EXHIBIT 10.19
FIRST AMENDMENT TO MANAGEMENT SERVICES AGREEMENT
------------------------------------------------
This First Amendment to the Management Services Agreement (this
"Amendment") of Memphis Children's Clinic, PLLC, is executed as of November
---------
____, 1997, by and among MidSouth Practice Management, Inc., a Tennessee
corporation ("MidSouth"), Memphis Children's Clinic, PLLC, a Tennessee
--------
professional limited liability company (the "Practice"), and the physicians
--------
listed on Schedule 1 attached hereto that are members of the Practice (the
----------
"Physician Members").
-----------------
W I T N E S S E T H :
-------------------
WHEREAS, MidSouth, the Practice and the Physician Members entered into that
certain Management Services Agreement (the "Service Agreement") dated as of
-----------------
September 22, 1997 (the "Effective Date") pursuant to which MidSouth agreed, on
--------------
the terms and conditions therein contained, to provide certain management
services to the Practice and the Physician Members (each capitalized term not
expressly defined herein shall have the meaning given to it in the Service
Agreement);
WHEREAS, MidSouth, the Practice and the Physician Members desire to amend
their respective rights, covenants (restrictive and otherwise) and obligations
under the Service Agreement;
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, MidSouth, the
Practice and the Physician Members hereby covenant and agree as follows:
ARTICLE I - AMENDMENTS
----------------------
SECTION 1.1. DEFINITIONS. The following definitions are hereby added to
-----------
Article 1 of the Service Agreement:
"Affiliate" of an entity means (a) any person or entity directly or indirectly
controlled by such entity, (b) any person or entity directly or indirectly
controlling such entity, (c) any subsidiary of such entity if the entity has a
fifty percent (50%) or greater equity ownership interest in the subsidiary, or
(d) such entity's parent if the parent has a fifty percent (50%) or greater
ownership interest in the entity.
"Assignee" shall have the meaning set forth in Section 6.2(a).
--------------
"Buyout Amount" shall have the meaning set forth in Section 10.5(a)
---------------
"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.
"Depository Bank" shall have the meaning set forth in Section 6.2(b).
--------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Page 1
"FF&E" means furniture, fixtures and equipment.
"Government Advance" shall have the meaning set forth in Section 6.2(c).
--------------
"Government Receivables Payment Amount" shall mean, 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
Governmental Receivables arising during such month.
"Gross Monthly Payment Amount" means the sum of the Private Receivables Payment
Amount plus the Government Receivables Payment Amount.
"Joint Ventures" shall have the meaning set forth in Section 3.11.
------------
"Lockbox Account" shall have the meaning set forth in Section 6.2(b)(ii).
------------------
"MidSouth Expenses" shall mean, pursuant to GAAP applied on a consistent basis:
(a) any corporate overhead charges of MidSouth and other items incurred by
MidSouth that are not incurred specifically for the purpose of providing
services to the Practice or are not directly attributable to the Practice, as
reasonably determined by MidSouth, including, without limitation, salaries and
benefits of the executive officers of MidSouth, except as otherwise provided in
the definition of Practice Expenses; (b) any amortization of any intangible
asset resulting from the Exchange; (c) any depreciation attributable to
increases in the book value of tangible depreciable assets resulting from the
Exchange; (d) any legal and/or accounting expenses incurred by MidSouth in
connection with the Exchange; and (e) all taxes of MidSouth, including but not
limited to, state and federal employee taxes related solely to MidSouth
employees who provide services directly to the Practice at the Practice
Facilities, property taxes on assets used by the Practice and other taxes
specifically included in Practice Expenses.
"MidSouth Lockbox" shall have the meaning set forth in Section 6.2(b).
--------------
"Monthly Payment" shall have the meaning set forth in Section 6.2(c).
--------------
"Payor Instruction Letter" shall have the meaning set forth in Section 6.2(b).
--------------
"PHC" means Physician Health Corporation, a Delaware corporation, and the parent
company of MidSouth upon consummation of the PHC Merger Agreement.
"PHC Merger Agreement" means that certain Agreement and Plan of Merger dated as
of November __, 1997, by and among PHC, PHC Tennessee Acquisition Subsidiary I,
Inc., a Tennessee corporation and MidSouth Practice Management, Inc., a
Tennessee corporation, in which PHC Tennessee Acquisition Subsidiary I, Inc., a
wholly-owned subsidiary of PHC, shall be the surviving corporation and the name
of such corporation shall be changed to Physician Health Corporation of
MidSouth.
"Practice Government Collection Percentage" means the ratio, expressed as a
percentage, of (a) payments received by the Practice or MidSouth 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.
"Practice Lockbox" shall have the meaning set forth in Section 6.2(b).
--------------
"Practice Lost Income Amount" shall have the meaning set forth in Section
-------
10.3(e).
-------
"Practice Private Collection Percentage" means the ratio, expressed as a
percentage, of (a) payments received by the Practice or MidSouth 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.
Page 2
"Private Receivable(s)" shall have the meaning given to such term in Section
-------
6.2(a).
------
"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.
"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,
or a merger by PHC with or into an entity or any Affiliate of an entity that has
a class of equity securities that is registered under the Exchange Act.
"Real Estate"shall have the meaning set forth in Section 10.5(a).
---------------
"Rules" shall have the meaning set forth in Section 15.24(a).
----------------
"Security Agreement" shall have the meaning set forth in Section 6.2(a).
--------------
"Sub Lost Income Amount" shall have the meaning set forth in Section 10.4(e).
---------------
SECTION 1.2. DEFINITIONS. Each of the following definitions is hereby
-----------
deleted and replaced in its entirety in Article 1 of the Service Agreement:
"CHAMPUS" shall mean, 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.
"Disbursement Account" shall mean the bank account maintained by MidSouth for
payment of the Service Fees and the Practice Expenses.
"Governmental Receivables" shall mean the Accounts Receivable of the Practice
that (i) arise in the ordinary course of business of the Practice, (ii) have as
their third party payor the United States of America (the "U.S.") or any state
or any agency or instrumentality of the U.S. or any state that makes any payment
with respect to Medicare, Medicaid or with respect to any other program
(including CHAMPUS OR CHAMPVA) established by Applicable Law and (iii) are
required by federal or state law to be paid to the Practice as a health care
provider. Governmental Receivables shall not, however, refer to amounts payable
by private insurers under contract to provide benefits under the Federal
Employee Health Benefit Program (5 U.S.C. (S)8901, et seq.).
-- ---
"MidSouth" shall mean Physician Health Corporation of MidSouth, a Tennessee
corporation.
"Practice Account" means the bank account maintained by the Practice for payment
of Excluded Expenses, receipt of the Monthly Payment and any other receipts or
disbursements deemed appropriate by the Practice that do not violate the terms
of this Agreement.
"Practice Revenues" shall mean all fees or Managed Care Payments actually
recorded each month by or on behalf of the Practice as a result of professional
medical services personally furnished or to be furnished to patients by
Physician Employees or other professionals under control of the Practice and
other fees or income generated in their capacity as professionals, whether
rendered in an inpatient or outpatient setting, and any revenue generated from
the sale of goods.
Page 3
Practice Revenue shall not include Excluded Revenue. It is the intent of the
parties that Practice Revenue shall reflect the net realizable value of fees
recorded each month.
"Service Fee" shall mean the monthly fee equal to ten percent (10%) of the
Practice Net Revenue plus the amount of the Practice Expenses paid by MidSouth;
the calculation of the Service Fees shall not include Excluded Revenues,
Excluded Expenses or MidSouth Expenses.
"Third Party Payor Programs" shall mean Medicare, Medicaid, CHAMPUS, CHAMPVA,
insurance provided by Blue Cross and/or Blue Shield, managed care plans and any
other private health care insurance programs and employee assistance programs,
as well as any future similar programs.
SECTION 1.3. DEFINITIONS. The following definitions shall be deleted in
-----------
their entirety from Article 1 of the Service Agreement:
1.1.19 "Governmental Lockbox Account"
1.1.24 "Lockbox Agreements"
1.1.33 "Monthly Adjustments"
1.1.35 "Non-Governmental Lockbox Account"
1.1.36 "Non-Governmental Receivables"
1.1.37 "Notification Letter"
1.1.38 "Offsets"
1.1.39 "Opening Balance Sheet"
1.1.40 "Other Revenue"
1.1.51 "Purchase Price"
1.1.55 "Settlement Date"
1.1.60 "Yearly Adjustments"
SECTION 1.4. BANK ACCOUNTS. Section 3.1(b)(2) of the Service Agreement
------------- -----------------
is hereby deleted in its entirety and replaced with the following Section
-------
3.1(b)(2):
---------
(b)(2) All cash, checks and credit card purchases paid at the time that
medical services are rendered and all Managed Care Payments that do
not represent payment on a Purchased Accounts Receivable shall be
remitted to the Practice Account. All payments received by the
Practice with respect to the Purchased Accounts Receivable shall be
administered in accordance with Section 6.2 hereof.
-----------
SECTION 1.5. FINANCIAL STATEMENTS AND AUDITS. Section 3.3 of the Service
------------------------------- -----------
Agreement is hereby deleted in its entirety and replaced with the following
Section 3.3:
-----------
Page 4
SECTION 3.3 FINANCIAL STATEMENTS AND AUDITS. MidSouth shall prepare
-------------------------------
annual financial statements for the operations of the Practice and, in its
sole discretion, may cause the financial statements to be audited by a
certified public accountant selected by MidSouth. The Practice shall
cooperate fully in such audit. The cost of such audit shall be a Practice
Expense. If MidSouth elects to have the financial statements audited by a
certified public accountant with a big six accounting firm, the resulting
audited financial statements shall be binding on the Practice and MidSouth.
If MidSouth elects not to have the Practice's financial statements audited
by a big six accounting firm, the Practice shall have the option to obtain
such an audit, by a certified public accountant with a mutually acceptable
big six accounting firm. MidSouth shall fully cooperate in such audit.
The cost of such audit shall be a Practice Expense. In such event,
MidSouth and the Practice shall be bound by the resulting audited financial
statements. All parties shall be entitled to copies of any information
provided to or by the auditors by or to any party. Additionally, MidSouth
shall prepare monthly unaudited financial statements containing a balance
sheet and statements of income from the Practice operations, which shall be
delivered to the Practice within thirty (30) business days after the close
of each calender month.
SECTION 1.6. NEW ANCILLARY SERVICES AND ADDITIONAL PRACTICE OFFICES.
------------------------------------------------------
Section 3.11 of the Service Agreement is hereby deleted in its entirety and
------------
replaced with the following Section 3.11:
------------
SECTION 3.11 NEW ANCILLARY SERVICES AND ADDITIONAL PRACTICE OFFICES.
------------------------------------------------------
MidSouth and Practice jointly acknowledge that a primary motivation for
their entering into an affiliation is to expand the Practice and develop
new ancillary services and establish additional offices for the Practice.
MidSouth and Practice may enter into one or more joint ventures for the
construction or development of new ancillary services, such as surgery
centers and other capital projects (the "Joint Ventures"). MidSouth shall
arrange for all financing required by the Joint Ventures. Net profits
generated by each Joint Venture shall first be used to reimburse MidSouth
for the cost of capital invested by MidSouth in such Joint Venture and
MidSouth shall receive 51% of any residual net profits and the remaining
49% shall be divided between the Practice and the other investors in the
project, if any. MidSouth shall supply or arrange for all development,
design and general contracting services and personnel required by the Joint
Ventures. In the event that any Joint Venture should be unavailable to the
Practice because of MidSouth's prospective interest therein, the Practice
shall not be permitted to participate in such Joint Venture without
MidSouth's prior written consent, which shall not be unreasonably withheld;
provided, that the Practice has used its best efforts to cause MidSouth to
be allowed to participate in such Joint Venture on a 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 Venture between
MidSouth 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 MidSouth. The Practice shall therefore be entitled to
perform such new ancillary service at the Practice's own expense and
revenue therefrom shall not be Practice Revenue under this Agreement.
SECTION 1.7. PURCHASE OF ACCOUNTS RECEIVABLE AND OTHER PAYMENT. Section
-------------------------------------------------- -------
6.1 and Section 6.2 of the Service Agreement are hereby deleted in their
--- -----------
entirety and replaced with the following Section 6.1 and Section 6.2:
----------- -----------
SECTION 6.1 FEES. The Practice shall pay to MidSouth a Service Fee equal
----
to (i) 12% of Practice Net Revenue, plus (ii) the amount of Practice Expenses
incurred by MidSouth.
SECTION 6.2 PURCHASE OF PRIVATE ACCOUNTS RECEIVABLE; SECURITY AGREEMENT;
------------------------------------------------------------
DEPOSIT OF PROCEEDS OF ACCOUNTS RECEIVABLE.
------------------------------------------
(a) Purchase of Private Receivables; Security. On or before the twentieth
-----------------------------------------
(20th) day of each month, MidSouth shall purchase the Accounts Receivable of the
Practice arising during the previous month that are not Governmental Receivables
(the "Private Receivables") for an amount equal to the Private Receivables
-------------------
Payment Amount. MidSouth shall pay the Practice for such Private Receivables in
the manner provided in Section 6.2(c). For purposes of determining whether a
--------------
particular Account Receivable arose during a given month and is therefore
eligible for
Page 5
purchase as provided above, or for inclusion in the Monthly Payment as provided
in Section 6.2(c), Accounts Receivable 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 MidSouth under this Agreement, the Practice hereby agrees to execute
a security agreement (the "Security Agreement") in the form as attached hereto
------------------
as Exhibit 6.2(a). MidSouth may specifically assign (collaterally or otherwise)
--------------
and/or pledge (i) the Private Receivables purchased pursuant to the first
sentence of this Section 6.2(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 MidSouth 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
--------
MidSouth's rights and remedies, but none of MidSouth's obligations, under this
Agreement or the Security Agreement. In addition, the Practice shall cooperate
with MidSouth and execute all necessary documents in connection with the pledge
of such accounts receivable to MidSouth or at MidSouth's option, any Assignee.
(b) Deposit of Proceeds. In recognition of the fact that MidSouth will
-------------------
have purchased all of the Practice's Private Receivables and to facilitate
repayment of the Government Advances, the Practice agrees, within __ days of
the date of this Agreement, to deliver a letter, in the form as attached hereto
as Exhibit 6.2(b)-1 and Exhibit 6.2(b)-2 to all payors under the Private
---------------- ----------------
Receivables and the Government Receivables, respectively (the "Payor Instruction
-----------------
Letter"). The Payor Instruction Letters shall (i) direct payments on Private
------
Receivables to Post Office Box __________ (the "MidSouth Lockbox"), which
----------------
lockbox shall be opened by the Depository Bank and all proceeds of Private
Receivables therein contained shall be deposited by the Depository Bank into the
Lockbox Account, and (ii) direct payments on Governmental 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
with respect to its Accounts Receivable and contrary to the terms of any Payor
Instruction Letter, the Practice agrees to deposit all such payments received by
the Practice as follows:
(i) payments received on Governmental Receivables shall be deposited
into Account No. _________ (the "Sweeping Account") maintained by the
----------------
Practice at ___________ (the "Depository Bank"), which such account
---------------
shall be "swept" daily into the Lockbox Account.
(ii) payments received on Private Receivables shall be deposited into
Account No. _________ maintained by MidSouth at Depository Bank (the
"Lockbox Account").
---------------
All amounts received by MidSouth as provided above that are proceeds of
Private Receivables shall be owned by MidSouth. All amounts received by
MidSouth as provided above that are proceeds of Governmental 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. MidSouth shall, within
----------------------------------------
twenty (20) 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 that arose during the previous month and (B) an
advance (the "Government Advance") to the Practice in an amount equal to the
------------------
product of the Practice Government Collection Percentage times the Governmental
Receivables that arose during the previous month, in an amount equal to (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 (whether
directly or as a result of a transfer from the Sweeping Account) that were
returned to MidSouth by its depository bank as a result of insufficient funds,
a stop payment order, or otherwise during such month, less (ii) the Service Fee
due to MidSouth from the Practice under this Agreement for such month,
including, without limitation, this Article 6, based on the Accounts Receivable
---------
that arose during such month.
(d) Adjustments. Adjustments to the Monthly Payments shall be made to
-----------
reconcile actual amounts due under this Article 6 within 45 days after the end
---------
of each six (6) month period during the term of this Agreement. At
Page 6
such semi-annual intervals, MidSouth shall determine the actual amounts due
MidSouth pursuant to this Article 6 for each such six (6) month period, with
---------
such amounts to be calculated on an annualized basis for such six (6) month
period.
MidSouth 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 MidSouth on such calculations, MidSouth 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, MidSouth will
determine the actual amounts due MidSouth pursuant to this Article 6 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
MidSouth on such calculations, MidSouth 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.
SECTION 1.8. TERM OF AGREEMENT AND EXTENDED TERM. Section 10.1 and
----------------------------------- ------------
Section 10.2 of the Service Agreement are hereby deleted and replaced in their
------------
entirety with the following:
SECTION 10.1 TERM OF AGREEMENT. This Agreement shall commence on the
-----------------
date hereof and shall expire on August 31, 2037, unless earlier terminated
pursuant to the provisions hereof (the "Term").
SECTION 10.2 [Intentionally left blank.]
SECTION 1.9. TERMINATION BY THE PRACTICE. The first sentence of Section
--------------------------- -------
10.3, Section 10.3(b), Section 10.3(c) and Section 10.3(d) of the Service
---- -------------------------------- ---------------
Agreement are hereby deleted and replaced in their entirety with the following:
SECTION 10.3 TERMINATION BY THE PRACTICE. Subject to compliance with the
---------------------------
provisions set forth in Section 10.5, 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:
(b) If Physician Health Corporation ("PHC") shall not have consummated the
Public Offering as of the end of the seventy-second (72nd) month following the
Effective Date; provided that the Practice notifies MidSouth of the decision of
the Practice to terminate this Agreement pursuant to this Section 10.3(b) within
---------------
ninety (90) days following the end of the seventy-second (72nd) month following
the Effective Date.
(c) In the event that MidSouth materially breaches the terms of this
Agreement (other than as set forth in Sections 10.4(a), (b) or (d) hereof) and
----------------------------
such breach remains uncured for a period of sixty (60) days after MidSouth's
receipt of a written notice specifying such breach, the Practice shall submit
the following issues directly to arbitration in accordance with Section 15.28
-------------
hereof: (i) whether MidSouth has materially breached this Agreement and (ii) if
MidSouth has materially breached this Agreement, the amount of income the
Practice has foregone as a result of the breach exclusive of punitive or
consequential damages (the "Practice Lost Income Amount"). If (i) the final
decision under the arbitration set forth in Section 15.28 determines that there
-------------
has been a material breach and that MidSouth owes the Practice a Practice Lost
Income Amount; (ii) MidSouth fails to pay to the Practice the Practice Lost
Income Amount within thirty (30) days after receipt of written notice specifying
the Practice Lost Income Amount and (iii) the Practice has provided MidSouth
with fifteen (15) days prior notice of the Practice's intent to terminate this
Agreement hereunder, the Practice may terminate this Agreement by delivery of
written notice to PHC and MidSouth.
Page 7
(d) In the event that MidSouth shall fail to remit a payment due as
provided in this Agreement and the failure to remit continues for a period of
thirty (30) days after such payment was due and payable to the Practice, the
Practice may terminate this Agreement; provided, however the Practice must use
its best efforts to notify MidSouth in writing of such failure as soon as
practicable after the due date of the payment.
SECTION 1.10. TERMINATION BY MIDSOUTH. The first sentence of Section
----------------------- -------
10.4 of the Service Agreement is hereby deleted and replaced in its entirety
----
with the following, as well as the addition of the following provisions to
Section 10.4:
------------
SECTION 10.4 TERMINATION BY MIDSOUTH. Subject to compliance with the
-----------------------
procedures set forth in Section 10.5, MidSouth may terminate this Agreement upon
------------
the occurrence of any of the following events without any further action on the
part of MidSouth:
(d) The Practice or any of its Physician Members or Physician Employees
(i) engages in any conduct for which the Physician Member's or Physician
Employee's license to practice medicine is revoked or suspended or (ii) is
otherwise disciplined by any licensing, regulatory or professional entity or
institution, the result of any of which event described in clause (i) or (ii)
materially adversely affects 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 Employee from the Practice within thirty (30) days
after the Practice obtains knowledge thereof.
(e) In the event that the Practice materially breaches any term or
condition of this Agreement (other than as set forth in Sections 10.4(a), (c) or
------------------------
(d) hereof) and, in the opinion of MidSouth, such breach remains uncured after a
---
period of sixty (60) days after the Practice's receipt of a written notice
specifying such breach, MidSouth shall submit the issue of whether the Practice
has materially breached this Agreement directly to arbitration in accordance
with Section 15.28 hereof: (i) whether the Practice has materially breached this
-------------
Agreement and (ii) the amount of income MidSouth has foregone as the result of
such breach exclusive of punitive or consequential damages (the "Sub Lost Income
Amount"). If (i) the final decision under the arbitration set forth in Section
-------
15.28 determines that there has been a material breach and that the Practice
-----
owes MidSouth a Sub Lost Income Amount and (ii) if the Practice fails to pay to
MidSouth the Sub Lost Income Amount within thirty (30) days after receipt of
written notice specifying the Sub Lost Income Amount and (iii) the MidSouth has
provided the Practice with fifteen (15) days prior notice of MidSouth's intent
to terminate this Agreement hereunder, MidSouth may terminate this Agreement by
delivery of written notice to the Practice with no further action required on
its behalf to effect such termination.
SECTION 1.11. ACTIONS AFTER TERMINATION. Section 10.5 of the Service
-------------------------
Agreement is hereby deleted and replaced in its entirety by the following:
SECTION 10.5 ACTIONS AFTER TERMINATION.
-------------------------
(a) Duties and Remedies Upon Termination.
(i) Upon expiration or termination of this Agreement with respect to
the Practice, the Practice and MidSouth 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 with respect to the Practice,
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, MidSouth's provision to the Practice of patient billing records.
The terminating Practice hereby acknowledges and agrees that, upon termination
or expiration of this Agreement: (a) MidSouth shall retain all right, title and
interest in and to all of its proprietary software and systems, including
software and systems licensed by MidSouth from others, used in connection with
the management services provided under this Agreement; and (b) the terminating
Practice shall be responsible for obtaining its own software and systems to take
over the management of the Practice from MidSouth.
(ii) Except as set forth in this Sections 10.5(a), 10.6 and Article 7
---------------------- ---------
hereof, upon the expiration or earlier termination of this Agreement with
respect to the Practice, 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
Page 8
limitation, any indemnities, restrictive covenants, and access to books and
records. Upon the expiration or earlier termination of this Agreement with
respect to a Practice, the financial arrangements set forth in Article 6 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 10.5(b), 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 10.3(c), 10.4(b), or
-----------------------------
10.4(c) hereof, the non-breaching party may pursue such other legal or
-------
equitable relief as may be available in addition to such proration.
(iii) From and after any termination, the terminating Practice and
MidSouth 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.
(b) Procedures Related to Termination. In taking action to terminate
this Agreement the parties shall comply with the following procedures:
(i) Prior to taking any action to terminate, the party seeking
termination shall provide fifteen (15) days' prior written notice to MidSouth
and PHC, following the expiration of any cure periods.
(ii) 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 or membership interests of the owners of the
Practice as the case may be.
SECTION 1.12. CLOSING OF REPURCHASE BY THE PRACTICE AND EFFECTIVE DATE OF
-----------------------------------------------------------
TERMINATION. Section 10.6 of the Service Agreement is hereby deleted and
-----------
replaced in its entirety with the following:
SECTION 10.6 REPURCHASE OF ASSETS.
(a) Upon termination of this Agreement pursuant to Section 10.3 or Section
------------ -------
10.4 hereof, the Practice shall purchase from PHC, MidSouth, or an Affiliate of
----
MidSouth those assets owned by PHC, MidSouth, or an Affiliate of MidSouth that
primarily relate to the operation of the Practice, including all FF&E and all
real property owned by PHC, MidSouth, or an Affiliate of MidSouth and associated
primarily with the operation of such Practice (the "Real Estate"), and the fair
market value of accounts receivable on the date of termination, at a purchase
price (the "Buyout Amount") equal to the greater of:
(i) the sum of (A) the consideration received by the Physician
Members under the Merger Agreement, assuming a fair market value of the MidSouth
Practice Management, Inc., capital stock to be $5.00 per share, plus (B)
liabilities of the Practice assumed by MidSouth, if any, pursuant to the PHC
Merger Agreement, plus (C) the Sub Lost Income Amount, if any, less an amount
equal to the sum of (X) any payments MidSouth failed to make under this
Agreement and (Y) the Practice Lost Income Amount, if any; or
(ii) the aggregate fair market value of the tangible and intangible
assets used in the operation of such Practice that are purchased from PHC,
MidSouth, or an Affiliate of MidSouth pursuant to this Section 10.6(a).
---------------
(b) The Practice may pay all or a portion of the Buyout Amount in (i) PHC
Voting Common Stock received by the Physician Members under the PHC Merger
Agreement, which shall be valued at $6.25 per share, or (ii) in cash.
(c) The Practice and MidSouth 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 MidSouth further
acknowledge that they contemplate that the formula for computing the Buyout
Amount shall be equitably adjusted (as mutually agreed by the parties to this
Agreement) in the future to account for such expansion to the extent expansion
is funded by MidSouth. Any disputes arising from the foregoing adjustment of
the Buyout Amount shall be submitted to arbitration pursuant to Section 15.28 of
-------------
this Agreement.
Page 9
(d) In addition to the payment of the Buyout Amount as set forth in
Section 10.6(a), upon termination of this Agreement, such Practice shall pay all
---------------
debt and assume without recourse against MidSouth all contracts, payables and
leases which are obligations of MidSouth and which relate exclusively to the
performance of its obligations under this Agreement or the properties subleased
by MidSouth, other than such contracts, payables and leases that are between
such Practice and MidSouth or its affiliates. The Buyout Amount shall be reduced
by the amount of debt and liabilities of MidSouth assumed by such Practice, by
any payment MidSouth has failed to make under this Agreement (other than any
such payments constituting all or a portion of the Practice Lost Income Amount
of such Practice). Such Practice and any physician owner of such Practice shall
execute such documents as may be required to assume the liabilities set forth in
this Section 10.6 and to remove or indemnify MidSouth to its reasonable
------------
satisfaction from any liability with respect to such repurchased assets and with
respect to any property leased or subleased by MidSouth.
(e) The closing date for the repurchase shall be determined by the
purchasing Practice, but shall in no event occur later than sixty (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 purchasing
Practice and such Practice Employees shall be released from the restrictive
covenants as and to the extent set forth in Section 10.6(f) on the closing date.
---------------
MidSouth shall have the right, in its sole and absolute discretion, to waive the
repurchase requirements of a Practice, in which event, the termination of this
Agreement shall become effective upon the execution and delivery of such waiver.
(f) If the Practice remits the Buyout Amount to MidSouth in accordance
with Section 10.6(a) hereof within sixty (60) days after determination of such
---------------
Buyout Amount, such Practice and the Physician Members shall be released from
the restrictive covenants of Article 7. If the affected Practice does not remit
---------
the Buyout Amount to MidSouth in accordance with Section 10.6(a) hereof within
---------------
sixty (60) days after determination of such Buyout Amount, the provisions of
Article 7 of this Agreement shall survive in their entirety for a period of two
---------
(2) years following the date of termination of this Agreement, which shall be
tolled during the time period in which any dispute of the Buyout Amount is
subject to arbitration pursuant to Section 15.28.
-------------
(g) The fair market value of the FF&E and the Real Estate shall be
determined by a nationally recognized independent accounting firm capable of
making such determinations and chosen by the affected Practice from a list of
three such firms submitted by MidSouth. The affected Practice shall submit its
choice of such firms in writing no later than five (5) days after receipt of
such list from MidSouth. MidSouth and the affected Practice shall bear the cost
of such determination equally.
SECTION 1.13. Section 15.2 of the Service Agreement is hereby deleted in
its entirety.
SECTION 1.14. ARBITRATION. Section 15.28 of the Service Agreement is
-----------
hereby deleted and replaced in its entirety by the following:
SECTION 15.28 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 Atlanta, Georgia, 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 Practice (the
"Rules") as such Rules are in effect as of the date of the occurrence giving
rise to such disputes. 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 Georgia.
Page 10
(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 1.15. REPRESENTATIONS AND WARRANTIES IN SERVICE AGREEMENT. The
---------------------------------------------------
Practice and the Physician Members each hereby represents and warrants to
MidSouth that all representations and warranties made by such person or entity
in the Transaction Documents (hereinafter defined) as of the date thereof are
true and correct as of the date hereof, as if such representations and
warranties were recited herein in their entirety.
ARTICLE II - MISCELLANEOUS
--------------------------
SECTION 2.1. BINDING AGREEMENT. This Amendment shall be binding upon,
-----------------
and shall inure to the benefit of, the parties' respective heirs,
representatives, successors and assigns.
SECTION 2.2. NONWAIVER OF EVENTS OF DEFAULT. Neither this Amendment nor
------------------------------
any other document executed in connection herewith constitutes or shall be
deemed (a) a waiver of, or consent by MidSouth to, any default or event of
default which may exist or hereafter occur under the Service Agreement, the PHC
Merger Agreement or any other document executed or delivered in connection
therewith (collectively referred to herein as the "Transaction Documents"), (b)
---------------------
a waiver by MidSouth of any of the Practice's or the Provider's obligations
under the Agreements, or (c) a waiver by MidSouth of any rights, offsets,
claims, or other causes of action that MidSouth may have against either the
Practice or the Physician Members.
SECTION 2.3. NO DEFENSES. Each of the Practice and the Physician
-----------
Members, by its execution of this Amendment, hereby declares that it has no set-
offs, counterclaims, defenses or other causes of action against MidSouth arising
out of the transactions contemplated by the Transaction Documents, any documents
mentioned herein or otherwise; and, to the extent any such setoffs,
counterclaims, defenses or other causes of action may exist, whether known or
unknown, such items are hereby waived by the Practice and the Physician Members,
respectively.
SECTION 2.4. COUNTERPARTS. This Amendment may be executed in several
------------
counterparts, all of which are identical, each of which shall be deemed an
original, and all of which counterparts together shall constitute one and the
same instrument, it being understood and agreed that the signature pages may be
detached from one or more of such counterparts and combined with the signature
pages from any other counterpart in order that one or more fully executed
originals may be assembled.
SECTION 2.5. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA, EXCEPT TO THE
EXTENT FEDERAL LAWS PREEMPT THE LAWS OF THE STATE OF GEORGIA.
SECTION 2.6. ENTIRE AGREEMENT. This Amendment, together with the other
----------------
Transaction Documents, contain the entire agreement between the parties relating
to the subject matter hereof and thereof. This
Page 11
Amendment and the Transaction Documents may be amended, revised, waived,
discharged, released or terminated only by a written instrument or instruments,
executed by the party against which enforcement of the amendment, revision,
waiver, discharge, release or termination is asserted. Any alleged amendment,
revision, waiver, discharge, release or termination which is not so documented
shall not be effective as to any party.
SECTION 2.7. CONFLICTING PROVISIONS. In the event that any provision of
----------------------
either this Amendment or the Service Agreement conflict with each other, the
provisions of this Amendment shall control.
THIS AMENDMENT AND THE TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT
--------------------------------------------------------------------------
BETWEEN THE PARTIES RELATED TO THE SUBJECT MATTER HEREIN CONTAINED AND MAY NOT
------------------------------------------------------------------------------
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
------------------------------------------------------------------------
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
------------------------------------------------------------------------------
PARTIES.
-------
[REMAINDER OF PAGE INTENTIONALLY BLANK]
Page 12
IN WITNESS WHEREOF, this Amendment is executed effective as of the date
first written above.
MIDSOUTH:
--------
MIDSOUTH PRACTICE MANAGEMENT, INC., a Tennessee
corporation
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
THE PRACTICE:
------------
MEMPHIS CHILDREN'S CLINIC, PLLC, a Tennessee
professional limited liability company
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
THE PHYSICIAN MEMBERS:
----------------------
_____________________________________
Xxxxxxxxx X. Xxxxxx, M.D.
_____________________________________
Xxxxxxx X. Xxxxxx, M.D.
_____________________________________
Xxxxxxx X. Xxxxxx, M.D.
_____________________________________
Xxxxxxx X. Xxxxxxxxx, M.D.
_____________________________________
Page 13
Xxxxxxx Xxxxxxxxx, M.D.
_____________________________________
Xxxxx X. Xxxxxxxx, III, M.D.
_____________________________________
Xxxxxxx X. Xxxxxxxxx, M.D.
_____________________________________
Xxxxxxx Xxx Xxxxxx, M.D.
_____________________________________
Xxxxxx X. Xxxxxxx, M.D.
_____________________________________
Xxxxx Xxxxxx, M.D.
Page 14
SCHEDULE 1
PHYSICIAN MEMBERS
1. Xxxxxxxxx X. Xxxxxx, M.D.
2. Xxxxxxx X. Xxxxxx, M.D.
3. Xxxxxxx X. Xxxxxx, M.D.
4. Xxxxxxx X. Xxxxxxxxx, M.D.
5. Xxxxxxx Xxxxxxxxx, M.D.
6. Xxxxx X. Xxxxxxxx, III, M.D.
7. Xxxxxxx X. Xxxxxxxxx, M.D.
8. Xxxxxxx Xxx Xxxxxx, M.D.
9. Xxxxxx X. Xxxxxxx, M.D.
10. Xxxxx Xxxxxx, M.D.
Page 15
EXHIBIT 6.2(B)-1
----------------
(Private Payor)
November __, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: Memphis Children's Clinic, PLLC
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
Please be advised that we have sold our receivables upon which you are obligated
to pay to Physician Health Corporation of MidSouth (the "Purchaser") and such
---------
receivables are owned by Purchaser. Accordingly you are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Lockbox 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 ________(MidSouth Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Lockbox Account)
Please be advised that Purchaser is an intended third party beneficiary of
the instructions herein contained, and they are therefore irrevocable without
Purchaser's prior written consent.
Thank you for your cooperation in this matter.
______________________________
Page 16
EXHIBIT 6.2(B)-2
----------------
(Government Payor)
November __, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: Memphis Children's Clinic, PLLC
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
Please be advised that we have encumbered the right to receive payments on the
receivables upon which you are obligated to pay to Physician Health Corporation
of MidSouth ("MidSouth") and the proceeds of such receivables are to be held by
--------
us for their account. Accordingly 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)
Please be advised that MidSouth is an intended third party beneficiary of
the instructions herein contained, and they are therefore irrevocable without
MidSouth's prior written consent.
Thank you for your cooperation in this matter.
______________________________
Page 17
