUB if so requested,
resolve any utilization management or quality improvement issues which may arise
in connection with the Practice.
If any disciplinary actions or professional liability actions are initiated
against the Practice or any Practice Employee, the Practice shall immediately
inform PHC-SUB of such action and the underlying facts and circumstances. PHC-
SUB shall similarly inform the Practice of any
15
such disciplinary actions or professional liability actions initiated against
the Practice or any Practice Employee of which it first becomes aware.
The Practice shall establish and maintain procedures to assure the
consistency and quality of all professional medical services provided by the
Practice, and PHC-SUB shall render administrative assistance to the Practice as
requested in furtherance thereof.
5.3. PHYSICIAN POWERS OF ATTORNEY.
The Practice shall require all Practice Employees to execute and deliver to
PHC-SUB powers of attorney, satisfactory in form and substance to PHC-SUB,
appointing PHC-SUB as attorney in fact for each such Practice Employee for the
purposes set forth in Section 3.5(a)(v).
-----------------
5.4. RESTRICTIVE COVENANTS.
(a) The Practice acknowledges and agrees that the services to be provided
by PHC-SUB hereunder are feasible only if the Practice operates a vigorous
medical practice to which the Practice Employees devote their full time and
attention. Accordingly, the Practice agrees that except as set forth on Exhibit
-------
5.4(a) attached hereto, it shall not, without the prior written consent of PHC-
------
SUB, establish, operate or provide physician services substantially similar to
those professional medical, surgical and related ancillary services offered by
the Practice other than pursuant to this Agreement, during the term of this
Agreement and for a period of twelve (12) months following this Agreement within
a twenty (20) mile radius of any Medical Office. Except as set forth below, the
Practice shall obtain, maintain, update and reasonably enforce agreements with
its physician Practice Employees, satisfactory in form and substance to PHC-SUB,
pursuant to which physician Practice Employees shall agree: (i) not to
establish, operate or provide physician medical or surgical services
substantially similar to those professional medical, surgical and related
ancillary services offered by the Practice other than on behalf of the Practice
and pursuant to this Agreement, without the prior written consent of PHC-SUB,
while such physician is a Practice Employee during the term of this Agreement;
and (ii) not to provide physician services substantially similar to those
professional medical and surgical services provided by such physician on behalf
of the Practice within a twenty (20) mile radius of each of the Medical Offices
for a period of two (2) years following the termination of the professional
relationship between such physician and the Practice. PHC-SUB shall be expressly
named as a third-party beneficiary to such agreements between the Practice and
each physician Practice Employee. Notwithstanding the foregoing, the agreement
that Practice shall be required to obtain, maintain, update and reasonably
enforce with respect to Xx. Xxxxxxx shall provide that the provisions set forth
in clause (ii) of this paragraph shall not apply to Xx. Xxxxxxx unless and until
Xx. Xxxxxxx remains a Practice Employee through the first annual anniversary of
the Effective Date. Further notwithstanding the foregoing, following the eighth
anniversary of the Effective Date, a physician who was a shareholder in the
Practice on the Effective Date of this Agreement shall be released by PHC-SUB
from his or her covenant not-to-compete as set forth in this Section 5.4(a) upon
--------------
payment to PHC-SUB of the consideration set forth in Exhibit 5.4(a) attached
--------------
hereto. New Practice Employees shall not be required to enter into the
agreements containing restrictive covenants described in this Section 5.4(a)
--------------
provided that the Practice and the New Practice Employees agree in writing that
the New Practice Employees will provide ninety
16
(90) days written notice prior to leaving the employment of the Practice.
(b) During the term of this Agreement and for a period of eighteen (18)
months following the termination or expiration of this Agreement, the Practice
shall not, without the prior written consent of PHC-SUB, employ, hire or
contract for services with any employee or former employee of PHC-SUB, nor shall
the Practice solicit any such person to leave the employ of PHC-SUB. For
purposes of this Section 5.4(b), a "former employee" shall be any person who was
--------------
employed by PHC-SUB within the six (6) months prior to the termination or
expiration of this Agreement. The Practice shall cause its Practice Employees
to enter into written agreements, satisfactory in form and substance to PHC-SUB,
pursuant to which such persons shall agree to be bound by the same restrictions
as set forth in this Section 5.4(b) with respect to the Practice and PHC-SUB,
--------------
and PHC-SUB shall be expressly named as a third-party beneficiary to such
agreements between the Practice and each physician Practice Employee.
(c) If this Agreement is terminated by PHC-SUB pursuant to Section 8.2(a)
--------------
or 82(b) hereof, the Practice shall not, for a period of two (2) years
-----
following the effective date of such termination, engage or contract with any
person, firm or entity (or group of affiliated entities) for the provision of
comprehensive management services of the kind contemplated by this Agreement.
If this Agreement is terminated for any reason, other than by PHC-SUB pursuant
to Section 8.2(a) or 8.2(b), then the restrictions of this Section 5.4(c) shall
-------------- ------ --------------
not apply.
(d) Notwithstanding any provisions of this Agreement providing for
mandatory arbitration, PHC-SUB and the Practice acknowledge and agree that PHC-
SUB's remedy at law for any breach or attempted breach of the foregoing
provisions of this Section 5.4 will be inadequate and that PHC shall be entitled
-----------
to specific performance, injunction or other equitable relief in the event of
any such breach or attempted breach, in addition to any other remedies which
might be available at law or in equity.
(e) Notwithstanding anything contained herein to the contrary, the
provisions of this Agreement shall not apply following the termination of this
Agreement in connection with the expiration of its 40 year term.
5.5. CONTINUING PROFESSIONAL EDUCATION.
The Practice shall ensure that each of its Practice Employees participates
in such continuing medical education activities as are necessary for such
physicians or other employees to remain current in their respective specialties,
including, but not limited to, the minimum continuing medical education
requirements imposed by applicable laws and policies of applicable specialty
boards.
5.6. CONTRACTS WITH PRACTICE EMPLOYEES.
Decisions regarding the addition of a New Practice Employee shall be made
by the Joint Policy Board pursuant to Section 6.1 hereof. In addition, the
-----------
Practice shall use its best efforts to consult with PHC-SUB prior to terminating
the employment by the Practice of any Practice Employee. The Practice shall
also, during the term of this Agreement, use its reasonable efforts
17
to consult with PHC-SUB with regard to the terms and conditions of contracts or
other arrangements entered into between the Practice and Practice Employees.
Notwithstanding the foregoing, all decisions with respect to removing Practice
Employees, and with respect to the terms and conditions of contracts or other
arrangements in connection therewith, shall be made by the Practice, in its sole
and absolute discretion.
5.7. COOPERATION.
The Practice shall cooperate in the obtaining and maintaining of
professional liability insurance coverage on the Practice and Practice Employees
by assuring that it and its Practice Employees are insurable, and by
participating in an on-going risk management program. The Practice shall, and
shall cause its Practice Employees to, use their respective good faith efforts
to exercise diligence in assisting PHC-SUB to control costs and expenses of the
Practice without sacrificing professional standards or high quality patient
care. The Practice shall, and shall require Practice Employees to, exercise due
care to ensure that, when being used by the Practice Employees, medical
equipment utilized by the Practice is being used in a safe and efficient manner,
and shall timely report any unsafe or unsatisfactory equipment of which the
Practice, or any of its Practice Employees, is aware. The Practice acknowledges
and agrees that on execution of this Agreement, PHC-SUB intends to implement its
own policies and procedures, including, but not limited to, policies and
procedures regarding cash management and revenue controls. The implementation
of such policies and procedures shall be subject to the approval of the
Practice, such approval not to be unreasonably withheld. These policies and
procedures will be implemented as soon as reasonably practicable after execution
of this Agreement and may be revised or amended by PHC-SUB from time to time
thereafter during the term of this Agreement, subject to the approval of the
Practice. Upon their approval, the Practice agrees to cooperate with any such
implementation, revision, or enactment of PHC-SUB's policies and procedures. The
Practice also agrees to cooperate with, and participate in, any patient
satisfaction surveys and/or outcomes management surveys or programs instituted
or implemented by PHC-SUB, subject to approval by the Practice.
5.8. COVENANTS RELATING TO CREDIT AGREEMENT.
(a) The Practice will cause to be promptly and duly taken, executed,
acknowledged, and delivered all such further acts, documents, and assurances:
(i) as may from time-to-time be necessary or as the secured party to
the Practice Management Security Agreement may from time to time reasonably
request in order to carry out the intent and purposes of that document and
the transactions contemplated thereby, including all such actions to
establish, preserve, protect, and perfect the estate, right, title, and
interest to the Collateral (including Collateral acquired after the date
hereof) including first priority liens thereon; and
(ii) as the secured party under the Practice Management Security
Agreement may from time-to-time reasonably request to establish, preserve,
protect, and perfect first priority liens on the Net Practice Revenues and
the Receivables, now owned or hereafter acquired that are not Collateral on
the date hereof.
18
(b) The Practice will use its best efforts to assist PHC-SUB in keeping
accurate and complete records of its Receivables.
(c) At the request of the Secured Party, the Practice will appoint the
Secured Party as its attorney-in-fact for the purpose of collecting the
Practice's Receivables, including, without limitation, its Governmental
Receivables, consistent with any limitations provided by law and will cooperate
with the Secured Party in signing or otherwise providing notices to Third Party
Payors with respect to this agency.
SECTION 6. JOINT POLICY BOARD.
6.1. FORMATION AND RESPONSIBILITIES OF JOINT POLICY BOARD.
PHC-SUB and the Practice shall establish a Joint Policy Board to be
comprised of three (3) members. PHC-SUB shall designate, in its sole
discretion, one (1) member to the Joint Policy Board. Initially, PHC-SUB will
designate Xxxx Xxxxx, M.D. to serve as a member of the Joint Policy Board. In
the event that Xxxx Xxxxx, M.D. is unable or unwilling to serve as PHC-SUB's
designee on the Joint Policy Board, PHC-SUB will designate Xxxxxxx Xxxxx, M.D.
to serve as a member of the Joint Policy Board. In the event that both Xxxx
Xxxxx, M.D. and Xxxxxxx Xxxxx, M.D. are unable or unwilling to serve as PHC-
SUB's designee on the Joint Policy Board, PHC-SUB may designate (with the
Practice's prior consent, which may be granted or withheld in its sole
discretion) any individual to the Joint Policy Board. In the event that the
Practice withholds its consent to PHC's first two such designees, the Practice
shall be obligated to propose three designees from which PHC-SUB (in its sole
discretion) shall select one to serve on the Joint Policy Board. The Practice
shall designate, in its sole discretion, two (2) members to the Joint Policy
Board. The Joint Policy Board shall consider, review, determine and approve, by
unanimous vote only, the following matters as they relate to the operation of
the Practice:
(i) the jointly developed Annual Budgets as prepared by PHC-SUB;
(ii) the long-term strategic planning objectives for the Practice;
(iii) operational or capital expenditures not included in the Annual
Budget greater than twenty-five thousand dollars ($25,000);
(iv) the opening or closing of any Medical Office;
(v) the addition of a New Practice Employee and the terms of any
contract with such employee;
(vi) the establishment or maintenance of Managed Care Relationships;
(vii) the addition of Practice provided New Ancillary Services;
19
(viii) the setting of Practice provided New Ancillary Service fees and
collection policies and the distribution of New Ancillary Service Revenues
of the Practice between the Practice and PHC-SUB;
(ix) the purchase, lease or sublease of any real property by PHC-SUB
which will be used, in whole or in part, by the Practice;
(x) the establishment of performance and productivity incentives as
provided in Section 7.3 hereof;
-----------
(xi) such other matters requiring or permitting action by PHC-SUB as
set forth in Sections 3 and 4 hereof; provided, that the Joint Policy
---------- -
Board shall not have the exclusive decision-making authority over the
matters set forth in Sections 4.3, 4.5 or 4.6, and PHC-SUB may act pursuant
------------ --- ---
to those Sections in consultation with but without the approval of the
Joint Policy Board.
Notwithstanding any provision of this Agreement, it is acknowledged and
agreed that, while the parties to this Agreement shall be obligated to follow
the decisions of the Joint Policy Board as set forth above, the Joint Policy
Board does not have the legal authority or power to bind PHC-SUB or the Practice
with respect to any third party, and no person not a party hereto shall have any
right under or by virtue of any vote taken or decision made by the Joint Policy
Board.
Notwithstanding any provision of this Agreement, under no circumstances
shall PHC-SUB be deemed to be in breach of this Agreement as a result (whether
direct or indirect) of any vacancy on the Joint Policy Board resulting from any
of (i) the withholding of the Practice's consent to PHC-SUB's designees to the
Joint Policy Board, (ii) the failure of the Practice to propose in a timely
fashion the three designees from which PHC-SUB may choose (as set forth in the
introductory paragraph to this Section 6.1) or (iii) the inability or refusal of
-----------
any nominee to serve on the Joint Policy Board.
6.2. RESOLUTION MECHANISM FOR DIVIDED VOTE OF JOINT POLICY BOARD.
Except as set forth in this Section 6.2 below, on any matter on which there
-----------
is a divided vote among the members of the Joint Policy Board, the Joint Policy
Board shall consider the matter for at least thirty (30) days from the date of
such divided vote and make its best good faith efforts to reach a unanimous
consensus. If a unanimous consensus cannot be reached within thirty (30) days,
the Joint Policy Board, by majority vote, shall select any other PHC (or PHC
Affiliate) designated representative to another Joint Policy Board of another
PHC (or PHC Affiliate) affiliated practice, who shall consider the matter in
good faith and whose decision on such matter shall be final. Notwithstanding
the foregoing, on matters related to items (iii), (iv), (v) and (ix) of Section
-------
6.1, the Joint Policy Board may, by majority vote, submit such matter for
---
resolution pursuant to this Section 6.2, but shall not be required to do so; and
---
no expenditure greater than twenty-five thousand dollars ($25,000), no new
Medical Office, no closure of an existing Medical Office, no addition of a New
Practice Employee, and no purchase, lease or sublease of any real property shall
be undertaken by PHC-SUB on behalf of the Practice without
20
a unanimous vote of the Joint Policy Board or resolution of a deadlock pursuant
to this Section 6.2.
-----------
6.3. ANNUAL BUDGET AND BUSINESS PLAN.
PHC-SUB shall be authorized to incur any operational, capital or other
expense approved by the Joint Policy Board pursuant to the Annual Budget. PHC-
SUB shall be required to seek the approval of the Joint Policy Board to incur an
expense exceeding the budgeted amounts specified in the annual business plan and
budget unless: (i) the expense is reasonable and does not exceed a line item
expense specified in the Annual Budget by more than twenty percent (20%) for any
twelve (12) month period; (ii) the total expenses for the applicable budget
year, on an annualized basis, do not exceed the total amount budgeted for such
year by more than ten percent (10%); or (iii) the expenditure is consented to by
the Joint Policy Board or the Practice. Notwithstanding the foregoing, PHC-SUB
may exceed budgeted amounts in the event the increase in the expenditure is
reasonable and is the result of an event beyond the control of PHC-SUB (e.g.,
increases in tax rates or utility charges, Acts of God, strikes and labor
disputes) provided that PHC-SUB shall provide notice of such a situation to the
Practice.
SECTION 7. FINANCIAL ARRANGEMENTS.
7.1. PHC-SUB COMPENSATION.
The Practice and PHC-SUB agree that the compensation described in this
Section 7.1 will be paid by the Practice to PHC-SUB in consideration of the
-----------
substantial commitment made by PHC-SUB hereunder and that such compensation is
fair and reasonable.
(a) General Management Fee.
(i) As compensation for the provision by PHC-SUB of the General
Management Services, for the first five (5) years of this Agreement, PHC-
SUB shall receive, except as provided under Section 7.1(a)(ii) hereof, a
------------------
general management fee (the "General Management Fee") equal to the greater
of (i) the amount set forth on Schedule 7.1 as the Minimum Management Fee
------------
(the "Minimum Management Fee") and (ii) twenty percent (20%) of annual Pre-
Distribution Profit Margin, up to the amount set forth on Schedule 7.1 as
------------
the Cap (such twenty percent (20%) of the annual Pre-Distribution Profit
Margin, the "Cap").
From the fifth anniversary of the Effective Date through the
expiration or termination of this Agreement, PHC-SUB shall receive a
General Management Fee of twenty percent (20%) of the annual Pre-
Distribution Profit Margin, up to the Cap.
Contemporaneously with the execution of this Agreement, the Practice
shall cause each of the physician shareholders of the Practice to execute
and deliver to PHC-SUB a guaranty of payment of such physician's
proportionate share of the Minimum Management Fee for the first five (5)
years of this Agreement in the form of Exhibit
-------
21
7.1(a) or Exhibit 7.1(b) hereto. Notwithstanding the foregoing, in the
------ --------------
event of death or disability of a physician shareholder of the Practice, or
in the event of the termination of employment of Xx. Xxxxxx, Xxxxxxx or
Bekal with the Practice prior to the date that is eighteen (18) months
following the Effective Date, the guarantee of payment of such physician's
proportionate share of the Minimum Management Fee for the first five (5)
years of this Agreement shall be released, and the Minimum Management Fee
shall be reduced by the amount of such physician shareholder's
proportionate share; provided, however, that in such event the Joint Policy
Board shall agree to the addition of a New Practice Employee if so
requested by PHC-SUB.
During the second calendar quarter of each of the first five years
during the term of this Agreement beginning with the second calendar
quarter of 1998, Practice and PHC-SUB shall jointly undertake a review of
financial and operational trends at the Practice for the prior twelve (12)
month period (the "Annual Review"). In the event that an Annual Review
reveals a downward trend in reimbursement rates per professional procedure
performed by the Practice exceeding ten percent (10%) on a cumulative basis
since January 1, 1997 when compared to the twelve (12) month period ending
December 31, 1996, then the Minimum Management Fee shall be reduced (on a
cumulative basis and giving credit to reductions, if any, made in
connection with prior Annual Reviews) by the same percentage that
reimbursement rates declined on a cumulative basis compared to the twelve
(12) month period ending December 31, 1996. PHC-SUB and Practice agree to
cooperate fully and work in good faith with one another in connection with
each Annual Review. Disagreements arising out of any Annual Review shall
be submitted to Arbitration pursuant to the provisions of Section 14 of
----------
this Agreement.
(ii) Notwithstanding any other provisions of Section 7 hereof, if PHC
---------
shall not have consummated the Public Offering as of the end of the sixty-
sixth (66/th/) month following the Effective Date and the Practice shall
not have terminated this Agreement pursuant to Section 8.2(c)(iv) hereof,
------------------
then the General Management Fee shall be reduced by thirty percent (30%);
provided, however, that if PHC shall have commenced the Public Offering
prior to the date that is seven and one-half (7 1/2) years after the
Effective Date, then the General Management Fee shall, as of the date of
the commencement of the Public Offering, return to the original General
Management Fee.
(b) Practice Development Fee. As compensation for the provision by PHC-SUB
of the Practice Development Services, PHC-SUB shall receive a practice
development fee (the "Practice Development Fee") equal to twenty percent (20%)
of amount by which the annual Pre-Distribution Profit Margin exceeds the product
of (i) the Cap times (ii) five.
(c) Operational Expenses. PHC-SUB shall be reimbursed the amount of all
Operational Expenses paid by PHC-SUB.
(d) Managed Care Development Fee. In connection with the Managed Care
Development Services, PHC-SUB shall receive a "Managed Care Development Fee"
equal to one-half of one percent (0.5%) of the collected revenue of the Practice
generated from contracts with managed care payors with which PHC-SUB did not
have a contract prior to the Effective Date that are delivered by PHC-SUB or an
affiliate to the Practice after the Effective Date.
22
7.2. RECRUITMENT AND PRODUCTIVITY INCENTIVES.
The Joint Policy Board, by a unanimous vote, may from time to time
establish performance and productivity incentives for the Practice and the
Practice Employees in addition to the financial arrangements set forth in
Section 7.1 hereof. At the request of the Practice, PHC-SUB will also advise
-----------
and assist the Practice in establishing its own productivity incentives for the
Practice and the individual Practice Employees.
7.3. REVIEW OF FINANCIAL ARRANGEMENTS BY THE JOINT POLICY BOARD.
The Joint Policy Board shall have the right to review PHC-SUB's
calculations of all payments, fees and expenses due by any party to any other
party or a third party under this Agreement. In the event the Joint Policy
Board desires to review PHC-SUB's calculations or allocation of any such
payments, fees or expenses, the Joint Policy Board shall be provided, upon
reasonable notice to the PHC-SUB, the documents used in determining such amounts
(the "Compensation Documents"). Not later than twenty (20) business days
following the delivery of the Compensation Documents to the Joint Policy Board,
the Joint Policy Board, pursuant to a majority determination and vote, may
furnish PHC-SUB with written notification of any dispute concerning any items
shown thereon or omitted therefrom, together with a detailed explanation in
support of the Joint Policy Board's position in respect thereof. PHC-SUB and
the Joint Policy Board shall consult to resolve any dispute for a period of
fifteen (15) business days following such notification to PHC-SUB. If such
fifteen (15) business day consultation period expires and the dispute has not
been fully resolved, the matter shall be referred to an independent public
accounting firm chosen by a unanimous vote of the Joint Policy Board (the
"Accountants"), which shall resolve the dispute and render its decision
(together with a brief explanation of the basis therefor) to the Joint Policy
Board and PHC-SUB not later than twenty (20) business days following submission
of the dispute to it; provided, however, that if the Joint Policy Board is
unable to agree by unanimous vote upon an independent public accounting firm,
then the Joint Policy Board, by majority vote, and PHC-SUB shall each choose an
independent public accounting firm and those firms shall appoint a third
independent public accounting firm to act as the Accountants. The decision of
such Accountants shall be a final determination of such amounts. The fees and
expenses of the Accountants shall be paid fifty percent (50%) by PHC-SUB and
fifty percent (50%) by the Practice unless the Accountants determine that there
was an error of ten percent or more in PHC-SUB's calculations or allocations in
the aggregate, in which case all of the Accountants' fees and expenses shall be
paid by PHC-SUB.
7.4. PURCHASE OF PRIVATE ACCOUNTS RECEIVABLE; SECURITY AGREEMENT; DEPOSIT
--------------------------------------------------------------------
OF PROCEEDS OF RECEIVABLES.
---------------------------
(a) Purchase of Private Receivables; Security. Except for the first month
-----------------------------------------
of this Agreement, on or before the tenth (10th) day of each month, PHC-SUB
shall purchase the Receivables of the Practice arising during the previous month
which are not Government Receivables (the "Private Receivables") for an amount
-------------------
equal to the Private Receivables Payment Amount. PHC-SUB shall pay the Practice
for such Private Receivables in the manner provided in SECTION 7.4(C). For
--------------
purposes of determining whether a particular Receivable arose during a
23
given month and is therefore eligible for purchase as provided above, or for
inclusion in the Monthly Payment as provided in SECTION 7.4(C), Receivables
--------------
shall be deemed to arise during the month in which such receivable was billed to
the appropriate payor. As security for the payment and performance of all of the
obligations and indebtedness of the Practice to PHC-SUB under this Agreement,
the Practice hereby agrees to execute the Security Agreement (the "Security
--------
Agreement") in the form as attached hereto as EXHIBIT 7.4(A). PHC-SUB may
--------- --------------
specifically assign (collaterally or otherwise) and/or pledge (i) the Private
Receivables purchased pursuant to the first sentence of this SECTION 7.4(A) and
--------------
(ii) all of its rights and interests under this Agreement or the Security
Agreement as security for loans and other financing arrangements obtained by
PHC-SUB from any other person or entity, whether now existing or hereafter
arising (any such person or entity being hereafter referred to as an
"Assignee"). Any such Assignee shall have all of PHC-SUB's rights and remedies,
--------
but none of PHC-SUB's obligations, under this Agreement or the Security
Agreement. In addition, the Practice shall cooperate with PHC-SUB and execute
all necessary documents in connection with the pledge of such accounts
receivable to PHC-SUB or at PHC-SUB's option, any Assignee.
(b) Deposit of Proceeds. In recognition of the fact that PHC-SUB will
-------------------
have purchased all of the Practice's Private Receivables and to facilitate
repayment of the Government Advances, the Practice agrees, within 10 days of the
date of this Agreement, to deliver a letter, in the form as attached hereto as
EXHIBIT 7.4(B)-1 and EXHIBIT 7.4(B)-2 to all payors under the Private
---------------- ----------------
Receivables and the Government Receivables, respectively (the "Payor Instruction
-----------------
Letter"). The Practice acknowledges that PHC-SUB is an intended third party
------
beneficiary of the instructions contained in the Payor Instruction Letter and
that such instructions are irrevocable without PHC-SUB's prior written consent.
The Payor Instruction Letters shall direct payments on the Receivables to Post
Office Box _______(the "Practice Lockbox"), which lockbox shall be opened by the
----------------
Depository Bank and all proceeds of Government Receivables therein contained
shall be deposited by the Depository Bank into the Sweeping Account. The
depository agreement for the Sweeping Account shall provide (i) that the
Depository Bank shall deposit all checks or other forms of payment received in
the Practice Lockbox into the Sweeping Account, and (ii) that the account
balance in the Sweeping Account shall be "swept" daily into the Lockbox Account.
Prior to the effective date of the instructions contained in the Payor
Instruction Letters, and to the extent that the Practice receives any payments
contrary to the terms of any Payor Instruction Letter (including, without
limitation, any amounts received directly from patients at the time medical
services are rendered or otherwise), the Practice agrees to deposit all such
payments received by the Practice into Account No. 717-63961 (the "Sweeping
--------
Account") maintained by the Practice at the Fifth Third Bank (the "Depository
------- ----------
Bank"), which such account shall be "swept" daily into Account No. 728-07970
----
maintained by PHC-SUB at Depository Bank (the "Lockbox Account").
---------------
All amounts received by PHC-SUB as provided above which are proceeds of
Private Receivables shall be owned by PHC-SUB. All amounts received by PHC-SUB
as provided above which are proceeds of Government Receivables shall be applied
first to the repayment of all Government Advances theretofore made, and the
balance, if any, shall be refunded to the Practice.
(c) Allocation of Proceeds; Monthly Payments. PHC-SUB shall, within ten
----------------------------------------
(10)
24
days after the end of each calendar month, make a payment to the Practice (the
"Monthly Payment"), which shall represent (A) the purchase price for the Private
---------------
Receivables which arose during the previous month and (B) an advance (the
"Government Advance") to the Practice in an amount equal to the Practice
------------------
Government Collection Percentage times the Government Receivables which arose
during the previous month, in an amount equal to the difference between (i) the
difference between (x) the Gross Monthly Payment Amount for such month, minus
(y) an amount equal to all items deposited into the Lockbox Account which were
returned to PHC-SUB by its depository bank as a result of insufficient funds, a
stop payment order, or otherwise during such month, minus (ii) a projection of
all fees and expenses due to PHC-SUB from the Practice under this Agreement for
such month, including, without limitation, this SECTION 7, based on the
---------
Receivables which arose during such month.
(d) Adjustments. Adjustments to the Monthly Payments shall be made to
-----------
reconcile actual amounts due under this SECTION 7 within 45 days after the end
---------
of each six (6) month period during the term of this Agreement. At such semi-
annual intervals, PHC-SUB shall determine the actual amounts due PHC-SUB
pursuant to this SECTION 7 for each such six (6) month period, with such amounts
---------
to be calculated on an annualized basis for such six (6) month period.
PHC-SUB shall notify the Practice of the amount of payments, if any, due
from one party to another as a result of such adjustments within 60 days of the
end of each six (6) month period. If payment is due from one party to the
other, such amount shall be paid in full within ten (10) days of such
notification of the Practice; provided, however, that in the case such amounts
are due PHC-SUB on such calculations, PHC-SUB may, at its discretion, offset
such amounts due from the Practice against the Monthly Payment due the Practice
for succeeding calendar months.
Within 120 days after the end of each calendar year, PHC-SUB will determine
the actual amounts due PHC-SUB pursuant to this SECTION 7 for such calendar year
---------
(prorated for any calendar year for which this Agreement has been in effect less
than the entire year).
If, after taking into account all Monthly Payments and any mid year
adjustments for such calendar year, payment is due from one party to the other,
such amount shall be paid in full within ten (10) business days after such
calculations are made final; provided, however, that in the case amounts are due
PHC-SUB on such calculations, PHC-SUB may, at its discretion, offset such
amounts due from the Practice against the Monthly Payment due the Practice for
succeeding calendar months. This year-end reconciliation shall include
reconciliation of any amounts owed by one party to another with respect to any
expenses of any party, as set forth hereunder, paid by any other party.
7.5. NEW ANCILLARY SERVICES.
The Practice and PHC-SUB jointly acknowledge that a primary motivation for
their entering into an affiliation is to expand the Practice and develop New
Ancillary Services for the Practice. In consultation with the Practice, PHC-SUB
will identify and evaluate such New Ancillary Service opportunities, and,
consistent with and subject to all applicable state and federal regulations, the
Practice and PHC-SUB will mutually agree upon and determine the financial
arrangements with respect to the New Ancillary Service Revenue and New Ancillary
25
Service Expenses related thereto. The Practice agrees and shall require all
Practice Employees to agree that, subject to all applicable state and federal
regulations and subject to this Section 75, the Practice and each such employee
----------
shall develop, invest or participate in New Ancillary Services and facilities
only in partnership or other business arrangement with PHC-SUB. PHC-SUB shall
be entitled to participate in any such partnership or business arrangement by
purchasing fifty-one percent (51%) of the Practice's (or the Practice
Employee's, as the case may be) prospective interest in such partnership or
business arrangement. In the event that any such partnership or business
arrangement should be unavailable to the Practice or the applicable Practice
Employee because of PHC-SUB's prospective interest therein, the Practice or
Practice Employee shall not be permitted to participate in such partnership or
business arrangement without PHC-SUB's prior written consent, which shall not be
unreasonably withheld; provided that the Practice or Practice Employee shall use
its or their best efforts to cause PHC-SUB to be allowed to participate in such
partnership or business venture on a fifty-one percent (51%) basis as aforesaid.
However, if upon advice of a law firm with nationally recognized expertise in
healthcare law that is acceptable to the parties hereto, the Practice in good
faith determines that a joint partnership or other business relationship between
PHC-SUB and the Practice or its employees is legally impermissible or involves a
high degree of legal risk, the Practice or its employees may pursue the New
Ancillary Services and facilities without the joint participation of PHC-SUB.
7.6. SALE OF ASSETS ACQUIRED AFTER EFFECTIVE DATE.
Notwithstanding anything to the contrary contained herein, the parties
agree that, to the extent that any assets acquired after the Effective Date are
to be sold, PHC-SUB shall be entitled to the proceeds from such sale to the
extent of the greater of (i) any outstanding indebtedness related to the asset
sold and (ii) the undepreciated value of such asset as reflected in PHC-SUB's
books and records. The Practice shall be entitled to eighty percent (80%), and
PHC -SUB shall be entitled to twenty percent (20%), of any and all remaining
proceeds from such sale.
SECTION 8. TERM AND TERMINATION.
8.1. TERM; RENEWAL TERMS.
This Agreement shall commence on the date hereof and shall expire on the
40th anniversary hereof unless earlier terminated as provided for in Section 8.2
-----------
hereof.
8.2. TERMINATION.
(a) BY PHC-SUB. Subject to compliance with the procedures set forth in
Section 8.5, PHC-SUB may terminate this Agreement upon the occurrence of any of
-----------
the following events without any further action on the part of PHC-SUB:
(i) The Practice is involuntarily suspended or terminated (without
right of
26
further appeal) from participation in the Medicare or Medicaid programs or
the Practice withdraws from participation in the Medicare or Medicaid
programs as a result of regulatory investigation, unless the same results
from the acts or omissions of PHC or PHC-SUB as determined by arbitration
in accordance with Section 14 hereof.
----------
(ii) The Practice voluntarily files a petition in bankruptcy or makes
an assignment for the benefit of creditors or otherwise seeks relief from
creditors under any federal or state bankruptcy, insolvency, reorganization
or moratorium statute, or the Practice is the subject of an involuntary
petition in bankruptcy which is not set aside within 60 days of its filing.
(iii) The Practice or any physician Practice Employee or physician New
Practice Employee (A) has its or his license to practice medicine revoked
or suspended or (B) is otherwise disciplined by any licensing, regulatory
or professional entity or institution, the result of any of which event
described in clause (A) or (B) does or reasonably would be expected to
materially adversely affect the Practice and provided that the Practice
fails to take reasonable action to remedy or correct such noncompliance or
conduct or to remove such physician from the Practice within thirty (30)
days after the revocation, suspension or discipline.
(b) ADDITIONAL TERMINATION RIGHT OF PHC-SUB. In the event that the
Practice materially breaches any term or condition of this Agreement (other than
as set forth in Section 8.2(a) hereof) and, in the opinion of PHC-SUB, such
--------------
breach remains uncured after a period of 60 days after the Practice's receipt of
a written notice specifying such breach, PHC-SUB shall submit the issue of
whether the Practice has materially breached this Agreement directly to
arbitration in accordance with Section 14 hereof. In the event that the Practice
----------
is found to have materially breached this Agreement, PHC-SUB may immediately
terminate this Agreement by delivery of written notice to the Practice with no
further action required on its behalf to effect such termination.
(c) BY THE PRACTICE. Subject to compliance with the provisions set forth
in Section 8.5, the Practice may terminate this Agreement upon the occurrence
-----------
of any of the following events without any further action on the part of the
Practice:
(i) PHC-SUB fails to make any payment required herein, other than a
payroll obligation, and (A) such breach remains uncured for a period of 30
days after PHC-SUB's receipt of a written notice specifying such breach and
(B) the Practice provides Agent with 15 days prior notice of such breach
and of the Practice's intent to terminate this Agreement hereunder (which
notice period may run concurrently with the 15 day period specified in
clause (A)).
(ii) PHC-SUB materially breaches any payroll obligation required
herein and (A) such breach remains uncured for a period of 15 days after
PHC-SUB's receipt of a written notice specifying such breach and (B) the
Practice provides Agent with 15 days prior notice of such breach and of the
Practice's intent to terminate this Agreement
27
hereunder (which notice period may run concurrently with the 15 day period
specified in clause (A)).
(iii) PHC-SUB voluntarily files a petition in bankruptcy or makes an
assignment for the benefit of creditors or otherwise seeks relief from
creditors under any federal or state bankruptcy, insolvency, reorganization
or moratorium statute, or PHC-SUB is the subject of an involuntary petition
in bankruptcy which is not set aside within 60 days of its filing.
(iv) If PHC shall not have consummated the Public Offering as of the
end of the sixty-sixth (66th) month following the Effective Date; provided
that the Practice notifies PHC-SUB of the decision of the Practice to
terminate this Agreement pursuant to this Section 8.2(c)(iv) within ninety
------------------
(90) days following the end of the sixty-sixth (66th) month following the
Effective Date.
(d) ADDITIONAL TERMINATION RIGHTS OF THE PRACTICE.
(i) In the event that PHC-SUB materially breaches the terms of this
Agreement (other than as set forth in Section 8.2(c) hereof) prior to the
--------------
end of the sixty-sixth (66/th/) month following the Effective Date and, in
the opinion of the Practice, such breach remains uncured for a period of 60
days after PHC-SUB's receipt of a written notice specifying such breach,
the Practice shall submit the issue of whether PHC-SUB has materially
breached this Agreement directly to arbitration in accordance with Section
-------
14 hereof. In the event that the arbitrator determines that PHC-SUB has
--
materially breached this Agreement, the arbitrator shall attempt to
determine whether the breach may be remedied fairly through the payment of
the amount of the actual damages the Practice has incurred as a result of
the breach (exclusive of punitive and consequential damages but inclusive
of reasonable legal fees) (the "Actual Damages") and shall determine, if
determinable, the exact amount of the Actual Damages. If the arbitrator
determines that the breach may be remedied fairly through the payment of
the Actual Damages and PHC-SUB fails to pay to the Practice the Actual
Damages within 30 days after receipt of written notice specifying the
amount of the Actual Damages, the Practice may terminate this Agreement
after providing PHC-SUB and Agent with 15 days prior written notice of the
Practice's intent to terminate this Agreement. In the event that the
arbitrator determines that the breach may not be remedied equitably through
the payment of the Actual Damages, the arbitrator shall proscribe such
equitable remedies and/or specific performance (the "Curative Actions") of
such obligations as are necessary to remedy the breach (provided that all
such Curative Actions shall in all respects be consistent with (i) the
maintenance of the highest standards of quality of the practice of medicine
at the Practice, (ii) the economic growth of the Practice and (iii) the
increase in compensation of the physicians of the Practice and of PHC-SUB).
In the event that PHC-SUB fails to comply with such Curative Actions within
30 days after receipt by PHC-SUB of written notice specifying the Curative
Actions, the Practice may terminate this Agreement after providing PHC-SUB
and Agent 15 days prior written notice. Notwithstanding the foregoing,
until the end of the sixty-sixth (66/th/) month following the
28
Effective Date, PHC may not prevent the Practice from terminating this
Agreement by paying the Practice the amount of the Actual Damages or taking
the Curative Actions under this Section 8.2(d)(i) more than once during
-----------------
each one-year period of the term of this Agreement.
(ii) In the event that PHC-SUB materially breaches the terms of this
Agreement (other than as set forth in Section 8.2(c) hereof) at or after
--------------
the end of the sixty-sixth (66/th/) month following the Effective Date and,
in the opinion of the Practice, such breach remains uncured for a period of
60 days after PHC-SUB's receipt of a written notice specifying such breach,
the Practice shall submit the issue of whether PHC-SUB has materially
breached this Agreement directly to arbitration in accordance with Section
-------
14 hereof. In the event that the arbitrator determines that PHC-SUB has
--
materially breached this Agreement, the arbitrator shall attempt to
determine whether the breach may be remedied fairly through the payment of
Actual Damages and shall determine, if determinable, the exact amount of
the Actual Damages. If the arbitrator determines that the breach may be
remedied fairly through the payment of the Actual Damages and PHC-SUB fails
to pay to the Practice the greater of (A) the Actual Damages and (B) the
sum of $250,000 within 30 days after receipt of written notice specifying
the amount of the Actual Damages, the Practice may terminate this Agreement
after providing PHC-SUB and Agent with 15 days prior notice of the
Practice's intent to terminate this Agreement. In the event that the
arbitrator determines that the breach may not be remedied equitably through
the payment of the Actual Damages, the arbitrator shall proscribe such
Curative Actions as are necessary to remedy the breach (provided that all
such Curative Actions shall in all respects be consistent with (i) the
maintenance of the highest standards of quality of the practice of medicine
at the Practice, (ii) the economic growth of the Practice and (iii) the
increase in compensation of the physicians of the Practice and of PHC-SUB).
In the event that, in the opinion of the Practice, PHC-SUB fails to comply
with such Curative Actions within 30 days after receipt by PHC-SUB of
written notice specifying the Curative Actions, the Practice shall be
entitled to immediately submit the issue of whether PHC-SUB has materially
breached the performance of the Curative Actions directly to arbitration in
accordance with Section 14 hereof. If the arbitrator determines that PHC
----------
SUB has materially breached the terms of the Curative Actions, the Practice
may immediately terminate this Agreement via 15 days prior written notice
to PHC-SUB and Agent.
(iii) In the event that PHC-SUB at any time elects to pay the Actual
Damages or the sum of $250,000 to the Practice or take Curative Actions in
accordance with either Section 8.2(d)(i) or (ii) hereof and subsequently
----------------- ----
materially breaches the terms of this Agreement (other than as set forth in
Section 8.2(c) hereof) at any time at or after the end of the sixty-sixth
--------------
(66/th/) month following the Effective Date and, in the opinion of the
Practice, such subsequent breach remains uncured for a period of 60 days
after PHC-SUB's receipt of a written notice specifying such subsequent
breach, the Practice shall submit the issue of whether PHC-SUB has
materially breached this Agreement directly to arbitration in accordance
with Section 14 hereof. In the event that the arbitrator determines that
----------
PHC-SUB has materially breached this Agreement, the Practice may
29
terminate this Agreement by written notice to PHC-SUB.
(e) LIMITATION ON TERMINATION RIGHTS. (i) Notwithstanding anything to the
contrary contained herein, the Practice shall not be permitted to terminate this
Agreement pursuant to a breach by PHC-SUB of any of the provisions of Section 3
---------
or Section 4 hereof that result from the acts, directions, instructions or
---------
omissions of the Joint Policy Board, or pursuant to a breach of any of the other
obligations of the Joint Policy Board hereunder, so long as PHC-SUB complies
with its obligations under Section 6.1 concerning the composition of the Joint
-----------
Policy Board. No failure to act by PHC-SUB pursuant to Sections 4.3, 4.5 or 4.6
------------ --- ---
shall permit the Practice to terminate this Agreement. Nothing herein shall be
construed to convey to any individual Stockholder any right to terminate this
Agreement. The refusal by the Practice to designate members to the Joint Policy
Board, the refusal of designees of the Practice to serve on the Joint Policy
Board, or the refusal of Practice Employees designated by PHC-SUB to serve on
the Joint Policy Board as set forth in Section 6.1 shall not form the basis for
-----------
any termination of this Agreement by the Practice.
(ii) Notwithstanding anything to the contrary contained herein, it is
acknowledged and agreed that PHC-SUB may under no circumstances be found to have
breached the provisions of Sections 3 and 4 hereof unless PHC-SUB acts (or fails
---------- -
to act) in a manner that is directly contrary to the specific reasonable written
instructions of the Joint Policy Board. PHC-SUB's acts (or failures to act)
contrary to the instructions of the Joint Policy Board shall not be deemed to be
in breach of any provision of this Agreement in the event that the instructions
of (or the failure to provide instructions by) the Joint Policy Board are
unreasonable or arbitrary.
8.3. DUTIES AND REMEDIES UPON EXPIRATION OR TERMINATION.
Upon expiration or termination of this Agreement, the Practice and PHC-SUB
hereby agree to perform, in addition to their obligations provided for elsewhere
in this Agreement and continuing after such termination or expiration of this
Agreement, such steps as are otherwise customarily required to wind up their
relationship under this Agreement in as orderly a manner as possible, including,
without limitation, PHC-SUB's provision to the Practice of patient billing
records. The Practice hereby acknowledges and agrees that, upon termination or
expiration of this Agreement: (a) PHC-SUB shall retain all right, title and
interest in and to all of PHC-SUB's proprietary software and systems, including
software and systems licensed by PHC-SUB from others, used in connection with
the General Management Services; and (b) the Practice shall be responsible for
obtaining its own software and systems to take over the General Management
Services from PHC-SUB; provided that the Practice may continue to use such
software and systems after expiration or termination for a reasonable period of
time until the Practice can obtain and make operational substitute software and
systems. Upon expiration or termination of the Agreement, PHC-SUB shall fully
and completely assign (to the extent then owned by PHC-SUB) to the Practice the
outstanding accounts receivable of the Practice purchased by PHC-SUB pursuant to
this Agreement under Section 7.4 above up to and through the date of termination
-----------
or expiration, and PHC-SUB shall fully cooperate with the Practice in the
Practice's efforts to collect such accounts receivable and PHC-SUB in that
regard shall execute and deliver any reasonably necessary documents to permit
the Practice to assume such receivables and realize
30
upon them.
Except as set forth in this Section 8.3 and in Section 5.4 hereof, upon the
----------- -----------
expiration or earlier termination of this Agreement, neither party shall have
any further obligation hereunder with the exception of obligations accruing
prior to the date of such expiration or earlier termination and obligations,
promises and covenants contained herein which extend beyond the terms hereof
including, without limitation, any indemnities, restrictive covenants, and
access to books and records. Upon the expiration or earlier termination of this
Agreement, the financial arrangements set forth in Section 7 shall be prorated
---------
between the parties to reflect any partial fiscal year. The funds for
settlement of such financial arrangements shall be disbursed on the closing date
of the repurchase of assets provided for in Section 8.4, but shall in no event
-----------
occur later than 180 days from the date of the notice of termination. If this
Agreement is terminated pursuant to Sections 8.2(a)(i), 8.2(b), 8.2(c)(i), 8.2
------------------ ------ --------- ---
(c)(ii) or 8.2(d) hereof, the non-breaching party may pursue such other legal or
------- ------
equitable relief as may be available in addition to such proration.
From and after any termination, each party shall provide the other with
reasonable access to books and records then owned by it to permit such
requesting party to satisfy reporting and contractual obligations which may be
required of it.
8.4. REPURCHASE OF ASSETS.
(a) Upon termination of this Agreement pursuant to Sections 8.1 or 8.2
------------ ---
hereof, the Practice shall purchase from PHC-SUB those assets then owned by PHC-
SUB that primarily relate to the operation of the Practice, including all
accounts receivable (to the extent then owned by PHC-SUB), FF&E and all real
estate (the "Real Estate") then owned by PHC-SUB and associated primarily with
the operation of the Practice at a purchase price (the "Buyout Amount") equal to
the sum of (i) the cost to PHC-SUB of the outstanding accounts receivable of the
Practice previously purchased by PHC-SUB (if any) plus (ii) greater of:
(A) the total consideration paid by PHC in connection with the
purchase of the capital stock of PHC-SUB pursuant to the
Reorganization Agreement, less the aggregate amount of General
Management Fees actually collected by PHC-SUB under this
Agreement; or
(B) the product of (A) the "Percentage Multiplier" times (B) the
aggregate fair market value of the FF&E and the Real Estate. As
used herein, "Percentage Multiplier" shall mean 300% until the
fifth annual anniversary of the Effective Date of this Agreement;
250% from the fifth anniversary until the tenth anniversary; 150%
from the tenth anniversary until the twenty-fifth anniversary;
and 100% thereafter.
The Practice shall pay the Buyout Amount first by returning the shares (the
"Transaction Shares") received by the former shareholders of the Former Practice
(the "Sellers") in connection with the Reorganization who are employed by the
Practice at the date of termination, up to the
31
Buyout Amount. The Practice shall pay the balance of the Buyout Amount, if any,
in Transaction Shares received by Sellers who are not employed by the Practice
at the date of termination, or in cash.
The Practice and PHC-SUB each acknowledge that they contemplate the
reasonable expansion of the Practice in the future through the addition of
physicians and ancillary services. The Practice and PHC-SUB further acknowledge
that they contemplate that the formula for computing the Buyout Amount shall be
equitably adjusted (to each party's satisfaction in their sole discretion) in
the future to account for such expansion to the extent expansion is funded by
PHC.
(b) Upon termination of this Agreement, the Practice shall assume without
recourse against PHC-SUB (up to the Buyout Amount) all debts, contracts,
payables and leases which are obligations of PHC-SUB and which relate
exclusively to the performance of its obligations under this Agreement or the
properties subleased by PHC-SUB, other than such contracts, payables and leases
that are between the Practice and PHC-SUB or its affiliates. The Buyout Amount
shall be credited by the amount of debt and liabilities of PHC-SUB assumed by
the Practice, and by any payment PHC-SUB has failed to make under this
Agreement. The Practice and any physician shareholder of the Practice shall
execute such documents as may be required to assume the liabilities set forth in
this Section 8.4 and to remove or indemnify PHC-SUB to its reasonable
-----------
satisfaction from any liability with respect to such repurchased assets and with
respect to any property leased or subleased by PHC-SUB.
The closing date for the repurchase shall be determined by the Practice,
but shall in no event occur later than 60 days from the date of the notice of
termination. The termination of this Agreement shall become effective upon the
closing of the sale of the assets and the Practice and the Practice Employees
shall be released from the restrictive covenants as and to the extent set forth
in Section 8.4(c) on the closing date.
--------------
(c) If the Practice remits the Buyout Amount to PHC-SUB in accordance with
this Section 8.4, the Practice and the Practice Employees shall be released from
-----------
the restrictive covenants of Section 5.4; provided that the Practice and the
-----------
Practice Employees shall not be released from the restrictive covenants of
Section 5.4(c) if this Agreement is terminated pursuant to Section 8.2(b).
-------------- --------------
(d) Except as set forth below, fair market value of the Transaction
Shares, the FF&E and the Real Estate shall be determined by a nationally
recognized accounting firm capable of making such determination and chosen by
the Practice from a list of three such firms submitted by PHC-SUB. The Practice
shall submit its choice of such firm in writing no later than five days after
receipt of such list from PHC-SUB. PHC-SUB and the Practice shall bear the cost
of such determination equally. For purposes of this Section 8, Transaction
---------
Shares shall be valued at the greater of fair market value or $4.00 per share.
8.5. PROCEDURES RELATED TO TERMINATION.
32
In taking action to terminate this Agreement the parties shall comply with
the following procedures:
(a) Prior to taking any action to terminate, the party seeking termination
shall provide 15 days prior written notice to Agent, which notice period may run
concurrently with any other notice and cure periods specified herein.
(b) The taking by the Practice of any action with respect to termination
of this Agreement shall require the affirmative vote of the holders of two-
thirds of the equity interests of the shareholders of the Practice.
8.6. OPTION TO REQUIRE REPURCHASE OF STOCK.
If (i) PHC shall not have consummated the Public Offering as of the end of
the sixty-sixth (66th) month following the Effective Date and (ii) the Practice
does not notify PHC-SUB of the decision of the Practice to terminate this
Agreement pursuant to Section 8.2(c)(iv) within ninety (90) days following the
------------------
end of the sixty-sixth (66th) month following the Effective Date, then the
Practice or any former shareholder of the Former Practice shall have the option
to require PHC to purchase the PHC common stock received by such former
shareholder in connection with the Reorganization then held by such former
shareholder for an amount equal to $4.00 per share, payable in cash as
equitably adjusted for stock splits, conversions, exchanges, and
recapitalizations). In order to exercise such option, the option holder must
give written notice of exercise to PHC within ninety (90) days following the end
of the sixty-sixth (66th) month following the Effective Date. If any such option
is exercised, the closing shall take place within thirty (30) days after notice
of exercise of the option is given, and the purchase price shall be payable by
wire transfer of immediately available funds.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF PRACTICE.
The Practice hereby represents and warrants to PHC as follows:
9.1. ORGANIZATION IN GOOD STANDING; LICENSES.
The Practice is an Ohio professional corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio. Except as
set forth in Schedule 6.1 to the Reorganization Agreement, the Practice has all
necessary corporate power to own all of its properties and assets and all
material governmental licenses, authorizations, consents, and approvals to carry
on its business as now conducted and as will be conducted (including, without
limitation, accreditations and certifications as a provider of healthcare
services eligible to receive payment and compensation and to participate under
Medicare, Medicaid, CHAMPUS and CHAMPVA.
33
9.2. NO VIOLATIONS.
The Practice has the corporate authority to execute, deliver and perform
this Agreement and all agreements executed and delivered by it pursuant to this
Agreement, and has taken all action required by law, its Articles or Certificate
of Incorporation, its Regulations or otherwise to authorize the execution,
delivery and performance of this Agreement and such related documents. The
execution and delivery of this Agreement does not and, subject to the
consummation of the transactions contemplated hereby, will not, violate any
provisions of the Articles or Certificate of Incorporation or Regulations of the
Practice or any provisions of, or result in the acceleration of, any obligation
under any mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree, to which the Practice is a party, or by which it is
bound. This Agreement has been duly executed and delivered by the Practice.
9.3. PROFESSIONAL LIABILITY.
No Practice Employee has ever (a) had his or her license to practice
medicine or other profession in any state or his or her Drug Enforcement Agency
Number suspended, relinquished, terminated, restricted or revoked; (b) been
reprimanded, sanctioned or disciplined by any licensing board, or any federal,
state or local society or agency, governmental body or specialty board; or (c)
had his medical staff privileges at any hospital or medical facility suspended,
involuntarily terminated, restricted or revoked.
9.4. LITIGATION.
Except as set forth in Schedule 2.7 or Schedule 2.21 to the Reorganization
Agreement,
(a) There is no action, suit, or proceeding pending against, or to the
best knowledge of the Practice threatened against or affecting, the Practice or
any Practice Employee before any court or arbitrator or any governmental body,
agency or official which in any manner draws into question the validity of the
Practice Management Security Agreement;
(b) There is no pending investigation of the Practice or any of its
members, partners, or Practice Employees, or any one or more of them, as the
case may be, by HCFA or any other governmental authority, which investigation is
not otherwise conducted in the ordinary course of business and no criminal,
civil or administrative action, audit, or investigation by a fiscal intermediary
or by or on behalf of any governmental authority exists against the Practice or
any of its members, partners, or Practice Employees, or any one or more of them,
as the case may be, or to the best knowledge of the Practice, is threatened with
respect to such persons or any one of them which could reasonably be expected to
materially and adversely affect the right of such person or persons to receive
Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement to which such person or
persons would otherwise be entitled, or right to participate in the Medicare,
Medicaid, CHAMPUS or CHAMPVA programs, or otherwise have a Material Adverse
Effect on
34
the receipt of Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement by such
person or persons; and
(c) To the best knowledge of the Practice, neither the Practice nor any
of its members, partners or Practice Employees or any one or more of them, as
the case may be, is subject to any pending but unassessed Medicare, Medicaid,
CHAMPUS or CHAMPVA claim payment adjustments, except to the extent that such
person or persons is contesting such assessment in good faith by appropriate
proceedings diligently pursued and has established or caused to be established
by his or her employer, limited liability company, or partnership, as the case
may be, adequate reserves for such adjustments in accordance with GAAP.
9.5. NO DEFAULT.
Neither the Practice nor its members, partners, Practice Employees, or any
one or more of them has received notification from any governmental authority
that any such governmental authority has taken or intends to take action to
revoke, terminate, or adversely amend any license, certificate, accreditation or
permit of such person to operate a healthcare facility or to participate under
Medicare, Medicaid, CHAMPUS or CHAMPVA.
9.6. THIRD PARTY REIMBURSEMENT.
If the Practice or any Practice Employee is being audited or has been
audited by Medicare, Medicaid, CHAMPUS or CHAMPVA or similar governmental Third
Party Payors:
(a) none of such audits provides for adjustments in reimbursable costs or
assets, claims for reimbursement or repayment by the Practice or any Practice
Employee of costs and/or payments theretofore made by such governmental Third
Party Payor that, if adversely determined, could reasonably be expected to have
or result in a Material Adverse Effect; and
(b) neither the Practice nor any Practice Employee has had requests or
assertions of claims for reimbursement or repayment by it, or him or her, as the
case may be, of costs and/or payments heretofore made by any other Third Party
Payor that, if adversely determined, could reasonably be expected to have or
result in a Material Adverse Effect.
9.7. CERTIFICATES.
The Practice agrees to use its best efforts to provide, and to use its best
efforts to cause each Practice Employee to provide, notice to PHC-SUB if any
representation or warranty contained therein becomes untrue as of a date after
the Effective Date because of subsequent events and to provide from time to
time, at the reasonable request of PHC-SUB, a certificate stating that the
representations and warranties contained herein are true, or, if they are not
true, specifying in reasonable detail the extent to which they are not true.
35
SECTION 10. INSURANCE AND INDEMNITY.
10.1. INSURANCE MAINTAINED BY THE PRACTICE.
During the term of this Agreement, the Practice shall provide, or shall
arrange for the provision of, and maintain comprehensive professional liability
insurance on the Practice and each of the physician Practice Employees and
agents in the minimum amount of One Million Dollars ($1,000,000) per occurrence
and Ten Million Dollars ($10,000,000) annual aggregate with a $10,000,000
"umbrella" policy per physician, and in such reasonable amounts as are agreed
upon by PHC-SUB and the Practice for non-physician Practice Employees. The
Practice shall provide to PHC-SUB written documentation evidencing such
insurance coverage. The Practice shall have the right to increase any such
coverage with the written approval of the Joint Policy Board. All such
professional liability insurance premiums and deductibles related thereto shall
be included in Operational Expenses. The Practice shall be responsible for all
liabilities in excess of the limits of such policies. The Practice's obligation
to maintain such professional liability insurance coverage shall survive the
expiration or termination of this Agreement for any reason so as to cover any
and all professional liability claims or causes of action caused or asserted to
have been caused as a result of the performance of medical services by the
Practice and its employees or agents during the term of this Agreement. The
Practice shall provide, or shall arrange for the provision of, and shall
maintain throughout the entire term of this Agreement, workers' compensation
insurance coverage on the Practice and each of its employees and agents in the
amounts required by law. The Practice shall provide to PHC-SUB written
documentation evidencing such insurance coverage.
10.2. INSURANCE MAINTAINED BY PHC-SUB.
During the term of this Agreement, PHC-SUB shall provide and maintain
comprehensive professional liability insurance for all professional employees of
the PHC-SUB providing any services related to the Practice pursuant to this
Agreement, and comprehensive general liability and property insurance covering
the Medical Office premises and operations. PHC-SUB shall provide, or shall
arrange for the provision of, and shall maintain throughout the term of this
Agreement, workers' compensation insurance coverage on PHC-SUB and each of its
employees and agents in the amounts required by law. If so requested by the
Practice, PHC-SUB shall provide written documentation evidencing such insurance
coverage.
10.3. CONTINUING LIABILITY INSURANCE COVERAGE.
The Practice shall obtain, or shall ensure that each Practice Employee or
agent obtains, continuing liability insurance coverage under either a "tail
policy" or a "prior acts policy," with the same limits and deductibles as the
insurance coverage provided pursuant to Section 10.1, for each of the Practice's
------------
employees and agents upon the termination of such employee's or agent's
relationship with the Practice for any reason. The Practice shall provide to
PHC-SUB written documentation evidencing such insurance coverage. All such
professional liability insurance premiums shall be included in Operational
Expenses. In the event the Practice does not obtain such continuing liability
insurance coverage, PHC-SUB may do so and the cost of such coverage
36
shall be included as an Operational Expense. The Practice's obligation to
obtain, or ensure that each of the Practice's employees and agents obtains, such
continuing liability insurance coverage shall survive the termination of this
Agreement for any Practice employee or agent associated with the Practice during
the term of this Agreement.
10.4. KEY PERSON INSURANCE.
The Practice agrees, and shall cause its Practice Employees to agree, that
PHC-SUB may obtain, as a PHC-SUB Expense and for PHC-SUB's sole benefit, "key
person" life and/or disability insurance policies on any or all Practice
Employees. Neither the Practice nor any Practice Employee shall have any right,
title or interest, in or to the proceeds of any such insurance policies. The
Practice shall cause its Practice Employees to cooperate with PHC-SUB, as
reasonably requested by PHC-SUB from time to time, in obtaining any such
insurance policies, including, but not limited to, causing such Practice
Employees to submit to such physical examinations and providing such information
relating to insurability as PHC-SUB may reasonably request from time to time.
SECTION 11. COMPLIANCE WITH REGULATIONS.
11.1. SUBCONTRACTS.
Pursuant to Title 42 of the United States Code and applicable rules and
regulations thereunder, until the expiration of four (4) years after termination
of this Agreement, PHC-SUB shall make available, upon appropriate written
request by the Secretary of the United States Department of Health and Human
Services or the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, a copy of this
Agreement and such books, documents and records as are necessary to certify the
nature and extent of the costs of the services provided by PHC-SUB under this
Agreement. PHC-SUB further agrees that if it carries out any of its duties
under this Agreement through a subcontract with a value or cost of Ten Thousand
Dollars ($10,000.00) or more over a twelve (12) month period with a related
organization, such subcontract shall contain a clause to the effect that until
the expiration of four (4) years after the furnishing of such services pursuant
to such subcontract, the related organization shall make available, upon
appropriate written request by the Secretary of the United States Department of
Health and Human Services or the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of such subcontract and such books, documents and records of such
organization as are necessary to verify the nature and extent of such costs.
Disclosure pursuant to this Section shall not be construed as a waiver of any
other legal right to which PHC-SUB or the Practice may be entitled under law or
regulation.
SECTION 12. RELATIONSHIP OF THE PARTIES.
37
12.1. INDEPENDENT CONTRACTOR STATUS.
(a) It is acknowledged and agreed that the Practice and PHC-SUB are at
all times acting and performing hereunder as independent contractors. PHC-SUB
shall neither have nor exercise any control or direction over the methods by
which the Practice and Practice Employees practice medicine. PHC-SUB shall not,
by entering into and performing its obligations under this Agreement, become
liable for any of the existing obligations, liabilities or debts of the Practice
unless otherwise specifically provided for under the terms of this Agreement or
the Reorganization Agreement. In its management role, PHC-SUB will have only an
obligation to exercise reasonable care in the performance of the management
services. PHC-SUB shall have no liability whatsoever for damages suffered on
account of the willful misconduct or negligence of any employee, agent or
independent contractor of the Practice. Each party hereto shall be solely
responsible for compliance with all state and federal laws pertaining to
employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes regarding their respective employees,
agents and servants.
(b) In the event any state or federal laws or regulations, now existing
or enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel in such a manner as to indicate
that this Agreement or any provision hereof may be in violation of such laws or
regulations, the Practice and PHC-SUB shall amend this Agreement as necessary to
preserve the underlying economic and financial arrangements between the Practice
and PHC-SUB and without substantial economic detriment to either party. To the
extent any act or service required of PHC-SUB in this Agreement should be
construed o r deemed, by any governmental authority, agency or court, to
constitute the unauthorized practice of medicine, the performance of said act or
service by PHC-SUB shall be deemed waived and forever unenforceable and the
provisions of this Section 12.1(b) shall be applicable. Neither party shall
---------------
claim or assert illegality as a defense to the enforcement of this Agreement or
any provision hereof; instead, any such purported illegality shall be resolved
pursuant to the terms of this Section 12.1(b).
---------------
12.2. REFERRAL ARRANGEMENTS.
The parties hereby acknowledge and agree that no benefits to the Practice
hereunder require or are in any way contingent upon the admission,
recommendation, referral or any other arrangement for the provision of any item
or service offered by PHC-SUB or any of its Affiliates, to any patients of the
Practice, the Practice's employees or agents.
SECTION 13. CONFIDENTIAL INFORMATION AND INSPECTION RIGHTS.
(a) At no time during the term of this Agreement or the five (5) year
period after any termination or expiration of this Agreement for any reason
shall the Practice or any of its employees or agents, on the one hand, or PHC-
SUB or any of its employees or agents, on the
38
other hand, disclose to anyone, other than its attorneys, accountants or other
financial advisors, the material terms of this Agreement or any other written
agreement between the parties hereto, or any confidential or secret information
concerning (a) the business, affairs or operations, (b) any trade secrets, new
product developments, special or unique processes or methods, or (c) any
marketing, sales, advertising or other concepts or plans, of PHC-SUB or any of
its Affiliates, on the one hand, or of the Practice, its Practice Employees,
subsidiaries or Affiliates, on the other hand.
The covenants contained in this Section 13 shall not apply to any
----------
information which (i) was already known to such party at the time of receipt
thereof, (ii) was readily available to the general public at the time of receipt
thereof, (iii) subsequently becomes known to the general public through no fault
or omission on the part of such party, (iv) is subsequently disclosed by a third
party which has the bona fide right to make such disclosure, or (v) is required
to be disclosed by law or governmental agency.
Each of PHC-SUB and the Practice hereby acknowledges that if it or any of
its employees or agents engage in activities within the limitations of this
Section 13, money damages shall be an inadequate remedy, and each of PHC-SUB
----------
and the Practice agree that the nonbreaching party shall be entitled to obtain,
in addition to any other remedy provided by law or equity, an injunction against
the violation of breaching party's obligation to the nonbreaching party
hereunder.
(b) The Practice shall have reasonable access to the files and records
relating to such revenue and expenses and the overall operation of the Practice.
The Practice, at its expense, may have its accountants review such records, at
reasonable intervals, to confirm the accuracy of such records and fees paid by
the Practice to PHC-SUB under this Agreement.
SECTION 14. ARBITRATION.
(a) Any and all disputes arising out of or in connection with the
negotiation, execution, interpretation, performance or nonperformance of this
Agreement shall be solely and finally settled by arbitration, which shall be
conducted in Cincinnati, Ohio or at such other location as the parties may agree
in writing. The arbitrator shall conduct the proceedings in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"Rules"). The arbitration proceeding shall be initiated in accordance with the
Rules. The parties hereby renounce all recourse to litigation and agree that
any arbitration award shall be final and subject to no judicial review. The
arbitration shall be conducted before one or more arbitrators, chosen in
accordance with the Rules. The arbitrator(s) shall decide the issues submitted
in accordance with (i) the language and commercial purposes of this Agreement;
and (ii) what is just and equitable under the circumstances, provided that all
substantive questions of law (excluding principles of conflicts of laws) shall
be determined under the laws of the State of Ohio.
39
(b) The parties agree to facilitate the arbitration by: (i) making
available to one another and to the arbitrator for examination, inspection and
extraction all documents, books, records and personnel under their control
determined by the arbitrator to be relevant to the dispute (ii) conducting
arbitration hearings to the greatest extent possible on successive days; and
(iii) observing strictly the time periods established by the Rules, or by the
arbitrator, for submission of evidence or briefs.
(c) Judgment on the award of the arbitrator may be entered in any court
having jurisdiction over the party against which enforcement of the award is
being sought. All deposits and other costs (other than fees of counsel)
incurred in conducting the arbitration shall be borne equally by the parties.
Each party shall be solely responsible for its own attorney's fees incurred in
connection with the arbitration.
(d) This section shall survive completion or termination of this
Agreement, and shall be specifically enforceable in any court of competent
jurisdiction. In no event shall a demand for arbitration be made after the date
when any applicable statute of limitations, or period for claims under this
Agreement, would bar institution of a legal or equitable proceeding based on
such dispute or subject matter in question.
SECTION 15. MISCELLANEOUS.
15.1. ASSIGNMENT AND DELEGATION.
PHC-SUB shall have the right to assign its rights hereunder to any
Affiliate of PHC-SUB and to any lending institution, for security purposes or as
collateral, from which PHC, PHC-SUB or such person, firm or corporation obtains
financing. Except as set forth in this Section 15.1, neither PHC-SUB nor the
------------
Practice shall have the right to assign their respective rights and obligations
hereunder without the written consent of the other party. The Practice may not
delegate any of its duties hereunder, except as expressly contemplated herein;
however, PHC-SUB may delegate some or all of its duties hereunder to the extent
it concludes, in its sole discretion, that such delegation is in the mutual
interest of the parties hereto.
15.2. OTHER CONTRACTUAL ARRANGEMENTS.
The parties acknowledge and agree that they have been advised and consent
to the fact that PHC-SUB or its Affiliates (i) may have, prior to the date of
this Agreement, discussed proposals with respect to, or (ii) may, from time to
time hereafter enter agreements with one or more Practice Employees to provide
consulting, medical direction, advisory or similar services relating to
activities of PHC-SUB or its Affiliates in clinical areas. The parties agree
that such agreements, if any, shall be entered into at the sole discretion of
the parties thereto and subject to such terms and conditions to which such
parties may agree, and any compensation payable to or by PHC-SUB, on the one
hand, and such Practice Employees, on the other hand, shall not
40
constitute Net Practice Revenues and shall otherwise not be subject to the
provisions of this Agreement. Each current physician shareholder of the Practice
by his or her execution of this Agreement as provided on the signature page
hereof, agrees that neither the negotiation nor the entry into any agreement or
arrangement of a type described in this Section 15.2 shall constitute a breach
------------
of fiduciary or other duty owed by any such physician to another or to any
Practice Employee, or by PHC-SUB, to the Practice or any such physician or
Practice Employee. Accordingly, the Practice and each physician shareholder
hereby waive any right to disclosure of the negotiations, proposals or terms of
any such agreement, arrangement or right to participate in and/or share revenues
derived from any such agreement or arrangement with any physician shareholder or
Practice Employee, and hereby forever release and discharge the Practice, the
physician shareholders, PHC-SUB, and their respective representatives
(including, but not limited to, their respective attorneys, accountants,
Affiliates, shareholders, officer, directors, employees and agents) from any and
all actions, claims, charges, suits, damages and liabilities of any kind
whatsoever arising from or by reason of the participation of any physician
shareholder or Practice Employee in any agreement or arrangement with PHC-SUB or
its Affiliates of a type described in this Section 15.2 above or from or by
------------
reason of the failure of PHC-SUB, any physician shareholder or Practice Employee
or their respective representatives to disclose the negotiation, existence or
terms of any such agreement or arrangement. In keeping with the private nature
of these matters, the physician shareholders further agree that such
negotiations, proposals or terms of agreement are to be kept confidential
between the physician on one hand, and PHC-SUB, on the other hand, and shall not
be disclosed by them or their representatives, except to their attorneys,
accountants and professional advisors or as required by law.
15.3. NOTICES.
Any notice required or permitted by this Agreement or any agreement or
document executed and delivered in connection with this Agreement shall be
deemed to have been served properly received if hand delivered upon actual
receipt, or if sent by overnight express, one (1) business day after
transmittal, or if mailed by certified mail, return receipt requested, proper
postage prepaid, then five (5) business days after posting, at the following
addresses:
If to the Practice: GCGA Physicians
0000 Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxx 00000
Attention: Xxx Xxxxxx
with a copy to: Katz, Teller, Xxxxx & Xxxx
000 Xxxx Xxxxx Xxxxxx
0000 Xxxxxx Xxxxxxxx
Xxxxxxxxxx, Xxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
If to PHC-SUB: Newco
41
One Lakeside Commons
000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, President
with a copy to: Physician Health Corporation
One Lakeside Commons
000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, M.D., Esq.
or such other address as shall be furnished in writing by any party to the
other party. All such notices shall be considered received when hand delivered
or one business day after delivery to the overnight courier.
15.4. ADDITIONAL ACTS.
Each party hereby agrees to perform any further acts and to execute and
deliver any documents which may be reasonably necessary to carry out the
provisions of this Agreement.
15.5. GOVERNING LAW.
This Agreement shall be interpreted, construed and enforced in accordance
with the laws of the State of Ohio, applied without giving effect to any
conflicts of law principles.
15.6. CAPTIONS.
The captions or headings in this Agreement are made for convenience and
general reference only and shall not be construed to describe, define or limit
the scope or intent of the provisions of this Agreement.
15.7. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and if any
portion shall be held invalid, illegal or unenforceable for any reason, the
remainder of this Agreement shall be effective and binding upon the parties.
15.8. ENTIRE AGREEMENT.
This Agreement, the Reorganization Agreement and the documents contemplated
thereby and hereby contain the entire agreement of the parties and supersedes
any and all prior or
42
contemporaneous negotiations, understandings or agreements between the parties,
written or oral, with respect to the transactions contemplated hereby and
thereby. This Agreement may not be changed or terminated orally, but may only be
changed by an agreement in writing signed by a duly authorized officer of PHC-
SUB if PHC-SUB is the party against whom enforcement of any such waiver, change,
modification, extension, discharge or termination is sought, or by the Practice
if the Practice is the party against whom enforcement of any such waiver,
change, modification, extension, discharge or termination is sought.
15.9. WAIVER OF PROVISIONS.
Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
15.10. NO RULE OF CONSTRUCTION.
The parties acknowledge that this Agreement was initially prepared by PHC-
SUB solely as a convenience and that all parties and their counsel have read and
fully negotiated all the language used in this Agreement. The parties
acknowledge and agree that because all parties and their counsel participated in
negotiating and drafting this Agreement, no rule of construction shall apply to
this Agreement which construes any language, whether ambiguous, unclear or
otherwise, in favor of, or against any party by reason of that party's role in
drafting this Agreement.
15.11. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which, when
so executed, shall be deemed to be an original, and such counterparts shall,
together, constitute and be one and the same instrument.
15.12. BINDING EFFECT.
This Agreement shall be binding on and shall inure to the benefit of the
parties hereto, and their successors and permitted assigns. Subject to the
foregoing sentence, no person not a party hereto shall have any right under or
by virtue of this Agreement.
SECTION 16. GUARANTY BY PHC.
PHC hereby absolutely and unconditionally and irrevocably guarantees the
full, prompt and faithful performance by PHC-SUB of all covenants and
obligations to be performed by PHC-SUB under this Agreement, including, but not
limited to, the payment of all sums to be paid by
43
PHC-SUB pursuant to this Agreement. If PHC-SUB fails to fully perform all such
covenants and obligations in accordance with their terms or pay all or any part
of such sums when due upon written demand from the Practice, PHC will perform
immediately all such covenants and obligations in accordance with their terms or
immediately pay to the Practice the amount due and unpaid by PHC-SUB. In the
event of termination, liquidation or dissolution of PHC-SUB, this unconditional
guaranty shall continue in full force and effect.
44
IN WITNESS WHEREOF, the Practice and PHC-SUB have duly executed this
Agreement on the day and year first above written.
GCGA Physicians, Inc.
----------------------------------
By:_______________________________
Name:/s/ Xxxxxx X. Xxxxxxxxx, M.D.
-----------------------------
Title: President
----------------------------
PHC Ohio, Inc.
By:_______________________________
Name:_____________________________
Title:____________________________
Physician Health Corporation
By:_______________________________
45
Name:_________________________________
Title:________________________________
46
EXHIBIT 5.4(A)
--------------
EXCEPTIONS TO AND PAYMENT TO BUY-OUT OF RESTRICTIVE COVENANT
Practice Group and its Practice Employees may render administrative
services for Consultants for Clinical Research in historically customary amounts
of time, and Xxxxx Xxxxxxx, M.D. may render administrative and clinical services
for TQM Research Center in historically customary amounts of time.
A physician (the "Terminating Physician") may receive a release from the
covenant not-to-compete as set forth in the Practice Management Agreement only
in strict accordance with the terms thereof and upon delivery to PHC-SUB of:
(i) an amount in cash equal to the amount of cash received by the
Terminating Physician upon the consummation of the transactions
contemplated by the Reorganization Agreement, less taxes paid in
connection therewith and
(ii) the PHC Shares, as such term is defined in the Reorganization
Agreement, that were tendered to the Terminating Physician upon
the consummation of the transactions contemplated by the
Reorganization Agreement, or such other equity instruments into
which such PHC Shares were subsequently converted.
In the event that the PHC Shares (or such other equity instruments into which
the PHC Shares were subsequently converted) or any shares of the same class of
PHC stock are listed on a national securities exchange or quoted in an
interdealer quotation system at the time the Terminating Physician desires to
obtain a release from the covenant not-to-compete, the Terminating Physician
may, in lieu of tendering the shares as set forth in clause (ii) immediately
above, instead pay to PHC-SUB an amount in cash equal to the Fair Market Value
of such PHC Shares (or such other equity instruments into which the PHC Shares
were subsequently converted). "Fair Market Value" per share as used in this
paragraph means the average closing price per share over the five business days
ending two business days prior to the date the Terminating Physician desires to
obtain the release.
EXHIBIT 7.1(A)
-----------
[PHYSICIANS OTHER THAN JURELL, XXXXXXX AND BEKAL]
UNCONDITIONAL GUARANTY
THIS UNCONDITIONAL GUARANTY is made as of the ____ day of ___________, 1997
by ____________________, an individual resident of the State of Ohio
("Guarantor"), in favor of Greater Cincinnati Gastroenterology Associates, Inc.
("PHC-SUB") and its affiliates.
ARTICLE I - BACKGROUND AND AGREEMENT
------------------------------------
1.01 Background. PHC-SUB and GCGA Physicians, Inc, an Ohio corporation
----------
(the "Practice") have entered into that certain Practice Management Agreement
dated as of August 31, 1997 (the "PM Agreement"). This Guaranty is executed and
delivered pursuant to Section 7.1 (b) of the PM Agreement.
1.02 Statement of Agreement. For and in consideration of the sum of
----------------------
$10.00 and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Guarantor, and for the purpose of seeking to induce
PHC-SUB to enter into the PM Agreement, Guarantor does hereby make the following
guarantees to and agreements with PHC-SUB.
ARTICLE II - GUARANTEES
-----------------------
2.01 Guaranty of Payment. Guarantor does hereby unconditionally guarantee
-------------------
to PHC-SUB the full and prompt payment when due of the "Applicable Percentage"
(as defined below) of the Minimum Management Fee (as such term is defined in the
PM Agreement) payable by the Practice to PHC-SUB pursuant to Section 7.1 (a) of
the PM Agreement when due, during the five (5) year period following the date
hereof, up to the amount per year (the "Maximum Liability") set forth in
Schedule 7.1 to the PM Agreement.
2.02 Guarantor Obligations. Guarantor does hereby agree that if the
---------------------
Minimum Management Fee is not paid by the Practice in accordance with its terms
for any reason whatsoever, Guarantor will immediately make the Applicable
Percentage of such payments. Guarantor further agrees to pay the Applicable
Percentage of all expenses (including, without limitation, reasonable attorneys'
fees actually paid) paid by PHC-SUB in endeavoring to collect all or any portion
of the indebtedness evidenced by the Minimum Management Fee, to enforce any
other obligations guaranteed hereby, or to enforce this Guaranty.
2.03 Applicable Percentage. For purposes of this Guaranty, the Guarantor's
---------------------
Applicable Percentage shall be equal to a fraction, expressed as a percentage,
in which the numerator is the amount of the Guarantor's Maximum Liability, and
the denominator is the aggregate amount of the Maximum Liability of all of the
guarantors executing guaranties of the Minimum Management Fee (including
Guarantor). Such amounts shall be computed as of the time
2
payment is due under such guaranties.
ARTICLE III - AGREEMENTS AND WARRANTIES
---------------------------------------
3.01 Consents. Guarantor hereby consents and agrees that PHC-SUB may at
--------
any time, and from time to time, without notice to or further consent from
Guarantor, either with or without consideration: release and surrender any
property or other security of any kind or nature whatsoever hereafter held by it
or by any person or entity on its behalf or for its account, securing any
indebtedness or liability hereby guaranteed, if any; extend or renew the time
for payment of the Minimum Management Fee for any period; grant releases,
compromises and indulgences with respect to the Minimum Management Fee and to
any persons or entities now or hereafter liable thereunder or hereunder; release
any other guarantor or endorser of or other person or entity liable for the
Minimum Management Fee; or take or fail to take any action of any type
whatsoever. No such action which PHC-SUB shall take or fail to take in
connection with the Minimum Management Fee, nor any course of dealing with the
Practice or any other person, shall limit, impair or release Guarantor's
obligations hereunder, affect this Guaranty in any way or afford Guarantor any
recourse against PHC-SUB. Nothing contained in this section shall be construed
to require PHC-SUB to take or refrain from taking any action referred to herein.
3.02 Waiver and Subordination. Guarantor hereby expressly waives any
------------------------
right of contribution from or indemnity against the Practice, whether at law or
in equity, arising from any payments made by Guarantor pursuant to the terms of
this Guaranty, and Guarantor acknowledges that Guarantor has no right whatsoever
to proceed against the Practice for reimbursement of any such payments. In
connection with the foregoing, Guarantor expressly waives any and all rights of
subrogation to PHC-SUB against the Practice, and Guarantor hereby waives any
rights to enforce any remedy which PHC-SUB may have against the Practice. In
addition to and without in any way limiting the foregoing, Guarantor hereby
subordinates any and all indebtedness of the Practice now or hereafter owed to
Guarantor to all indebtedness of the Practice to PHC-SUB, and agrees with PHC-
SUB that Guarantor shall not demand or accept any payment of principal or
interest from the Practice, shall not claim any offset or other reduction of
Guarantor's obligations hereunder because of any such indebtedness.
3.03 Waiver of Defenses. Guarantor hereby waives and agrees not to assert
------------------
or take advantage of any defense based upon: (a) any incapacity, lack of
authority, death or disability of Guarantor or any other person or entity; (b)
any failure of PHC-SUB to commence an action against the Practice or any other
person or entity (including, without limitation, other guarantors, if any), or
to file or enforce a claim against the estate (either in administration,
bankruptcy, or any other proceeding) of the Practice or any other person or
entity, whether or not demand is made upon PHC-SUB to file or enforce such
claim; (c) any failure of PHC-SUB to give notice of the existence, creation or
incurring of any new or additional indebtedness or other obligation or of any
action or nonaction on the part of any other person or entity, in connection
with the PM Agreement or any obligation hereby guaranteed; (d) any failure on
the part of PHC-SUB to disclose to Guarantor any facts it may now or hereafter
know regarding the Practice; (e) any lack of acceptance or notice of acceptance
of this Guaranty by PHC-SUB; (f) any lack of presentment, demand, protest, or
notice of demand, protest or nonpayment with respect to any indebtedness or
3
obligations under the PM Agreement; (g) any lack of other notices to which
Guarantor might otherwise be entitled; (h) any invalidity, irregularity or
unenforceability, in whole or in part, of the PM Agreement; and (i) any action,
occurrence, event or matter consented to by Guarantor under Section 3.01 hereof,
under any other provision hereof, or otherwise.
3.04 Liability of Guarantor. This is a guaranty of payment and
----------------------
performance and not of collection. The liability of Guarantor under this
Guaranty shall be direct and immediate and not conditional or contingent upon
the pursuit of any remedies against the Practice or any other person (including,
without limitation, other guarantors, if any). Guarantor waives any right to
require that an action be brought against the Practice or any other person or to
require that resort be had to any collateral or to any balance of any deposit
account or credit on the books of PHC-SUB in favor of the Practice or any other
person. In the event that, on account of the Bankruptcy Reform Act of 1978, as
amended, or any other debtor relief law (whether statutory, common law, case law
or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which
may be or become applicable, the Practice shall be relieved of or fail to incur
any debt, obligation or liability as provided in the PM Agreement, Guarantor
shall nevertheless be fully liable therefor. In the event of a default under
the PM Agreement, PHC-SUB shall have the right to enforce its rights, powers
and remedies thereunder or hereunder, in any order, and all rights, powers and
remedies available to PHC-SUB in such event shall be nonexclusive and cumulative
of all other rights, powers and remedies provided thereunder or hereunder or by
law or in equity. If the indebtedness guaranteed hereby is partially paid by
reason of the election of PHC-SUB to pursue any of the remedies available to
PHC-SUB, or is otherwise partially paid, this Guaranty shall nevertheless remain
in full force and effect, and Guarantor shall remain liable for the entire
remaining unpaid balance of the Applicable Percentage of the indebtedness
guaranteed hereby, even though any rights which Guarantor may have against the
Practice may be destroyed or diminished by the exercise of any such remedy.
ARTICLE IV - GENERAL CONDITIONS
-------------------------------
4.01 Waiver of Rights. Guarantor hereby waives and renounces, to the
----------------
fullest extent permitted by law, all rights to the benefits of any statute of
limitations and any moratorium, reinstatement, marshaling, forbearance,
valuation, stay, extension, redemption, appraisement, exemption and homestead
now or hereafter provided by the Constitution and laws of the United States of
America and of each state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Guaranty. To the extent permitted by law,
Guarantor also waives any right to a trial by jury, and any right to assert or
interpose any setoff, counterclaim or crossclaim of any nature (unless same
could not be asserted in a separate, unrelated action) in any action relating to
this Guaranty.
4.02 Irrevocability and Revival. This Guaranty shall be irrevocable by
--------------------------
Guarantor and shall remain in effect until all indebtedness guaranteed hereby
has been completely repaid. This Guaranty shall continue to be effective or be
revived and reinstated, as the case may be, in the event that any payment
received by PHC-SUB of any of the indebtedness guaranteed hereby is returned or
rescinded by reason of any present or future federal, state or other law or
regulation relating to bankruptcy, insolvency or other relief of debtors or for
any other reason.
4
4.03 Limit of Validity. If from any circumstances whatsoever fulfillment
-----------------
of any provisions of this Guaranty, at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently
prescribed by any applicable usury statute or any other applicable law, with
regard to obligations of like character and amount, then ipso facto the
---- -----
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Guaranty that is in
excess of the current limit of such validity, but such obligation shall be
fulfilled to the limit of such validity. The provisions of this section shall
control every other provision of this Guaranty.
4.04 Applicable Law. This Guaranty shall be interpreted, construed and
--------------
enforced according to the laws of the State of Georgia.
4.05 Miscellaneous. This Guaranty may not be changed orally, and no
-------------
obligation of Guarantor can be released or waived by PHC-SUB or any officer or
agent of PHC-SUB, except by a writing signed by a duly authorized officer of
PHC-SUB. Guarantor has executed this Guaranty individually and not as a partner
of the Practice or any other guarantor. All personal pronouns used herein,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; and the singular shall include the plural and vice versa. Titles
of articles and sections are for convenience only and in no way define, limit,
amplify or describe the scope or intent of any provisions hereof. This Guaranty
contains the entire agreement between Guarantor and PHC-SUB relating to the
guarantying of the Minimum Management Fee by Guarantor and supersedes entirely
any and all prior written or oral agreements with respect thereto; and Guarantor
and PHC-SUB acknowledge that there are no contemporaneous oral agreements with
respect to the subject matter hereof.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the date first above written.
__________________________(SEAL)
Name:
EXHIBIT 7.1(B)
--------------
[DRS. JURELL, XXXXXXX AND BEKAL]
UNCONDITIONAL GUARANTY
THIS UNCONDITIONAL GUARANTY is made as of the ____ day of ___________,
5
1997 by ____________________, an individual resident of the State of Ohio
("Guarantor"), in favor of Greater Cincinnati Gastroenterology Associates, Inc.
("PHC-SUB") and its affiliates.
ARTICLE I - BACKGROUND AND AGREEMENT
------------------------------------
1.01 Background. PHC-SUB and GCGA Physicians, Inc, an Ohio corporation
----------
(the "Practice") have entered into that certain Practice Management Agreement
dated as of August 31, 1997 (the "PM Agreement"). This Guaranty is executed and
delivered pursuant to Section 7.1(b) of the PM Agreement.
1.02 Statement of Agreement. For and in consideration of the sum of
----------------------
$10.00 and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Guarantor, and for the purpose of seeking to induce
PHC-SUB to enter into the PM Agreement, Guarantor does hereby make the following
guarantees to and agreements with PHC-SUB.
ARTICLE II - GUARANTEES
-----------------------
2.01 Guaranty of Payment. Guarantor does hereby unconditionally guarantee
-------------------
to PHC-SUB the full and prompt payment when due of the "Applicable Percentage"
(as defined below) of the Minimum Management Fee (as such term is defined in the
PM Agreement) payable by the Practice to PHC-SUB pursuant to Section 7.1(a) of
the PM Agreement when due, during the five (5) year period following the date
hereof, up to $16,266.67 during the period August 31, 1997 to August 31, 1998,
$32,533.33 during the period September 1, 1998 to August 31, 1999, and
$48,800.00 after September 1, 1998 (each such amount during the applicable
period, the "Maximum Liability").
2.02 Guarantor Obligations. Guarantor does hereby agree that if the
---------------------
Minimum Management Fee is not paid by the Practice in accordance with its terms
for any reason whatsoever, Guarantor will immediately make the Applicable
Percentage of such payments. Guarantor further agrees to pay the Applicable
Percentage of all expenses (including, without limitation, reasonable attorneys'
fees actually paid) paid by PHC-SUB in endeavoring to collect all or any portion
of the indebtedness evidenced by the Minimum Management Fee, to enforce any
other obligations guaranteed hereby, or to enforce this Guaranty.
2.03 Applicable Percentage. For purposes of this Guaranty, the Guarantor's
---------------------
Applicable Percentage shall be equal to a fraction, expressed as a percentage,
in which the numerator is the amount of the Guarantor's Maximum Liability, and
the denominator is the aggregate amount of the Maximum Liability of all of the
guarantors executing guaranties of the Minimum Management Fee (including
Guarantor). Such amounts shall be computed as of the time payment is due under
such guaranties.
ARTICLE III - AGREEMENTS AND WARRANTIES
---------------------------------------
6
3.01 Consents. Guarantor hereby consents and agrees that PHC-SUB may at
--------
any time, and from time to time, without notice to or further consent from
Guarantor, either with or without consideration: release and surrender any
property or other security of any kind or nature whatsoever hereafter held by it
or by any person or entity on its behalf or for its account, securing any
indebtedness or liability hereby guaranteed, if any; extend or renew the time
for payment of the Minimum Management Fee for any period; grant releases,
compromises and indulgences with respect to the Minimum Management Fee and to
any persons or entities now or hereafter liable thereunder or hereunder; release
any other guarantor or endorser of or other person or entity liable for the
Minimum Management Fee; or take or fail to take any action of any type
whatsoever. No such action which PHC-SUB shall take or fail to take in
connection with the Minimum Management Fee, nor any course of dealing with the
Practice or any other person, shall limit, impair or release Guarantor's
obligations hereunder, affect this Guaranty in any way or afford Guarantor any
recourse against PHC-SUB. Nothing contained in this section shall be construed
to require PHC-SUB to take or refrain from taking any action referred to herein.
3.02 Waiver and Subordination. Guarantor hereby expressly waives any
------------------------
right of contribution from or indemnity against the Practice, whether at law or
in equity, arising from any payments made by Guarantor pursuant to the terms of
this Guaranty, and Guarantor acknowledges that Guarantor has no right whatsoever
to proceed against the Practice for reimbursement of any such payments. In
connection with the foregoing, Guarantor expressly waives any and all rights of
subrogation to PHC-SUB against the Practice, and Guarantor hereby waives any
rights to enforce any remedy which PHC-SUB may have against the Practice. In
addition to and without in any way limiting the foregoing, Guarantor hereby
subordinates any and all indebtedness of the Practice now or hereafter owed to
Guarantor to all indebtedness of the Practice to PHC-SUB, and agrees with PHC-
SUB that Guarantor shall not demand or accept any payment of principal or
interest from the Practice, shall not claim any offset or other reduction of
Guarantor's obligations hereunder because of any such indebtedness.
3.03 Waiver of Defenses. Guarantor hereby waives and agrees not to assert
------------------
or take advantage of any defense based upon: (a) any incapacity, lack of
authority, death or disability of Guarantor or any other person or entity; (b)
any failure of PHC-SUB to commence an action against the Practice or any other
person or entity (including, without limitation, other guarantors, if any), or
to file or enforce a claim against the estate (either in administration,
bankruptcy, or any other proceeding) of the Practice or any other person or
entity, whether or not demand is made upon PHC-SUB to file or enforce such
claim; (c) any failure of PHC-SUB to give notice of the existence, creation or
incurring of any new or additional indebtedness or other obligation or of any
action or nonaction on the part of any other person or entity, in connection
with the PM Agreement or any obligation hereby guaranteed; (d) any failure on
the part of PHC-SUB to disclose to Guarantor any facts it may now or hereafter
know regarding the Practice; (e) any lack of acceptance or notice of acceptance
of this Guaranty by PHC-SUB; (f) any lack of presentment, demand, protest, or
notice of demand, protest or nonpayment with respect to any indebtedness or
obligations under the PM Agreement; (g) any lack of other notices to which
Guarantor might otherwise be entitled; (h) any invalidity, irregularity or
unenforceability, in whole or in part, of the PM Agreement; and (i) any action,
occurrence, event or matter consented to by Guarantor under Section 3.01 hereof,
under any other provision hereof, or otherwise.
7
3.04 Liability of Guarantor. This is a guaranty of payment and
----------------------
performance and not of collection. The liability of Guarantor under this
Guaranty shall be direct and immediate and not conditional or contingent upon
the pursuit of any remedies against the Practice or any other person (including,
without limitation, other guarantors, if any). Guarantor waives any right to
require that an action be brought against the Practice or any other person or to
require that resort be had to any collateral or to any balance of any deposit
account or credit on the books of PHC-SUB in favor of the Practice or any other
person. In the event that, on account of the Bankruptcy Reform Act of 1978, as
amended, or any other debtor relief law (whether statutory, common law, case law
or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which
may be or become applicable, the Practice shall be relieved of or fail to incur
any debt, obligation or liability as provided in the PM Agreement, Guarantor
shall nevertheless be fully liable therefor. In the event of a default under
the PM Agreement, PHC-SUB shall have the right to enforce its rights, powers
and remedies thereunder or hereunder, in any order, and all rights, powers and
remedies available to PHC-SUB in such event shall be nonexclusive and cumulative
of all other rights, powers and remedies provided thereunder or hereunder or by
law or in equity. If the indebtedness guaranteed hereby is partially paid by
reason of the election of PHC-SUB to pursue any of the remedies available to
PHC-SUB, or is otherwise partially paid, this Guaranty shall nevertheless remain
in full force and effect, and Guarantor shall remain liable for the entire
remaining unpaid balance of the Applicable Percentage of the indebtedness
guaranteed hereby, even though any rights which Guarantor may have against the
Practice may be destroyed or diminished by the exercise of any such remedy.
ARTICLE IV - GENERAL CONDITIONS
-------------------------------
4.01 Waiver of Rights. Guarantor hereby waives and renounces, to the
----------------
fullest extent permitted by law, all rights to the benefits of any statute of
limitations and any moratorium, reinstatement, marshaling, forbearance,
valuation, stay, extension, redemption, appraisement, exemption and homestead
now or hereafter provided by the Constitution and laws of the United States of
America and of each state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Guaranty. To the extent permitted by law,
Guarantor also waives any right to a trial by jury, and any right to assert or
interpose any setoff, counterclaim or crossclaim of any nature (unless same
could not be asserted in a separate, unrelated action) in any action relating to
this Guaranty.
4.02 Irrevocability and Revival. This Guaranty shall be irrevocable by
--------------------------
Guarantor and shall remain in effect until all indebtedness guaranteed hereby
has been completely repaid. This Guaranty shall continue to be effective or be
revived and reinstated, as the case may be, in the event that any payment
received by PHC-SUB of any of the indebtedness guaranteed hereby is returned or
rescinded by reason of any present or future federal, state or other law or
regulation relating to bankruptcy, insolvency or other relief of debtors or for
any other reason.
4.03 Limit of Validity. If from any circumstances whatsoever fulfillment
-----------------
of any provisions of this Guaranty, at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently
prescribed by any applicable usury statute or any other applicable law, with
regard to obligations of like character and amount, then ipso facto the
---- -----
8
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Guaranty that is in
excess of the current limit of such validity, but such obligation shall be
fulfilled to the limit of such validity. The provisions of this section shall
control every other provision of this Guaranty.
4.04 Applicable Law. This Guaranty shall be interpreted, construed and
--------------
enforced according to the laws of the State of Georgia.
4.05 Miscellaneous. This Guaranty may not be changed orally, and no
-------------
obligation of Guarantor can be released or waived by PHC-SUB or any officer or
agent of PHC-SUB, except by a writing signed by a duly authorized officer of
PHC-SUB. Guarantor has executed this Guaranty individually and not as a partner
of the Practice or any other guarantor. All personal pronouns used herein,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; and the singular shall include the plural and vice versa. Titles
of articles and sections are for convenience only and in no way define, limit,
amplify or describe the scope or intent of any provisions hereof. This Guaranty
contains the entire agreement between Guarantor and PHC-SUB relating to the
guarantying of the Minimum Management Fee by Guarantor and supersedes entirely
any and all prior written or oral agreements with respect thereto; and Guarantor
and PHC-SUB acknowledge that there are no contemporaneous oral agreements with
respect to the subject matter hereof.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the date first above written.
__________________________(SEAL)
Name:
EXHIBIT 7.4(A)
--------------
SECURITY AGREEMENT
9
EXHIBIT 7.4(B)-1
----------------
(Private Payor)
_______________, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: [NAME OF PRACTICE]
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
You are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Sweeping Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________(Practice Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Sweeping Account)
2
Thank you for your cooperation in this matter.
______________________________
3
EXHIBIT 7.4(B)-2
----------------
(Government Payor)
_______________, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: [NAME OF PRACTICE]
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
You are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Sweeping Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________ (Practice Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Sweeping Account)
4
Thank you for your cooperation in this matter.
______________________________
5
SCHEDULE 7.1
------------
GENERAL MANAGEMENT FEE
6
