HEART CLINIC, P.A.
MASTER TRANSACTION AGREEMENT
BY AND BETWEEN
MEDCATH INCORPORATED
AND
HEART CLINIC, P.A.
JULY 31, 1996
TABLE OF CONTENTS
Page
ARTICLE I-DEFINITIONS................................................................................- 1 -
SECTION 1.1 "Accounts Receivable".....................................................- 1 -
SECTION 1.2 "Assets"..................................................................- 1 -
SECTION 1.3 "Closing".................................................................- 1 -
SECTION 1.4 "Closing Date"............................................................- 1 -
SECTION 1.5 "Employment Agreements"...................................................- 2 -
SECTION 1.6 "Encumbrances"............................................................- 2 -
SECTION 1.7 "Excluded Assets".........................................................- 2 -
SECTION 1.8 "Independent Contractor Agreements".......................................- 2 -
SECTION 1.9 "PAs".....................................................................- 2 -
SECTION 1.10 "Physicians"..............................................................- 2 -
ARTICLE II-PRACTICE MANAGEMENT TRANSACTION...........................................................- 2 -
SECTION 2.1 Sale of Assets and Practice Management Transaction........................- 2 -
SECTION 2.2 Consideration for Transaction.............................................- 3 -
SECTION 2.3 The Closing...............................................................- 3 -
SECTION 2.4 Further Acts and Assurances...............................................- 3 -
ARTICLE III-REPRESENTATIONS AND WARRANTIES OF PRACTICE...............................................- 4 -
SECTION 3.1 Organization, Power, Binding Effect and Qualification.....................- 4 -
SECTION 3.2 Interests.................................................................- 4 -
SECTION 3.3 Subsidiaries, Affiliates, Affiliated Companies and Joint
Venture...................................................................- 4 -
SECTION 3.4 Financial Statements......................................................- 4 -
SECTION 3.5 Absence of Undisclosed Liabilities........................................- 5 -
SECTION 3.6 Absence of Certain Recent Changes.........................................- 5 -
SECTION 3.7 Assets....................................................................- 6 -
SECTION 3.8 Contracts and Leases......................................................- 6 -
SECTION 3.9 Defaults and Consents.....................................................- 6 -
SECTION 3.10 Litigation, Etc...........................................................- 7 -
SECTION 3.11 Court Orders, Decrees and Laws............................................- 7 -
SECTION 3.12 Taxes - 7 -
SECTION 3.14 Employee Matters..........................................................- 8 -
SECTION 3.15 Labor Matters.............................................................- 8 -
SECTION 3.16 Insurance; Malpractice....................................................- 8 -
SECTION 3.17 Books of Account, Reports.................................................- 9 -
SECTION 3.19 Inventory.................................................................- 9 -
SECTION 3.20 Equipment.................................................................- 9 -
SECTION 3.21 Accounts Receivable.......................................................- 9 -
SECTION 3.22 Employee Benefit Plans....................................................- 9 -
SECTION 3.23 Power of Attorney........................................................- 11 -
-i-
SECTION 3.24 Bank Accounts............................................................- 11 -
SECTION 3.25 Environmental Matters....................................................- 11 -
SECTION 3.26 Fraud and Abuse..........................................................- 12 -
SECTION 3.27 Investment Representation and Access.....................................- 12 -
SECTION 3.28 Practice Disclosures.....................................................- 14 -
ARTICLE IV-REPRESENTATIONS AND WARRANTIES OF MEDCATH................................................- 14 -
SECTION 4.1 Organization and Standing of MedCath.....................................- 14 -
SECTION 4.2 Authority; Binding Effect................................................- 14 -
SECTION 4.3 No Finders or Brokers....................................................- 14 -
SECTION 4.4 Validity of Agreement....................................................- 14 -
SECTION 4.5 Defaults and Consents....................................................- 14 -
SECTION 4.6 Court Orders, Decrees and Laws...........................................- 15 -
ARTICLE V-COVENANTS OF PRACTICE.....................................................................- 15 -
SECTION 5.1 Access and Information...................................................- 15 -
SECTION 5.2 Conduct of Business......................................................- 16 -
SECTION 5.3 Confidential Information.................................................- 16 -
SECTION 5.4 Unusual Events...........................................................- 16 -
SECTION 5.5 Departmental Violations..................................................- 16 -
SECTION 5.6 Insurance Ratings........................................................- 17 -
SECTION 5.7 Independent Contractor Agreements; Employment Agreements.................- 17 -
SECTION 5.8 Working Capital..........................................................- 17 -
ARTICLE VI-COVENANTS OF MEDCATH.....................................................................- 18 -
SECTION 6.1 Information..............................................................- 18 -
SECTION 6.2 Corporate Action.........................................................- 18 -
SECTION 6.3 Confidential Handling of Documents.......................................- 18 -
SECTION 6.4 Access to or Furnishing of Information about MedCath.....................- 18 -
ARTICLE VII-CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRACTICE.....................................- 19 -
SECTION 7.1 Representations and Warranties True......................................- 19 -
SECTION 7.2 Service Agreement........................................................- 19 -
SECTION 7.3 No Obstruction Proceeding................................................- 19 -
SECTION 7.4 Proceedings And Documents Satisfactory...................................- 19 -
SECTION 7.5 Receipt of Consideration.................................................- 19 -
ARTICLE VIII-CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MEDCATH.....................................- 19 -
SECTION 8.1 Representations and Warranties True......................................- 20 -
SECTION 8.2 No Obstructive Proceeding................................................- 20 -
SECTION 8.3 Opinion of Practice's Counsel............................................- 20 -
SECTION 8.4 Proceedings and Documents Satisfactory...................................- 20 -
SECTION 8.5 No Adverse Change........................................................- 20 -
SECTION 8.6 Service Agreement........................................................- 20 -
SECTION 8.7 Independent Contractor Agreements........................................- 20 -
SECTION 8.8 Employment Agreements....................................................- 21 -
-ii-
SECTION 8.9 Bonus Agreements.........................................................- 21 -
ARTICLE IX-TERMINATION..............................................................................- 21 -
SECTION 9.1 Optional Termination.....................................................- 21 -
SECTION 9.2 Notice of Abandonment....................................................- 21 -
SECTION 9.3 Termination..............................................................- 21 -
ARTICLE X-INDEMNIFICATION...........................................................................- 22 -
SECTION 10.1 Indemnity by Practice....................................................- 22 -
SECTION 10.2 Indemnity by MedCath.....................................................- 23 -
SECTION 10.3 Rules Regarding Indemnification..........................................- 24 -
SECTION 10.4 Remedies Cumulative......................................................- 26 -
SECTION 10.5 Set-Off..................................................................- 26 -
SECTION 10.6 Definitions..............................................................- 26 -
SECTION 10.7 Survival.................................................................- 27 -
ARTICLE XI-MISCELLANEOUS............................................................................- 27 -
SECTION 11.1 Expenses.................................................................- 27 -
SECTION 11.2 Restrictive Covenant.....................................................- 27 -
SECTION 11.3 Notices..................................................................- 28 -
SECTION 11.4 Entire Agreement.........................................................- 28 -
SECTION 11.5 Governing Law............................................................- 28 -
SECTION 11.6 Section Headings.........................................................- 29 -
SECTION 11.7 Waiver...................................................................- 29 -
SECTION 11.8 Nature and Survival of Representations...................................- 29 -
SECTION 11.9 Successors and Assigns...................................................- 29 -
SECTION 11.10 Amendments...............................................................- 29 -
SECTION 11.11 Counterpart Executions; Facsimiles.......................................- 29 -
SECTION 11.12 Press Releases...........................................................- 29 -
SECTION 11.13 Access to Records After Closing..........................................- 30 -
SECTION 11.14 Disclosure of Certain Information........................................- 30 -
SECTION 11.15 Attorneys' Fees..........................................................- 30 -
SECTION 11.16 Severability.............................................................- 30 -
SECTION 11.17 Third-Party Beneficiary..................................................- 30 -
SECTION 11.18 Arbitration..............................................................- 30 -
SECTION 11.19 Contract Modifications for Prospective Legal Events......................- 30 -
-iii-
MASTER TRANSACTION AGREEMENT
THIS MASTER TRANSACTION AGREEMENT (the "Agreement") is made as of the
31st day of July, 1996, by and between HEART CLINIC, P.A., a Texas professional
association (hereinafter referred to collectively as "Practice") and MEDCATH
INCORPORATED, a North Carolina corporation ("MedCath").
WHEREAS, Practice is the owner and operator of a group medical practice
in Rio Grande Valley area of Texas, with offices in the Texas cities of McAllen,
Weslaco, Harlingen and Brownsville (the "Clinic") which provides comprehensive
professional cardiology care to the general public;
WHEREAS, MedCath, through its affiliates, is in the business of
managing medical practices;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Practice and MedCath agree to enter into the transactions
provided for in this Agreement.
ARTICLE I
DEFINITIONS
SECTION 1.1 "Accounts Receivable" shall mean all accounts and notes
receivable, negotiable instruments and chattel paper the rights to which were
generated by the operations of the Clinic, and other evidences of indebtedness
of, and rights to receive payments from, any person which relate to the
operation of the Clinic, as such exist on the Closing Date including, without
limitation, charges for services rendered to patients prior to the Closing Date
but not yet billed.
SECTION 1.2 "Assets" shall mean all of the assets and properties,
tangible and intangible, of and pertaining to or used at or in connection with
the Clinic, and in which Practice has any right, title or interest, whether as
owner or lessee, wherever located, whether known or unknown, and whether or not
appearing on the books and records of Practice, as the same may exist on the
Closing Date.
SECTION 1.3 "Closing" shall mean the effective date of the consummation
and effectuation of the transactions contemplated herein pursuant to the terms
and conditions of this Agreement.
SECTION 1.4 "Closing Date" shall mean the 1st day of October, 1996 at
such place as is mutually agreed upon by the parties hereto.
SECTION 1.5 "Employment Agreements" shall mean those employment
agreements between each of the various PAs and the Physician who is its sole
shareholder, which contracts are attached as Exhibit D.
SECTION 1.6 "Encumbrances" shall mean all security interests, liens,
pledges, claims, charges, escrows, encumbrances, encroachments, rights of first
refusal, subleases, conditional sales agreements, options, mortgages,
indentures, easements, licenses, restrictions or other covenants, agreements,
understandings, obligations, defects or irregularities affecting title to any of
the Assets.
SECTION 1.7 "Excluded Assets" shall mean the portion of the Assets not
being acquired by MedCath and which is described on Schedule 1.7.
SECTION 1.8 "Independent Contractor Agreements" shall mean those
agreements attached as Exhibit B hereto between Practice and the PAs pursuant to
which the PAs are required to provide the exclusive, full time professional
services of the Physicians to Practice and its patients.
SECTION 1.9 "PAs" shall mean those professional associations, each with
one shareholder who is one of the Physicians, that are signatories to this
Agreement.
SECTION 1.10 "Physicians" shall refer to those certain individuals
licensed to practice medicine in Texas whose services are essential to the
continued operation of Practice and who are individual signatories to this
Agreement.
ARTICLE II
PRACTICE MANAGEMENT TRANSACTION
SECTION 2.1 Sale of Assets and Practice Management Transaction.
Practice has sought MedCath's physician practice management expertise and
MedCath desires to provide physician practice management services to Practice in
accordance with the terms of this Agreement and the other agreements
contemplated hereunder. As of the date hereof, Practice shall convey to MedCath
all of its Assets other than the Excluded Assets and Practice and a wholly-owned
subsidiary of MedCath, Physician Management of McAllen, Inc., a North Carolina
corporation ("Manager") shall enter into the Service Agreement attached hereto
as Exhibit A under which Manager shall provide physician practice management
services to Practice. In consideration therefore, MedCath shall, as of the
Closing Date, deliver the Consideration (as defined below) to Practice.
Contemporaneously therewith, Practice shall enter into the Independent
Contractor Agreements with the PAs attached hereto as Exhibit B in order to
ensure the availability to Practice of the continued services of the Physicians
and Practice shall enter into the Bonus Agreements in the form attached hereto
as Exhibit C with the PAs in order to adequately compensate them for entering
into the Independent Contractor Agreements. Each PA and its related Physician
shall also enter into the appropriate Employment Agreement attached as Exhibit
D. The Assets, other than the Excluded Assets, shall be transferred to
-2-
MedCath free of all liens, claims and encumbrances and then immediately deemed
assigned by MedCath to Manager for its utilization in its management of Practice
pursuant to the Service Agreement, all without further act or written
instrument. Practice agrees to take any and all actions reasonably requested by
MedCath or Manager from time to time to effect and maintain the transfer of the
Assets to MedCath and then to Manager. The transactions contemplated by this
Section 2.1 and as otherwise set forth in this Agreement and the other
agreements and documents contemplated hereby are hereafter referred to
collectively as the "Transaction."
SECTION 2.2 Consideration for Transaction.
(a) The consideration due from MedCath to Practice for
entering into the Transaction shall equal Six Million Three Hundred
Fifty-Nine Thousand Nine Hundred Fifty-Eight Dollars ($6,359,958) plus
the Supplemental Payment (the "Consideration") which shall be composed
of the following:
(i) $6,359,958 in the form of a Convertible
Subordinated Promissory Note (the "Convertible Note") in the
form attached hereto as Exhibit E, $1,907,987 to be paid in
cash only and $4,451,971 to be paid in cash or which is
convertible, after the second (2nd) anniversary hereof as
provided in more detail in the Convertible Note, into the
Common Stock of MedCath Incorporated valued at $14.00 per
share (the "Common Stock").
(ii) The consideration also includes a possible
supplemental payment ("Supplemental Payment") as described in
Exhibit F to be represented by an additional promissory note
(the "Additional Promissory Note") in the form attached as
Exhibit G.
(b) Subject to the provisions of this Agreement, on the
Closing Date MedCath shall:
(i) Deliver the Convertible Note; and
(ii) Deliver the Additional Promissory Note.
SECTION 2.3 The Closing. The Closing shall take place on October 1,
1996 and shall be effective as of 12:01 a.m. on October 1, 1996.
SECTION 2.4 Further Acts and Assurances. Practice shall, at any time
and from time to time at and after the Closing, upon request of MedCath, take
any and all steps and will do, execute, acknowledge and deliver, or will cause
to be done, executed, acknowledged and delivered, all such further acts,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required for providing to MedCath or to its designated subsidiary, the benefits
of the Transaction contemplated by this Agreement.
ARTICLE III
-3-
REPRESENTATIONS AND WARRANTIES OF PRACTICE
Practice hereby represents and warrants to MedCath as follows:
SECTION 3.1 Organization, Power, Binding Effect and Qualification.
Practice is a professional association duly organized, validly existing and in
good standing under the laws of the State of Texas and has full power to own,
lease and operate its properties and assets and to carry on its business as now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the Practice's business or the
ownership or leasing of Practice's properties make such qualification necessary.
Practice has full power to enter into this Agreement and to consummate the
transactions contemplated hereby. Practice has taken all action required by law
and by Practice's Articles of Incorporation and Bylaws to authorize the
execution and delivery of this Agreement and the transactions contemplated
hereby. The execution, delivery, and performance of this Agreement and any and
all agreements being executed in connection herewith constitute the valid and
binding agreements of Practice, each PA and each Physician enforceable in
accordance with their terms. A copy of Practice's Articles of Incorporation and
Bylaws and all amendments thereto as of the date hereof, are included as
Schedule 3.1 and are true, accurate and complete as of the date hereof.
SECTION 3.2 Interests. The interests of Practice are owned in the
manner set forth in Schedule 3.2 and, except as set forth on such Schedule,
there are no outstanding options, warrants rights or commitments for the sale or
issuance of any additional interests in Practice. Except for the transactions
contemplated by this Agreement, insofar as is known to Practice, there are not
any agreements or understandings among Practice shareholders with respect to the
voting on any matter. In addition, Practice and its shareholders executing this
Agreement hereby represent and warrant that no later than immediately prior to
Closing, all interests in Practice (including any entity merged into Practice)
owned by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ at anytime have been reacquired by Practice and that
Practice owes no amounts and is not indebted to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇.
SECTION 3.3 Subsidiaries, Affiliates, Affiliated Companies and Joint
Venture. Practice has no direct or indirect interest in, by way of stock
ownership or otherwise, any corporation, partnership, joint venture, association
or business enterprise.
SECTION 3.4 Financial Statements. The balance sheets of Practice at
December 31, 1994 and 1995 and for the year to date through June 30, 1996, and
the related statements of income and changes in financial position for the
periods then ended, are included as Schedule 3.4 (such financial statements and
the related notes "Financial Statements"). The Financial Statements are prepared
on the cash basis of accounting on a consistent basis throughout the periods
involved, and on that basis, the financial statements are true, complete and
accurate in all material respects and present fairly the assets, liabilities and
financial condition of Practice at the respective dates thereof and the results
of its operations for the periods ended.
SECTION 3.5 Absence of Undisclosed Liabilities. Except as and to the
extent reflected or reserved against in the Financial Statements and except for
commitments and obligations incurred in the ordinary course of business,
consistent with past practice, accruing
-4-
after the date of the Financial Statements, Practice has no liabilities, claims
or obligations which would have a material adverse effect on the operations
(whether accrued, absolute, contingent or otherwise) of the Practice.
SECTION 3.6 Absence of Certain Recent Changes. Practice has not,
since June 30, 1996, except in the ordinary course of business consistent with
past practice:
(a) incurred any indebtedness or other liabilities (whether
accrued, absolute, contingent or otherwise), guaranteed any
indebtedness or sold any of its assets;
(b) suffered any damage, destruction or loss, to any of the
tangible Assets, whether or not covered by insurance;
(c) increased the regular rate of compensation payable to any
employee or any physician; or increased such compensation by bonus,
percentage, compensation service award or similar arrangement
theretofore in effect for the benefit of any of its employees, and no
such increase is required;
(d) established or agreed to establish any pension, retirement
or welfare plan for the benefit of its employees not theretofore in
effect;
(e) suffered any change in its financial condition, assets,
liabilities or business or suffered any other event or condition of any
character which individually or in the aggregate has or might
reasonably be expected to have a material adverse effect on its
business;
(f) experienced any labor organizational efforts, strikes or
formal complaints or entered into any collective bargaining agreements
with any union;
(g) made any single capital expenditure which exceeded $2,500
or made aggregate capital expenditures which exceeded $10,000;
(h) disposed of any of the Assets or written down the value
of any of the Assets, or written off as uncollectible any Accounts
Receivable, or revalued any of the Assets;
(i) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise);
(j) canceled any debts or waived any claims or rights of
substantial value;
(k) entered into, amended or terminated any contract,
agreement or license to which it is a party;
(l) entered into a material transaction or made any change in
any method of accounting or accounting practice;
-5-
(m) canceled, or failed to continue, insurance coverages; or
(n) agreed, whether in writing or otherwise, to take any
action described in this Section 3.6.
SECTION 3.7 Assets. The Assets constitute all of the non-real estate
operating assets of Practice necessary or appropriate for the continued
operation of the Clinic and all such Assets shall continue to be available to
Practice, without any increased cost therefor, at all times after September 30,
1996.
SECTION 3.8 Contracts and Leases. Schedule 3.8 is a copy of each
contract, lease, sublease, agreement and other instrument to which Practice is a
party or are bound that is for an amount in excess of $5,000 or for a term in
excess of twelve (12) months in duration. Except as noted in such Schedule, all
such contracts, leases, subleases and agreements are in full force and effect,
there has been no threatened cancellation thereof, there are no outstanding
disputes thereunder, each is with unrelated third parties and was entered into
on an arms-length basis in the ordinary course of business and, assuming the
receipt of the appropriate consents, all will continue to be binding in
accordance with their terms after consummation of the transaction contemplated
herein; except as disclosed on Schedule 3.8, and except for physician employment
contracts and the Independent Contractor Agreements, Practice is not a party to
or bound by any employment agreements or any agreements that contain any bonus,
severance or termination pay liabilities or obligations or by any agreements to
loan to or guarantee any loan to an employee. In every instance where consent is
necessary, Practice shall, on or before this Closing Date, obtain and deliver to
MedCath in writing, effective as of the Closing Date, such consents as are
necessary to effect the Transaction. The operation of the Independent Contractor
Agreements and Practice's relationship with the PAs do not cause Practice to be
in violation of any statute, rule or regulation and Practice will not be forced
to forego or relinquish any economic right or benefit due to it under or arising
out of the operation of the Independent Contractor Agreements in order to avoid
being in violation of a statute, rule or regulation.
SECTION 3.9 Defaults and Consents. Practice is not in default under,
nor has any event occurred which, with notice or the lapse of time or action by
a third party, could result in a default under, any outstanding indenture,
mortgage, contract, lease or agreement to which Practice is a party or by which
Practice may be bound or under any provision of the Articles of Incorporation,
Bylaws, or other governing documents of Practice. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement will not (a) result in a significant liability to
Practice; (b) constitute a violation of or a default under, or a conflict with,
(i) any term or provision of the Articles of Incorporation, Bylaws, or other
governing documents of Practice or (ii) any order, writ, injunction or decree of
any court, governmental agency or arbitration tribunal, or (iii) any contract,
commitment, indenture, lease, sublease or other agreement, or (iv) any other
restriction of any kind to which Practice is a party or by which Practice is
bound; (c) cause, or give any party grounds to cause (with or without notice,
the passage of time or both) the maturity of any liability or obligation of
Practice to be accelerated, or increase any such liability or obligation; or (d)
require any consent, approval or authorization of, or declaration, filing or
registration with any governmental or
-6-
regulatory authority.
SECTION 3.10 Litigation, Etc. There is no litigation, arbitration,
governmental claim, investigation or proceeding pending or, to the best
knowledge of Practice, threatened against Practice at law or in equity, before
any court, arbitration tribunal or governmental agency. Practice knows of no
facts based on which material claims may be hereafter made against it.
SECTION 3.11 Court Orders, Decrees and Laws. There are no outstanding
or, to the best of Practice knowledge, threatened orders, writs, injunctions or
decrees of any court, governmental agency or arbitration tribunal against or
affecting Practice or the Assets. Practice, including without limitation the
terms and structure of its agreements and arrangements with the PAs and the
Physicians, is in compliance with all applicable federal, state and local laws,
regulations and administrative orders which are material to the operation of the
Clinic, including, without limitation, matters relating to antitrust and
anti-competitive practices, discrimination, employment, and health and safety,
and has received no notices of alleged violations thereof. No governmental
authorities are presently conducting proceedings against Practice and no such
investigation or proceeding is pending or being threatened. Practice has all
federal, state and local permits, certificates, licenses, approvals and other
authorizations necessary in the conduct and operation of the Clinic. All such
licenses and permits of Practice are in full force and effect, and no violations
are or have been recorded in respect thereof for which a fine or penalty may be
levied, and no proceeding is pending or threatened to revoke or limit any
thereof. Practice agrees to assume responsibility for the payment, if any, of
any such future fines for activities occurring in the Clinic prior to the
Closing Date.
SECTION 3.12 Taxes. All federal, state and other tax returns of
Practice required by law to be filed have been timely filed, and Practice has
paid or adequately provided for all taxes (including taxes on properties,
income, franchises, licenses, sales and payrolls) which have become due pursuant
to such returns or pursuant to any assessment, except for any taxes and
assessments, the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
Practice has set aside on its books adequate reserves. There are no tax liens on
any of the Assets except those with respect to taxes not yet due and payable.
There are no pending tax examinations of any Practice tax return nor has
Practice received a revenue agent's report asserting a tax deficiency in the
last twelve (12) months. There are not and will not be at the Closing Date, any
claims pending or asserted against the Assets for unpaid taxes by any federal,
state or other governmental body. Practice has withheld from each payment made
directly or indirectly to its employees (including persons who under the tax
laws could be classified as its employees) the amount of all taxes (including,
but not limited to, federal, state and local income taxes and Federal Insurance
Contribution Act taxes) required to be withheld therefrom and all amounts
customarily withheld therefrom, and has set aside all other employee
contributions or payments customarily set aside with respect to such wages and
has paid or will pay the same to, or has deposited or will deposit such payment
with, the proper tax receiving officers or other appropriate authorities, except
to the extent of any liabilities, to be assumed by MedCath hereunder. Neither
Practice, any PA nor any Physician is relying on MedCath, Manager, or any of
their affiliates, employees, professional advisors or consultants regarding any
tax implications arising from or relating to the Transaction and Practice, the
PAs and the Physicians have obtained their own tax advice in that regard.
-7-
SECTION 3.13 Authority, Binding Effect. Practice has full power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The directors, shareholders and officers of Practice have
taken all action required, whether by law, by their governing documents or
otherwise, to authorize the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby. The execution, delivery,
and performance of this Agreement constitutes the valid and binding agreement of
Practice enforceable in accordance with its terms.
SECTION 3.14 Employee Matters. All compensation paid to the current
employees, officers and consultants of Practice is at a fair market value rate
and is reflected in the financial statements attached as Schedule 3.4.
SECTION 3.15 Labor Matters. Practice has no collective bargaining
agreements with any labor union and neither is currently negotiating with a
labor union. No employee of Practice has ever petitioned for a representation
election. Practice is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and are not engaged in any unfair labor practice. There is no
unfair labor practice complaint against Practice pending before the National
Labor Relations Board or strike, dispute, slowdown or stoppage actually pending
or, to its knowledge, threatened against or affecting Practice.
SECTION 3.16 Insurance; Malpractice. Schedule 3.16(a) is a list and
brief description of all policies or binders of fire, liability, product
liability, worker's compensation, health and other forms of insurance policies
or binders currently in force insuring against risks which will remain in full
force and effect at least through the Closing Date. Schedule 3.16(b) contains a
description of all malpractice liability insurance policies of Practice since
1980. Except as set forth on Schedule 3.16(c), (i) Practice has never filed a
written application for any insurance coverage which has been denied by an
insurance agency or carrier and (ii) Practice has been continuously insured for
professional malpractice claims for at least the past seven (7) years. Schedule
3.16(c) also sets forth a list of all claims for any loss in excess of Five
Thousand Dollars ($5,000) per occurrence, filed by Practice during the three (3)
year period immediately preceding the Closing Date, including but not limit to,
worker's compensation, general liability, environmental liability and
professional malpractice liability claims. Practice is not in material default
with respect to any provision contained in any such policy and neither has
failed to give any notice or present any claim under any such policy in due and
timely fashion.
SECTION 3.17 Books of Account, Reports. The books of account of
Practice are in reasonable detail and accurately and fairly reflect its
transactions and the disposition of its assets consistent with the past
practices of Practice. Practice has filed all reports and returns required by
any law or regulation to be filed by it.
SECTION 3.18 No Finders or Brokers. Practice has not engaged any
finder or broker in connection with the transactions contemplated hereunder. No
commitments have been made to any individuals for payments or stock options in
connection with this Agreement except for payments to the PAs of Practice in
their capacities as independent contractors.
-8-
SECTION 3.19 Inventory. All Assets consisting of inventory are of a
quality and quantity currently usable in the ordinary course of business. The
present quantity of all current and usable inventory is at a level consistent
with the past practices of Practice.
SECTION 3.20 Equipment. All Assets consisting of equipment are
located at the Clinic and are in good condition except for reasonable wear and
tear and are sufficient for the purposes for which currently used.
Such Assets are reflected in the Financial Statements at book value.
SECTION 3.21 Accounts Receivable. Except as disclosed in Schedule
3.21, all of the Accounts Receivable of Practice are bona fide and collectable,
and will be on the Closing Date, recorded in the ordinary course of business and
such Accounts Receivable have been carried on the books of Practice at values in
conformity with past practices and reflect all facts known to Practice as of the
date hereof pertaining to the valuation thereof. Schedule 3.21 contains an aging
of all Accounts Receivable.
SECTION 3.22 Employee Benefit Plans.
(a) Practice maintains no employee benefit plan other than
those listed on Schedule 3.22. Practice has delivered to MedCath true
and complete copies, in the case of documented plans, and a written
description in the case of undocumented plans, of each pension,
retirement, profit-sharing, stock purchase, stock option, severance,
vacation, deferred compensation, bonus or other incentive plan, or
other employee benefit program, arrangement, agreement or
understanding, or medical, vision, dental or other health plan, or life
insurance or disability plan, retiree medical or life insurance plan or
any other employee benefit plans or fringe benefit arrangements,
including, without limitation, any "employee benefit plan" as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), to which Practice contributes or is a party or by
which it is bound or under which it may have liability and under which
employees or former employees of Practice (or their beneficiaries) are
eligible to participate or derive a benefit (the 'Plans"). Each Plan
which is a "group health plan" (as such term is defined in Section
4980B(g)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")) satisfies the applicable requirements in order to avoid the
imposition of tax under Section 4980B of the Code. Except as set forth
on Schedule 3.22, Practice has no formal plan or commitment, whether
legally binding or not, to create any additional plan, practice or
agreement or modify or change any existing plan, practice or agreement
that would affect any of the employees or former employees of Practice.
Benefits under all Plans are as represented and will not be increased
subsequent to the date documents are provided.
(b) The following representations are made with regard to the
Plans:
(i) any and all Plans which are pension plans
within the meaning of Section 3(2) of ERISA ("Pension Plans")
are intended to be qualified plans under Sections 401 and 501
of the Code, have remained qualified under the
-9-
Code since inception and have been determined by the Internal
Revenue Service ("IRS") to be so qualified, and the IRS has
taken no action to revoke such determination or qualification;
(ii) Practice has, in all material respects,
performed all obligations, whether arising by operation of
law, contract, or past custom, required to be performed under
or in connection with the Plans, and Practice has no knowledge
of any default or violation by any other party with respect to
the Plans;
(iii) Practice has complied in all material
respects with ERISA and, where applicable, the Code,
regarding the Plans;
(iv) all reports and disclosures relating to the
Plans required to be filed with or furnished to governmental
agencies, plan participants or plan beneficiaries have been or
will be filed or furnished in accordance with applicable law
in a timely manner;
(v) there are no actions, suits or claims
(other than routine claims for benefits) pending, or, to the
best of Practice's knowledge, threatened, against any Plan or
against the assets funding any Plan;
(vi) no transactions have occurred with respect
to the Plans or assets thereof which could result in the
imposition on Practice, MedCath, the administrators or
trustees under the Pension Plans or the assets funding the
Pension Plan, either directly or indirectly, of taxes or
penalties imposed under Section 4975 of the Code or Section
502(i) of ERISA;
(vii) except as identified on Schedule 3.22, no
Pension Plan benefit plan" as defined in Section 3(35) of
ERISA;
(viii) other than applications for determination,
no action is pending with respect to the Plans before the IRS,
the Department of Labor, or before any state or local
governmental agency;
(ix) no act or omission constituting a breach of
fiduciary duties has occurred with respect to the Plans or the
assets thereof which could subject Practice, MedCath, or the
Assets, either directly or indirectly, to any liability;
(x) any bonding required by applicable provisions
of ERISA with respect to any of the Plans has been obtained
and is in full force and effect;
(xi) the transactions contemplated by this
Agreement will not result in liability for severance pay, or
for events occurring or expenses incurred after termination of
employment (except as required to avoid tax under Section
4980B of the Code), or any similar payment to the employees of
Practice; and
-10-
(xii) no Plan is a "multi-employer plan" within
the meaning of Section 3(37) of ERISA.
(c) Practice has delivered to MedCath and its counsel prior to
the Closing Date, true and complete copies of (i) all documents
governing the Plans, including, without limitation, all amendments
thereto which will become effective at a later date, or if a Plan is
not documented, a written description thereof; (ii) the latest IRS
determination letter obtained with respect to each of the Pension
Plans; (iii) Form 5500 for the most recent completed plan year for each
of the Plans, together with all schedules forming a part thereof; (iv)
all summary plan descriptions relating to the Plans; (v) annuity
contracts funding obligations of any Plan; (vi) all employment manuals;
and (vii) insurance policies or contracts with respect to the Plans.
(d) Neither Practice, any PA nor any Physician is expecting or
relying on MedCath or Manager to administer or otherwise be involved
with or bear any economic cost or expense of or relating to any
qualified or nonqualified retirement plan.
SECTION 3.23 Power of Attorney. Practice has not given any power of
attorney, whether limited or general, to any person which is continuing in
effect.
SECTION 3.24 Bank Accounts. Schedule 3.24 sets forth a list of all
bank accounts and safe deposit boxes in the name of or controlled by Practice
and details about the persons having access thereto.
SECTION 3.25 Environmental Matters. Practice is in compliance with
all federal, state and local environmental laws, rules, regulations, standards
and requirements, including, without limitation, those respecting hazardous or
biomedical materials and/or wastes. Except as disclosed on Schedule 3.25,
Practice has not engaged in any storage, holding, release, emission, discharge,
generation, processing, disposition, handling or transportation of any
biomedical wastes or hazardous substances or materials, as defined in any
applicable federal or state law or regulation from, into or on any portion of
the Clinic premises.
SECTION 3.26 Fraud and Abuse. To the best of its knowledge after due
inquiry, neither Practice, its officers and directors, or persons and entities
providing professional services for the Clinic (including the PAs and the
Physicians), have engaged in any activities which are prohibited under U.S.C.
Sec. 1320a-7b, or the regulations promulgated thereunder pursuant to such
statutes, or related state or local statutes or regulations, or which are
prohibited by ruler, of professional conduct, including but not limited to the
following: (a) knowingly and willfully making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failure to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued right
to any benefit or payment on its own behalf or on behalf of another, with intent
to fraudulently secure such benefit or payment; and (d) knowingly and willful,
soliciting or receiving any remuneration (including any kickback, bribe, or
rebate),
-11-
directly or indirectly, overtly or covertly, in cash or in kind or offering to
pay or receive such remuneration (i) in return for referring an individual to a
person for the furnishing or arranging for the furnishing of any item or service
for which payment may be made in whole or in part by Medicare or Medicaid, or
(ii) in return for purchasing, leasing, or ordering or arranging for or
recommending purchasing, leasing, or ordering any good, facility, service, or
item for which payment may be made in whole or in part by Medicare or Medicaid.
SECTION 3.27 Investment Representation and Access. Practice
represents and warrants to and covenants with MedCath as follows:
(a) The Convertible Note and the Common Stock of MedCath into
which it may be converted will be acquired by Practice for its own
account for the purpose of investment only.
(b) Practice has received and reviewed the April 3, 1996
Prospectus of MedCath and its 10-Q for the period ended March 31, 1996
and recent 8-K (the "SEC Filings"). Practice confirms that MedCath has
made available to it or to its representatives, the opportunity to ask
questions of its officers and directors and to acquire such additional
information about the Common Stock and the business and financial
condition of MedCath as Practice has requested, which additional
information has been satisfactory received.
(c) In deciding to acquire the Convertible Note, Practice has
relied upon consultations with its legal, financial and tax advisers
with respect to this transaction and the nature of the investment
together with the additional information concerning MedCath set forth
in the SEC Filings, and any additional information provided under
subsection (b) above.
(d) The financial condition of Practice is such that it can
bear the risk of this investment indefinitely. Practice either alone or
with its representatives has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and
risks of an investment in MedCath.
(e) Practice will not transfer or otherwise dispose of the
Convertible Note and the Common Stock into which it may be converted or
any interest therein in such manner as to violate any registration
provision of the Securities Act of 1933, as amended (the "Securities
Act"), or of any applicable state securities law regulating the
disposition thereof. Practice is aware that the Convertible Note and
the Common Stock into which it may be converted have not been
registered under the Securities Act or any state securities laws or any
other applicable securities legislation and that the Convertible Note
and the Common Stock into which it may be converted must be held
indefinitely unless it is subsequently registered or an exemption from
such registration is available. MedCath will permit transfer of the
Convertible Note and the Common Stock into which it may be converted by
Practice either when such securities have been registered under the
Securities Act, any applicable state securities law and any other
applicable securities legislation or when the request is accompanied by
an opinion of counsel, acceptable to MedCath, to the effect that the
sale or proposed transfer does not require registration
-12-
under the Securities Act, any state securities law or any other
applicable securities legislation. Practice agrees that the following
legend to such effect and any other legends required by applicable
state securities law will be placed on the Convertible Note and the
Common Stock into which it may be converted and a stock transfer order
shall be placed with respect thereto, for as long as MedCath deems it
necessary:
THIS CONVERTIBLE NOTE AND THE COMMON STOCK INTO WHICH
IT MAY BE CONVERTED HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF EFFECTIVE REGISTRATION STATEMENTS UNDER SUCH ACTS
OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO MEDCATH THAT
SUCH REGISTRATION IS NOT REQUIRED.
(f) The representations, warranties and covenants of Practice
contained herein shall survive the execution and delivery of this
Agreement and the issuance of the Convertible Note and any Common Stock
into which it may be converted.
(g) To the Extent Practice is entitled to any Supplemental
Payment under the Additional Promissory Note, the representations,
warranties and provisions of (a) through (f) above shall apply thereto
as well by substituting the "Additional Promissory Note" for the
"Convertible Note" wherever it appears.
SECTION 3.28 Practice Disclosures. No representations, warranties or
disclosures of information made by Practice, including disclosures made in any
Exhibit, Schedule or certificate or other writing delivered or to be delivered
in connection with the transactions contemplated hereby, contains or will
contain any untrue statement of a material fact or omits to state any material
fact which is necessary in order to make the disclosures not misleading.
SECTION 3.29 Other Representations and Warranties. Except as
specifically provided herein, Practice, the PAs and the Physicians have made no
representations or warranties of any type or nature to MedCath or Manager.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MEDCATH
MedCath represents and warrants as follows:
SECTION 4.1 Organization and Standing of MedCath. MedCath is a
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina and has full corporate power to own, lease and
operate its properties and assets and to carry on its business as and where it
is now being conducted, to enter into this Agreement and to
-13-
consummate the transactions contemplated hereby.
SECTION 4.2 Authority; Binding Effect. MedCath has full power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby. MedCath has taken all action required by law and by
MedCath's Articles of Incorporation and Bylaws to authorize the execution and
delivery of this Agreement and the transactions contemplated hereby. The
execution, delivery, and performance of this Agreement constitute the valid and
binding agreements of MedCath enforceable in accordance with its terms.
SECTION 4.3 No Finders or Brokers. Neither MedCath nor any officer or
director thereof has engaged any finder or broker in connection with the
transactions contemplated hereunder. MedCath will indemnify and hold Practice
harmless against claims (and expenses in the defense thereof) of any person,
firm or corporation for finder's fees, broker's fees, brokerage commission,
sales commissions or the like alleged in connection with the transactions
contemplated hereunder due to acts of MedCath.
SECTION 4.4 Validity of Agreement. Upon execution and delivery of this
Agreement and all documents executed in connection herewith, they will
constitute the valid and binding obligation of MedCath and be binding against
MedCath in accordance with its terms.
SECTION 4.5 Defaults and Consents. MedCath is not in default under,
nor has any event occurred which, with notice or the lapse of time or action by
a third party, could result in a default under, any outstanding indenture,
mortgage, contract, lease or agreement to which MedCath is a party or by which
MedCath may be bound and which is material to the operations of MedCath and its
subsidiaries taken as a whole, or under any provision of the Articles of
Incorporation, Bylaws, or other governing documents of MedCath. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement will not (i) constitute a violation
of or a default under, or a conflict with, (A) any term or provision of the
Articles of Incorporation, Bylaws, or other governing documents of MedCath or
(B) any order, writ, injunction or decree of any court, governmental agency or
arbitration tribunal, or (C) any contract, commitment, indenture, lease,
sublease or other agreement, or (D) any other restriction of any kind to which
MedCath is a party or by which MedCath is bound; (ii) cause, or give any party
grounds to cause (with or without notice, the passage of time or both) the
maturity of any liability or obligation of MedCath to be accelerated, or
increase any such liability or obligation or (iii) other than the consent of
bankers and filings with respect to the registration of the Common Stock,
require any consent, approval or authorization of, or declaration, filing or
registration with any governmental or regulatory authority.
SECTION 4.6 Court Orders, Decrees and Laws. There are no outstanding
or, to the best of MedCath's knowledge, threatened orders, writs, injunctions or
decrees of any court, governmental agency or arbitration tribunal against or
affecting MedCath. MedCath is in compliance with all applicable federal, state
and local laws, regulations and administrative orders which are material to the
operations of MedCath and has not received any notices of alleged violations
thereof. No governmental authorities are presently conducting proceedings
against MedCath and no such investigation or proceeding is pending or being,
threatened. MedCath has all federal, state and local permits, certificates,
licenses, approvals and other authorizations
-14-
necessary in the conduct and operation of MedCath. All such licenses and permits
of MedCath are in full force and effect, and no violations are or have been
recorded in respect thereof for which a fine or penalty may be levied, and no
proceeding is pending or threatened to revoke or limit any thereof.
SECTION 4.7 Other Representations and Warranties. Except as
specifically provided herein, MedCath and Manager have made no representations
or warranties of any type or nature to Practice, the PAs or the Physicians.
ARTICLE V
COVENANTS OF PRACTICE
Practice hereby covenants and agrees as follows:
SECTION 5.1 Access and Information. Between the date hereof and the
Closing Date, Practice shall give to representatives of MedCath reasonable
access during normal business hours to the Clinic's premises, books, accounts
and records and all other relevant documents and will make available, and use
its best efforts to cause their independent auditors to make available, copies
of all such documents and information with respect to the business and
properties of Practice as representatives of MedCath may from time to time
reasonably request, including, without limitation, the working papers used to
prepare the Financial Statements and income tax returns filed and in
preparation, all in such manner as not unduly to disrupt Practice's normal
business activities. Such access shall include consultations with the employees
of Practice. During the period from the date of this Agreement to the Closing
Date, Practice shall confer on a regular and frequent basis with one or more
representatives of MedCath to report material operational matters and to report
the general status of on-going operations. Practice shall notify MedCath of any
material adverse change in the financial position, earnings or business of
Practice after the date hereof and prior to the Closing Date and any unexpected
emergency or other unanticipated change in the business of Practice and of any
governmental complaints, investigations or hearings or adjudicatory proceedings
(or communications indicating that the same may be contemplated) or of any other
matter which may be material to Practice or which would cause the
representations contained in Article III not to be true and correct and shall
keep MedCath fully informed of such events and permit its representatives to
participate in all discussions relating thereto.
SECTION 5.2 Conduct of Business. Between the date hereof and the
Closing Date, except as otherwise approved by MedCath or necessary to consummate
the transactions contemplated by this Agreement, Practice shall conduct its
business only in the ordinary course thereof consistent with past practice and
in such a manner that the representations and warranties contained in Article
III shall be true and correct at and as of the Closing Date (except for changes
contemplated, permitted or required by this Agreement) and so that the
conditions to be satisfied by Practice at the Closing Date shall have been
satisfied. Practice shall (a) carry on its business in the usual and ordinary
course, (b) use its best efforts to preserve its business organization intact
and conserve the good will and relationships of its patients, and others having
business relations with it, (c) conduct its business in a manner which will
cause the representations and
-15-
warranties contained in Article III to be true and correct on the Closing Date
in each case, as if made on and as of such date, (d) not grant any increases in
wages, bonuses, benefits or other compensation to any director, officer,
employee or agent, (e) not enter into any agreement which would be a "material
contract" without MedCath's consent, (f) not waive any right or benefit or (g)
not incur any liability or obligation outside the ordinary course of business or
which involves the receipt or expenditure of more than $5,000 without MedCath's
consent.
SECTION 5.3 Confidential Information. Practice shall keep confidential
all information provided by MedCath regarding the business plan, financial
condition and operations of MedCath, which is not in the public domain, and
shall exercise the same care in handling such information as it would exercise
with similar information of its own. Practice may disclose information it deems
advisable to its physician employees provided such physician employees are
advised of the confidential nature of such information and agree to keep such
information confidential as provided herein. MedCath shall be a third party
beneficiary of such agreements.
SECTION 5.4 Unusual Events. Until the Closing Date, Practice shall
supplement or amend all relevant Exhibits and Schedules with respect to any
matter thereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in such
Exhibits or Schedules.
SECTION 5.5 Departmental Violations. Practice shall make all reasonable
attempts to comply with all notices of violations of law or municipal
ordinances, orders or requirements noted in or issued by government agencies or
departments having authority with respect to buildings, fire, labor, health, or
any other federal, state or municipal department having jurisdiction against or
affecting the operation of the Clinic or the Assets prior to the Closing Date
unless contesting the same in good faith. All such notices, after the date
hereof and prior to the Closing Date, shall be complied with by Practice prior
to the Closing Date. Upon written request, Practice shall furnish MedCath with
an authorization to make the necessary searches for such notices.
SECTION 5.6 Insurance Ratings. Practice shall take all action
reasonably requested by MedCath to enable it to succeed to the Worker's
Compensation and Unemployment Insurance ratings, insurance policies, deposits
and other interests of Practice and other ratings for insurance or other
purposes established by Practice. MedCath shall not be obligated to succeed to
any such rating, insurance policy, deposit or other interest, except as it may
elect to do so.
SECTION 5.7 Independent Contractor Agreements; Employment Agreements.
Practice, PA and each Physician shall ensure that each of the PAs execute an
Independent Contractor Agreement and each Physician shall execute an Employment
Agreement with his PA pursuant to which the exclusive, full time professional
services of the Physician who is the sole shareholder of the PA shall be
provided to Practice as an employee of the PA for at least the five (5)
consecutive year period beginning on the Closing Date subject only to the death
or permanent disability of any such Physician. Practice, the applicable PA, and
the applicable Physician shall have breached their covenants set forth in this
Section 5.7 in the event that any such Physician fails to remain employed by the
PA and provide his exclusive, full time professional services to
-16-
Practice through the PA for at least the five (5) consecutive year period
beginning on the Closing Date notwithstanding any provision in the relevant
Independent Contractor Agreement or the Physician's Employment Agreement with
the PA or in the Service Agreement that might allow such service relationship
among Practice, the PA and the Physician to be terminated without there being a
breach of the Independent Contractor Agreement or the Employment Agreement.
Practice, the PAs and the Physicians covenant that should the operation of the
Independent Contractor Agreements or Practice's relationship with the PAs or the
Physicians cause Practice to be in violation of any statute, rule or regulation
or Practice would be forced to forego or relinquish any economic right or
benefit due to it under or arising out of the operation of the Independent
Contractor Agreements or Practice's relationship with the PAs or the Physicians
in order to avoid being in violation of a statute, rule or regulation, Practice,
the PAs and the Physicians shall take any and all actions to restructure their
relationships to avoid such violations or such a foregoence or relinquishment,
including without limitation the employment of the Physicians directly by
Practice. This Section 5.7 will not apply or be binding on Practice, the PAs or
the Physicians if MedCath fails to pay any amounts when due under this Agreement
after the expiration of the applicable grace periods or the Service Agreement
has been terminated by Practice pursuant to Section 11.2 thereof.
SECTION 5.8 Working Capital. Practice and its shareholders executing
this Agreement hereby agree that they shall cause to remain, or to be provided
to Practice, a sufficient amount of working capital, whether from proceeds of
accounts receivable or otherwise, in an amount sufficient to enable Practice to
pay all of its liabilities and obligations, including the Management Fee to
Manager under the Service Agreement, as they become due. To the extent
necessary, such shareholders shall assist Practice in obtaining loans for such
working capital, and any interest on such loans shall not be taken into account
for the purposes of determining Manager's fee under the Service Agreement.
ARTICLE VI
COVENANTS OF MEDCATH
SECTION 6.1 Information. MedCath shall promptly provide to Practice
upon request any information or documents reasonably necessary for Practice, or
its shareholders to make an informed judgment as to the advisability of
consummating the transactions contemplated hereby or to verify the
representations and warranties of MedCath herein. Until the Closing Date MedCath
shall notify Practice of any matter which may be materially adverse to MedCath
and its subsidiaries considered as a whole and shall keep Practice fully
informed of such events.
SECTION 6.2 Corporate Action. MedCath will take all necessary
corporate and other action and obtain all consents, approvals and amendments of
agreements required of them to carry out the transactions contemplated by this
Agreement and to satisfy the conditions specified herein.
SECTION 6.3 Confidential Handling of Documents. Subject to the
provisions of
-17-
Section 11.14, MedCath shall keep confidential all information
provided by Practice pursuant to this Agreement which is not in the public
domain, and shall exercise the same care in handling such information as it
would exercise with similar information of its own.
SECTION 6.4 Access to or Furnishing of Information about MedCath.
(a) Practice, its offeree representative(s), or both, shall
have been furnished, during the course of the transactions described
herein and prior to the asset sale, by MedCath, or any person acting on
its behalf, the SEC Filings.
(b) MedCath shall make available, during the course of the
transactions described herein and prior to the asset sale, to Practice
and its advisors, the opportunity to ask questions of, and receive
answers from, MedCath or any person acting on its behalf concerning the
terms and conditions of the issuance of the Common Stock and to obtain
any additional information including regularly prepared financial
statements with notes thereto, to the extent MedCath possesses such
information or can acquire it without unreasonable effort or expense,
necessary to verify the accuracy of the information delivered to
Practice by or on behalf of MedCath.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRACTICE
All obligations of Practice which are to be discharged under this
Agreement on the Closing Date are subject to the performance, at or prior to the
Closing Date, of all covenants and agreements contained herein which are to be
performed by MedCath at or prior to the Closing Date and to the fulfillment at,
or prior to, the Closing Date, of each of the following conditions (unless
expressly waived in writing by Practice at any time at or prior to the Closing
Date):
SECTION 7.1 Representations and Warranties True. All of the
representations and warranties made by MedCath contained in Article IV of this
Agreement shall be true as of the date of this Agreement, shall be deemed to
have been made again at and as of the Closing Date, and shall be true at and as
of the Closing Date in all material respects; MedCath shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed or complied with by it prior to or on the closing
Date; and Practice shall have been furnished with a certificate of the President
or any Vice President of MedCath dated the Closing Date, in their corporate
capacities, certifying to the truth of such representations and warranties as of
the Closing Date and to the fulfillment of such covenants and conditions.
SECTION 7.2 Service Agreement. Practice and Manager shall have
entered into the Service Agreement.
SECTION 7.3 No Obstruction Proceeding. No action or proceeding shall
have been instituted against, and no order, decree or judgment of any court,
agency, commission or
-18-
governmental authority shall be subsisting against MedCath or Practice which
seeks to, or would, render it unlawful to effect the Transaction in
accordance with the terms hereof, and no such action shall seek damages in a
material amount by reason of the transactions contemplated hereby. Also, no
substantive legal objection to the transactions contemplated by this
Agreement shall have been received from or threatened by any governmental
department or agency.
SECTION 7.4 Proceedings And Documents Satisfactory. All proceedings
in connection with the asset sale and all certificates and documents delivered
to the parties pursuant to this Agreement shall be satisfactory in form and
substance to the parties acting reasonably and in good faith.
SECTION 7.5 Receipt of Consideration. Practice shall have received
the Convertible Note and the Additional Promissory Note.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MEDCATH
All obligations of MedCath which are to be discharged under this
Agreement on the Closing Date are subject to the performance, at or prior to the
Closing Date, of all covenants and agreements contained herein which are to be
performed by Practice at or prior to the Closing Date and to the fulfillment at
or prior to the Closing Date of each of the following conditions (unless
expressly waived in writing by MedCath at any time at or prior to the Closing
Date):
SECTION 8.1 Representations and Warranties True. All of the
representations and warranties of Practice contained in Article III of this
Agreement shall be true as of the date of this Agreement, shall be deemed to
have been made again at and as of the Closing Date, and shall be true at and as
of the Closing Date in all material respects; Practice shall have performed or
complied in all material respects with all covenants and conditions required by
this Agreement to be performed or complied with by them prior to or on the
Closing Date; and MedCath shall be furnished with a certificate of the President
and Secretary of Practice, dated the Closing Date, certifying to the truth of
such representations and warranties as of the Closing Date and to the
fulfillment of such covenants and conditions.
SECTION 8.2 No Obstructive Proceeding. No action or proceedings
shall have been instituted against, and no order, decree or judgment of any
court, agency, commission or governmental authority shall be subsisting against
MedCath or Practice which seeks to, or would, render it unlawful as of the
Closing Date to effect the Transaction in accordance with the terms hereof, and
no such action shall seek damages in a material amount by reason of the
transactions contemplated hereby. Also, no substantive legal objection to the
transactions contemplated by this Agreement shall have been received from or
threatened by any governmental department or agency.
SECTION 8.3 Opinion of Practice's Counsel. Practice shall have
delivered to MedCath on the Closing Date an opinion of J. ▇▇▇▇▇▇ ▇▇▇▇, ▇▇., Esq.
counsel to Practice, dated
-19-
the Closing Date, in form and substance satisfactory to MedCath to the effect
set forth as Exhibit H.
SECTION 8.4 Proceedings and Documents Satisfactory. All proceedings
in connection with the asset sale and all certificates and documents delivered
to the parties pursuant to this Agreement shall be satisfactory in form and
substance to the parties acting reasonably and in good faith.
SECTION 8.5 No Adverse Change. From the date of this Agreement until
the Closing Date the operations of the Clinic shall have been conducted in the
ordinary course of business, consistent with past practice, and from the date of
the Financial Statements until the Closing Date no event shall have occurred or
have been threatened which has or would have a material and adverse effect upon
the operation of the Clinic.
SECTION 8.6 Service Agreement. Practice and Manager shall have
entered into the Service Agreement.
SECTION 8.7 Independent Contractor Agreements. Practice and each PA
shall enter into the appropriate Independent Contractor Agreement.
SECTION 8.8 Employment Agreements. Each Physician and his PA shall have
entered into the appropriate Employment Agreement.
SECTION 8.9 Bonus Agreements. The PAs and Practice shall have entered
into the Bonus Agreements.
ARTICLE IX
TERMINATION
SECTION 9.1 Optional Termination. This Agreement may be terminated and
the asset sale abandoned at any time prior to the Closing Date as follows:
(a) By the mutual consent of MedCath and Practice;
(b) By Practice, if any of the conditions set forth in
Article VII shall not have been met by the Closing Date;
(c) By MedCath, if any of the conditions set forth in
Article VIII hereof have not been
met by the Closing Date; or
(d) By either party if the Closing Date shall not have
occurred within nine (9) months from the date of execution of this
Agreement.
SECTION 9.2 Notice of Abandonment. In the event of such termination by
either MedCath or Practice pursuant to Section 9.1 above, written notice shall
forthwith be given to the
-20-
other party or parties hereto.
SECTION 9.3 Termination. In the event this Agreement is terminated as
provided above, (a) MedCath and Practice shall deliver to the other party all
documents previously delivered (and copies thereof in its possession) concerning
one another and the transactions contemplated hereby and (b) none of the parties
nor any of their respective stockholders, partners, directors, officers, or
agents shall have any liability to the other party for costs, expenses, loss of
anticipated profits, consequential damages, or otherwise, except for any
deliberate breach or deliberate omission resulting in breach of any of the
provisions of this Agreement. Except as provided in Section 11. 14 which shall
survive termination, after termination each party shall keep confidential all
information provided by the other pursuant to this Agreement which is not in the
public domain, and shall exercise the same care in handling such information as
it would exercise with similar information of its own.
ARTICLE X
INDEMNIFICATION
SECTION 10.1 Indemnity by Practice. Subject to the conditions and
provisions herein set forth, Practice agrees to indemnify, defend and hold
harmless MedCath, its officers, directors, shareholders, subsidiaries,
affiliates and agents from and against the following, except as caused by the
acts or omissions of MedCath:
(a) Any and all damages, losses, settlement payments,
obligations, liabilities, claims, actions or causes of action,
encumbrances and reasonable costs and expenses suffered, sustained,
incurred or paid by any indemnified party because of:
(i) the claims of any broker or finder
engaged by Practice;
(ii) the untruth, inaccuracy or breach of
any representation, warranty, agreement or covenant of Practice
contained in or made in connection with this Agreement;
(iii) the assertion against MedCath of any
liability or obligation relating to the operations of Practice
prior to the Closing Date;
(iv) all claims and litigation and potential
claims and litigation against MedCath with respect to
incidents or other matters which occurred prior to the Closing
Date related to the business of Practice; and
(v) any other liabilities of Practice,
including any professional malpractice liability of Practice
or any individual physicians associated therewith, whether
absolute or contingent, known or unknown, matured or
unmatured.
(b) In recognition of the fact that MedCath is willing to
enter into this Agreement only if Practice, the PAs and the Physicians
enter into the Service Agreement,
-21-
and the applicable Independent Contractor Agreements and Employment
Agreements and that the parties thereto fulfill their obligations
thereunder, Practice and each of the PAs and the Physicians hereby
acknowledge and agree that MedCath and Manager will incur substantial
losses and damages in the event that any of the Physicians fails to
fulfill his obligations to provide his exclusive, full time
professional services to Practice through his PA for at least the five
(5) consecutive year period beginning on the Closing Date.
Accordingly, in the event that a Physician ceases to provide his
exclusive, full time professional services to Practice through his
PA for any reason for at least the five (5) year consecutive
year period beginning on the Closing Date (other than due to the death
or permanent disability of such Physician) which shall constitute a
breach of their covenants in Section 5.7 hereof, then Practice, and
the PAs and the Physicians agree to indemnify MedCath for any losses
and damages suffered as a result of such failure. Due to the difficulty
in measuring such loss, MedCath, Practice, and each of the PAs and
the Physicians agree that upon any such Physician's failure to fulfill
his five (5) year obligation described above, Practice, such
Physician and his PA shall be jointly and severally obligated to pay to
MedCath as indemnification, liquidated damages in an amount and as
otherwise set forth in Schedule 10.1(b) hereof and MedCath shall have
such additional rights and remedies as set forth in Schedule 10.1(b).
Such amounts shall be due in full within fifteen (15) days of demand
therefore by MedCath pursuant to the terms of Schedule 10.1(b).
(c) All reasonable costs and expenses (including, without
limitation, attorneys' fees and interest) incurred by any indemnified
party in connection with any action, proceeding, demand, assessment or
judgment incident to any of the matters for which indemnity is provided
in this Section 10.1.
(d) To the extent Practice, a PA or a Physician is required to
make a payment to MedCath or Manager hereunder and the event giving
rise to the payment is the fault of another of Practice, a PA or a
Physician, such paying party shall have a right of indemnification from
such party at fault.
(e) The provisions of this Section 10.1 shall not apply and be
binding on Practice, the PAs or the Physicians if MedCath fails to pay
any amounts when due under this Agreement after the expiration of the
applicable grace periods or the Service Agreement has been terminated
by Practice pursuant to Section 11.2 thereof.
SECTION 10.2 Indemnity by MedCath. Subject to the conditions and
provisions herein set forth, MedCath agrees to indemnify, defend and hold
harmless Practice, its shareholders, subsidiaries, officers, directors and
agents, from and against the following, except as caused by the acts or omission
of Practice:
(a) Any and all damages, losses, settlement payments,
obligations, liabilities, claims, actions or causes of action,
encumbrances and reasonable costs and expenses suffered, sustained,
incurred or paid by any indemnified party because of:
(i) the claims of any broker or finder
engaged by MedCath;
-22-
and
(ii) the untruth, inaccuracy or breach of any
representation, warranty, agreement or covenant of MedCath
contained in or made pursuant to this Agreement.
(b) All reasonable costs and expenses (including, without
limitation, attorneys' fees, interest and penalties) incurred by any
indemnified party in connection with any action, suit, proceeding,
demand, assessment or judgment incident to any of the matters for which
indemnity is provided in this Section 10.2.
SECTION 10.3 Rules Regarding Indemnification. The obligations and
liabilities of each indemnifying party hereunder with respect to claims
resulting from the assertion of liability by the other party or third parties
shall be subject to the following terms and conditions:
(a) All claims for indemnification by any Indemnified Party
under this Article X shall be asserted and resolved as provided in this
Section 10.3 except as otherwise set forth in Schedule 10.1(b). In the
event any Indemnified Party shall have a claim for indemnification
under Section 10.1 or 10.2 hereof against any Indemnifying Party, the
Indemnified Party shall deliver an Indemnity Notice to the Indemnifying
Party within a period of forty-five (45) days following the date on
which the Indemnified Party becomes aware of such claim. The failure by
any Indemnified Party to give such Indemnity Notice shall not impair
such party's rights hereunder, except to the extent that the
Indemnifying Party demonstrates that it has been irreparably prejudiced
thereby. If the Indemnifying Party notifies the Indemnified Party that
it does not dispute the claim described in such Indemnity Notice, or
fails to notify the Indemnified Party within the Dispute Period whether
the Indemnifying Party disputes the claim described in such Indemnity
Notice, the Losses in the amount specified in the Indemnity Notice will
be conclusively deemed a liability of the Indemnifying Party under
Section 10.1, hereof, as the case may be, and the Indemnifying Party
shall immediately pay the amount of such Losses to the Indemnified
Party on demand. If the Indemnifying Party notifies the Indemnified
Party within the Dispute Period that it disputes the claim described in
the Indemnity Notice, the Indemnifying Party and the Indemnified Party
will proceed in good faith to negotiate a resolution of such dispute,
and, if not resolved through negotiations within the Resolution Period,
such dispute shall be resolved by any lawful manner.
(b) If any written claim is made by a third party, or if any
suit or proceeding (including, but not limited to, an arbitration or an
audit by any taxing authority) is instituted, in each case against
Indemnified Party which, if prosecuted successfully, would, in the
judgment of Indemnified Party, be a matter for which Indemnified Party
is entitled to indemnification under this Agreement (a "Third Party
Claim"), the obligations and liabilities of the parties hereunder with
respect to such Third Party Claim shall be subject to the following
terms and conditions:
(i) Indemnified Party shall give Indemnifying
Party an Indemnity Notice of any such Third Party Claim within
twenty (20) days after
-23-
receipt by Indemnified Party of written notice thereof,
provided, however, that the failure of Indemnified Party
to furnish written notice to Indemnifying Party of a Third
Party Claim shall not release Indemnifying Party from
Indemnifying Party's obligations under this Article X,
except to the extent Indemnifying Party is actually
prejudiced by such failure. Indemnifying Party may undertake
the defense of such Third Party Claim at its expense by
representatives of its own choosing; provided that (A) the
Indemnifying Party shall obtain the prior approval by the
Indemnified Party of such counsel, which approval shall not be
unreasonably withheld, (B) the Third Party Claim does not
involve a claim for specific performance, or injunctive or
other equitable relief (such claims being dealt with under
subsection (a) above) and (C) nothing herein shall prejudice
the right of the Indemnified Party to participate in such
defense at its own expense through counsel of its choosing.
The assumption of the defense of any Third Party Claim by
Indemnifying Party shall constitute the agreement of
Indemnifying Party to assume, without condition or
reservation, full responsibility for such Third Party Claim.
Thereafter, Indemnifying Party shall pay as and when due all
costs and expenses related to the defense of such Third Party
Claim and shall pay and satisfy in full the Final Amount of
any and all Losses arising therefrom or related thereto.
(ii) If Indemnifying Party does not so undertake
the defense of such Third Party Claim within fifteen (15) days
after written notice of such claim has been given to
Indemnifying Party by Indemnified Party, Indemnified Party
shall have the right to undertake the defense, compromise and
settlement of such Third Party Claim with counsel of its own
choosing. Under such circumstances, Indemnified Party shall,
promptly upon its assumption of the defense of such Third
Party Claim, give an Indemnity Notice which shall thereafter
be deemed to be an Indemnity Notice that is not with respect
to a Third Party Claim subject to the procedures set forth in
this Section 10.3(b).
(iii) The Indemnified Party and Indemnifying
Party shall cooperate with each other in all reasonable
respects in connection with the defense of any Third Party
Claim, including, but not limited to, making available records
relating to such claim and furnishing employees of Indemnified
Party or Indemnifying Party as may be reasonably necessary for
the preparation of the defense of any such Third Party Claim
or for testimony as witnesses in any proceeding relating to
such claim. All costs and expenses incurred by Indemnifying
Party or Indemnified Party in connection with the foregoing
shall be the responsibility of the party requesting such
cooperation.
(iv) The Indemnified Party shall have the right
to participate fully in all proceedings, including settlement
discussions, shall be provided copies of notices, orders and
all other papers, and shall be given prior notice by the
Indemnifying Party of any meetings, hearings and other
discussions in any such suit or proceeding. The Indemnifying
Party shall consult with the Indemnified Party and keep the
Indemnified Party fully advised of the progress of any such
-24-
suit or proceeding, and shall make no admissions or otherwise
act in a manner which might be prejudicial to the Indemnified
Party's rights in connection with any such suit or proceeding.
(v) The Indemnifying Party agrees that any
controversy between it and the Indemnified Party concerning
its obligations under this indemnity may be litigated in the
same forum and concurrently with any lawsuit against the
Indemnified Party to which such controversy may relate, and
the Indemnified Party agrees to voluntarily appear in such
forum and submit to the jurisdiction thereof.
(vi) Unless Indemnifying Party has failed or
refused to undertake the defense of such third party claim, no
settlement by Indemnified Party of a Third Party Claim shall
be made without the prior written consent of Indemnifying
Party, which consent shall not be unreasonably withheld or
delayed. If Indemnifying Party has assumed the defense of a
Third Party Claim as contemplated by this Section 10.3(b), no
settlement of such Third Party Claim may be made by
Indemnifying Party without the prior written consent of
Indemnified Party, which consent shall not be unreasonably
withheld or delayed.
SECTION 10.4 Remedies Cumulative. Except as herein expressly provided,
the remedies provided in this Article X shall be cumulative and shall not
preclude assertion by any party of any other rights or the seeking of any other
rights or remedies against any other party hereto.
SECTION 10.5 Set-Off. MedCath shall be entitled to offset the amount of
any Losses to which it or Manager is entitled hereunder against any amounts or
obligations of MedCath under the Convertible Note, the Additional Promissory
Note or against any amounts owed to or held for Practice, the PAs or the
Physicians by Manager under the Service Agreement. Practice, the PAs and the
Physicians shall be entitled to offset the amount of any Losses to which they
are entitled hereunder or under the Service Agreement against any amounts or
obligations of Practice, the PAs or the Physicians under this Agreement or under
the Service Agreement. Prior to utilizing this set-off provision, a party must
give written notice to the other party of its intention to do so. If the other
party disputes the first party's right to make such a set-off, such other party
shall cause the dispute to be immediately submitted to binding arbitration and
no offset shall be made until that arbitration is resolved.
SECTION 10.6 Definitions. For purposes of this Article X the following
terms shall have the following meanings:
(a) "Dispute Period" means the period ending thirty (30) days
following receipt by an Indemnifying Party of an Indemnity Notice.
(b) "Final Amount" means the amount of any Losses or Loss
determined in accordance with this Article X.
-25-
(c) "Indemnified Party" means any Person claiming
indemnification under any provision of Article X.
(d) "Indemnifying Party" means any Person against whom a claim
for indemnification is being asserted under any provision of this
Article X.
(e) "Indemnity Notice" means written notification pursuant to
Section 10.3 of a claim for indemnity under Article X by an Indemnified
Party, specifying the nature of and basis for such claim, together with
the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim.
(f) "Losses" shall mean any and all claims, liabilities,
obligations, losses, damages, deficiencies, penalties, fines,
assessments, encumbrances, judgments, costs and expenses (including,
without limitation, reasonable fees and expenses of attorneys,
consultant's and expert's fees and expenses and reasonable costs and
expenses incurred in investigating, preparing, defending against or
prosecuting any litigation or claim, action, suit, proceeding,
administrative proceeding (including informal proceeding or demand),
but not including special, indirect or consequential damages and
without giving effect to any multiple of earnings.
(g) "Person" means any natural person, corporation, general
partnership, limited partnership, trust, other business organization or
other entity and shall include, without limitation, MedCath and
Practice.
(h) "Resolution Period" means the period ending thirty (30)
days following receipt by an Indemnified Party of a written notice from
an Indemnifying Party stating that it disputes all or any portion of
the claim set forth in an Indemnity Notice.
SECTION 10.7 Survival. The representations and warranties and the
covenants of the PAs, the Physicians, Practice and MedCath contained in this
Agreement or in any Schedule or Exhibit hereto shall survive the Closing.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Expenses. All expenses of the preparation of this
Agreement and of the asset sale, including, without limitation, counsel fees,
accounting fees, sales taxes, recording fees, investment advisers' fees and
disbursements, shall be borne by the respective parties incurring such expense,
whether or not such transactions are consummated and none of such expenses shall
be treated in such a way as to reduce the Management Fee due to Manager under
the Service Agreement.
SECTION 11.2 Restrictive Covenant.
-26-
(a) The parties recognize that the services to be provided by
Manager shall be feasible only if Practice operates an active medical
practice to which the physicians associated with Practice devote their
full time and attention. To that end, Practice agrees that it shall not
establish, operate or provide physician services at any medical office,
hospital, clinic or other health care facility providing services,
including but not limited to ancillary services, substantially similar
to those to be provided by Practice other than pursuant to the Service
Agreement for the term of the Service Agreement, including extensions
thereof, at any location within the following counties of Texas: Starr,
Hidalgo, Cameron, and Willacy. Upon the termination of the Service
Agreement, Practice shall not be bound by the above restriction unless
the Service Agreement was terminated by Manager under Section 11.3
thereof, in which case such restrictive period shall continue for an
additional twenty-four (24) months after such termination.
(b) The parties acknowledge and agree that since a remedy at
law for any breach or attempted breach of the provisions of this
restrictive covenant shall be inadequate, the aggrieved party shall be
entitled to seek specific performance and injunctive or other equitable
relief in case of any such breach or attempted breach by the other, in
addition to whatever other remedies may exist at law. The provisions of
this restrictive covenant shall be deemed to be valid to the extent of
any lesser area and for any lesser duration permitted by law if the
area and duration set forth herein is deemed to be too broad by a court
of competent jurisdiction. The invalidity or nonenforceability of this
restrictive covenant in any respect shall not affect the validity or
enforceability of the remainder nor of any other provisions of this
Agreement.
SECTION 11.3 Notices. All notices, demands and other communications
required or permitted hereunder shall be sufficiently given if delivered in
person or mailed by certified mail, postage prepaid, addressed as follows:
Practice: Heart Clinic, P.A.
▇▇▇▇ ▇. ▇▇ ▇▇▇▇▇ ▇▇▇▇▇, #▇-▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: President
MedCath: MedCath Incorporated
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
or to such other address as either Practice or MedCath may designate by notice
to the other.
SECTION 11.4 Entire Agreement. This Agreement, the Exhibits, and the
Schedules delivered pursuant hereto, constitute the entire contract between the
parties hereto pertaining to the subject matter hereof and supersede all prior
and contemporaneous agreements, understandings, negotiations and discussions,
whether written or oral, of the parties, and there are no representations,
warranties or other agreements between the parties in connection with the
-27-
subject matter hereof, except as specifically set forth herein.
SECTION 11.5 Governing Law. The validity and construction of this
Agreement shall be governed by the laws of the State of Texas.
SECTION 11.6 Section Headings. The section headings are for reference
only and shall not limit or control the meaning of any provision of this
Agreement.
SECTION 11.7 Waiver. No delay or omission on the part of any party
hereto in exercising any right hereunder shall operate as a waiver of such right
or any other right under this Agreement.
SECTION 11.8 Nature and Survival of Representations. All statements
contained in any certificate delivered by or on behalf of any of the parties to
this Agreement pursuant hereto in connection with the transaction contemplated
hereby shall be deemed to be representations and warranties made by the
respective parties hereunder. The covenants, representations and warranties made
by the parties each to the other in this Agreement or pursuant hereto shall
survive the asset sale and any investigation made by MedCath or Practice.
SECTION 11.9 Successors and Assigns. This Agreement shall inure to the
benefit of and bind the respective successors and assigns of the parties hereto.
Nothing expressed or referred to in this Agreement is intended or shall be
construed to give any person other than the parties to this Agreement or their
respective successors or permitted assigns any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein, it being the intention of the parties to this Agreement that the
Agreement be for the sole and exclusive benefit of such parties or such
successors and assigns and not for the benefit of any other person.
Notwithstanding the above, neither MedCath nor Practice shall have the right to
assign their rights and obligations hereunder, except that MedCath may assign
this Agreement to any party who controls, is controlled by or is under common
control with MedCath, to First Union National Bank, N.A., or to any other
lending institution(s) with whom MedCath or MedCath Incorporated ("MedCath")
shall enter into a credit agreement or any purchaser of substantially all of the
assets of MedCath.
SECTION 11.10 Amendments. This Agreement may be amended, but only in
writing, signed by the parties hereto.
SECTION 11.11 Counterpart Executions; Facsimiles. This Agreement may be
executed in any number of counterparts with the same effect as if all of the
parties had signed the same documents. Such executions may be transmitted to the
parties by facsimile and such facsimile execution shall have the full force and
effect of an original signature. All fully executed counterparts, whether
original executions or facsimile executions or a combination, shall be construed
together and shall constitute one and the same agreement.
SECTION 11.12 Press Releases. MedCath and Practice shall each approve
any press releases regarding this Agreement and its consummation; provided,
however, MedCath shall be entitled to release any information it deems necessary
or appropriate as a public company without the consent of Practice provided
MedCath will use reasonable efforts to
-28-
provide Practice an advance copy of any such release and the opportunity to
comment.
SECTION 11.13 Access to Records After Closing. Practice will cause its
counsel and certified public accountants to afford to the representatives of
MedCath, including its counsel and accountants, reasonable access to, and copies
of, any records not transferred to MedCath, including, but not limited to, audit
and tax work papers. MedCath will afford to the representatives of Practice
reasonable access to, and copies of, the records transferred to MedCath at the
Closing during normal business hours after the Closing Date. Copies furnished to
the party gaining such access shall be furnished at the cost of the recipient.
SECTION 11.14 Disclosure of Certain Information. Practice grants
MedCath authorization to disclose aggregate financial history and financial and
other information about Practice and about the Clinic (1) in order for MedCath
to comply with disclosure requirements in connection with the sale and
registration of its securities and (2) to lenders, investment bankers and other
officials, including parties with which MedCath might in the future discuss
entering into a joint venture or a reorganization transaction, as deemed
necessary by MedCath.
SECTION 11.15 Attorneys' Fees. If legal action is commenced to enforce
this Agreement, the prevailing party in such action shall be entitled to recover
its costs and reasonable attorneys' fees in addition to any other relief
granted.
SECTION 11.16 Severability. If any provision of this Agreement shall be
held invalid under any applicable law, such invalidity shall not affect any
other provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
SECTION 11.17 Third-Party Beneficiary. The parties acknowledge and
agree that Manager is a third-party beneficiary of this Agreement and shall be
independently entitled to the benefits hereof and shall have an independent
right to enforce the rights of MedCath and/or Manager hereunder.
SECTION 11.18 Arbitration. The parties hereto agree that any dispute
between them other than an action or proceeding for injunctive or other
equitable relief, shall be resolved by binding arbitration. Such arbitration
shall be conducted by the American Arbitration Association in accordance with
its then existing commercial rules applicable to such disputes. Such arbitration
shall be conducted in Houston, Texas. The decision of such arbitrators shall be
final and binding upon the parties hereto and may be enforced by a court with
applicable authority. Such an arbitration proceeding shall not result in an
award of punitive damages; provided, the parties agree that any amount to which
MedCath is otherwise due pursuant to Schedule 10.1(b) shall not be considered to
be "punitive."
SECTION 11.19 Contract Modifications for Prospective Legal Events. In
the event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision or regulatory agency or legal counsel in such a manner as to
indicate that the structure of this Agreement may be in violation
-29-
of such laws or regulations, MedCath and Practice shall amend this Agreement
as necessary to eliminate such violation. To the maximum extent possible, any
such amendment shall preserve the underlying economic and financial arrangements
between MedCath and Practice. To the extent the parties cannot agree on any such
amendment or changes, the matter shall be submitted to binding arbitration upon
the request of either party and through the arbitration process an equitable
modification shall be implemented or an equitable termination of the Agreement
and relationship shall be made based on all of the facts and circumstances.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the following execution page(s) effective as of the day and year first above
written.
-30-
EXECUTION PAGE
TO THE
MASTER TRANSACTION AGREEMENT
BY AND BETWEEN
MEDCATH INCORPORATED
AND
HEART CLINIC, P.A.
JULY 31, 1996
HEART CLINIC, P.A.
7/31/96 By: /s/ ▇▇▇▇ ▇▇▇▇▇
------- ------------------
Date Title: President
------------------
MEDCATH INCORPORATED
7/31/96 By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------- ----------------------
Date Title: President
----------------------
EXECUTION PAGE
TO THE
MASTER TRANSACTION AGREEMENT
BY AND BETWEEN
MEDCATH INCORPORATED
AND
HEART CLINIC, P.A.
JULY 31, 1996
In order to acknowledge and agree to be bound by the terms and
conditions of Sections 3.1, 3.2, 3.12, 3.22, 5.7, 5.8 and Article X, including
without limitation Schedule 10.1(b), of this Agreement, as applicable, the
undersigned hereby execute this Agreement.
ASSOCIATED PAs: PHYSICIAN SHAREHOLDERS:
▇▇▇▇ ▇▇▇▇▇, M.D., P.A.
By: /s/ ▇▇▇▇ ▇▇▇▇▇, M.D. /s/ ▇▇▇▇ ▇▇▇▇▇, M.D.
---------------------- -------------------------
▇▇▇▇ ▇▇▇▇▇, M.D. ▇▇▇▇ ▇▇▇▇▇, M.D.
7/31/96 7/31/96
------- -------
Date Date
▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D., P.A.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D. /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D.
------------------------ -------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D. ▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D.
7/31/96 7/31/96
------- -------
Date Date
▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D., P.A.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D. /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D.
----------------------- -------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D. ▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D.
7/31/96 7/31/96
------- -------
Date Date
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D., P.A.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D. /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D.
------------------------- -------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D.
7/31/96 7/31/96
------- -------
Date Date
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D., P.A.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D. /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D.
------------------------- -------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D.
7/31/96 7/31/96
------- -------
Date Date
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, M.D., P.A.
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, M.D. /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, M.D.
--------------------------- --------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, M.D. ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, M.D.
7/31/96 7/31/96
------- -------
Date Date
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D., P.A.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D. /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D.
-------------------------- ---------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D.
7/31/96 7/31/96
------- -------
Date Date
SCHEDULE 10.1(b)
TO THE
MASTER TRANSACTION AGREEMENT
BY AND BETWEEN
MEDCATH INCORPORATED
AND
HEART CLINIC, P.A.
July 31, 1996
Liquidated Damages.
1. The following definitions shall apply for the purposes of this Schedule
10.1(b):
"Gross Consideration Allocation" shall mean the
portion of the Consideration paid by MedCath to Practice under
Section 2.2 of the Agreement, including any interest paid on
the Convertible Note, that is allocated to the Physician as
provided in Paragraph 5 below. If there is any unpaid
principal balance of the Convertible Note or Additional
Promissory Note at the time this analysis is being performed,
such balance(s) shall be adjusted downward (and MedCath will
be relieved of the obligation to pay Practice the amount of
the adjustment) and a corresponding adjustment shall be made
to reduce the Physician's Gross Consideration Allocation, such
that the amount due to MedCath hereunder can be reduced as
much as possible.
"Management Fee Allocation" shall mean the portion of
the cumulative management fee paid by Practice to Manager
under the Service Agreement which Practice allocated through
the date of the event giving rise to application of this
Schedule 10.1(b) to the Physician's PA in determining its
compensation under its Independent Contractor Agreement with
Practice.
"Net Consideration Allocation" shall mean with
respect to a Physician, an amount equal to his Gross
Consideration Allocation minus his PA's Management Fee
Allocation.
2. In the event of a breach of Section 5.7 of the Agreement due to the
Physician's cessation of providing his exclusive, full time
professional services to Practice for any reason other than as a result
of his death or permanent disability, for purposes of Section 10.1(b)
the amount of liquidated damages due to MedCath from
Practice, the Physician and his PA shall equal the Physician's Net
Consideration Allocation. Such obligation shall be a joint and several
liability of Practice, the Physician and his PA. In the event a
Physician is not associated with Practice as contemplated by this
Agreement as of the Closing Date, and this Agreement has not been
terminated due to a default hereunder by MedCath, Section 5.7 hereof
shall have been breached and such Physician, his PA and Practice shall
be jointly and severally liable for that breach notwithstanding the
fact that the Closing has not yet occurred.
MedCath will delay taking steps against Practice to collect
liquidated damages directly from Practice until Practice has collected
such amounts directly from the Physician or his PA, if all of the
following conditions are satisfied:
(a) Practice has distributed to the PAs of all of the
Physicians 100% of the cash or Common Stock received by it under the
Convertible Note and the Additional Promissory Note,
(b) Practice is utilizing its full and complete efforts to
actively enforce any rights it has to require the Physician and his PA
to pay over the liquidated damages amount either to Practice or MedCath
and continues to diligently pursue those efforts, and
(c) Practice is fully cooperating and actively assisting
MedCath in any effort it is making to recover such amounts from the
Physician and his PA.
3. In general, the Net Consideration Allocation shall be paid to MedCath
in cash and by the reduction in the principal amounts of the
Convertible Note and the Additional Promissory Note then outstanding,
and the Net Consideration Allocation shall be the Final Amount for
purposes of Article X of this Agreement and for these purposes, the
portion of the Physician's Gross Consideration Allocation that is
attributable to the principal portion of the Convertible Note and the
Additional Promissory Note shall be treated as having been paid to the
Physician in cash.
4. Notwithstanding the above provision, to the extent Practice converted
any portion of the Convertible Note or the Additional Promissory Note
into Common Stock and did not distribute that Common Stock or the
proceeds from a sale of such Common Stock to the Physician's PA,
MedCath may elect to have Practice pay a pro rata portion of the Net
Consideration Allocation to MedCath in MedCath common stock whether or
not Practice still owns any of the Common Stock; provided, if Practice
converted all or a portion of the Convertible Note or the Additional
Promissory Note into Common Stock and still retains any of those
specific shares of Common Stock, Practice shall have the right to
assign those shares of Common Stock to MedCath as a pro rata payment of
the Net Consideration Allocation. If, however, Practice distributed to
the Physician's PA Common Stock which Practice obtained upon the full
or partial conversion of the Convertible Note or the Additional
Promissory Note, or the proceeds from Practice's sale of Common Stock,
then MedCath at its election can require Practice, the Physician and
his PA to pay a portion of the Net Consideration Allocation in shares
of MedCath common stock whether or not the Physician or his PA still
owns any of the Common Stock; provided, if the PA or the Physician
still retains any of the specific shares of Common Stock received from
Practice, the PA and the Physician shall have the right to assign those
shares of Common Stock to MedCath as a pro rata payment of the Net
Consideration Allocation. If MedCath makes such an election, Practice,
the Physician and his PA, as a part of the payment to MedCath of the
Net Consideration Allocation, shall transfer to MedCath shares of
MedCath common stock equal in number to the shares of Common Stock
retained by Practice or which the PA received from Practice
2
plus the number of shares of the Common Stock sold by Practice when the
proceeds from such sale were distributed by Practice to the PA
(adjusted as necessary to avoid dilution or distortion attributable to
the effects of stock dividends and stock splits). When MedCath common
stock is transferred to MedCath as a partial payment of the Net
Consideration Allocation, the shares of MedCath common stock so
transferred shall be valued based on the per share value of the Common
Stock as determined under Section 2.2(a)(i) and (ii) of the Agreement
relating to the conversion feature of the Convertible Note and
Additional Promissory Note (adjusted as necessary to avoid dilution or
distortion as described in the preceding parenthetical); such valuation
method shall be used despite the fact that at the time of such a
transfer by the Physician or his PA to MedCath the per share value of
MedCath common stock exceeds the per share value of the Common Stock as
determined by Section 2.2(a)(i) and (ii) of the Agreement.
5. Listed below is the Gross Consideration Allocation to the Physicians
as determined by Practice:
Physician Employee Gross Consideration Allocation*
▇▇▇▇ ▇▇▇▇▇, M.D. $[ ]
M. ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇, M.D. $[ ]
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D. $[ ]
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D. $[ ]
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D. $[ ]
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, M.D. $[ ]
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, M.D. $[ ]
* Such amounts need to be adjusted to include a pro rata share of the
interest to be paid by MedCath to Practice under the Convertible Note
that is allocable to the physician in question. The Gross Consideration
Allocation as shown above does not include and thus also shall be
adjusted as appropriate to reflect any of the Consideration paid to
Practice through the Additional Promissory Note as a Supplemental
Payment pursuant to Section 2.2(a)(ii) and Exhibit F that relates to
the Physician in question.
6. Notwithstanding the above provisions regarding Liquidated Damages,
MedCath is not obligated to pursue such Liquidated Damages as its sole
remedy for a breach of Section 5.7 but shall also be entitled to any
other equitable relief to which it is entitled under this Agreement,
the Service Agreement, or otherwise (e.g., injunctive relief).
-3-
[ ] These portions have been omitted and filed separately with the commission
pursuant to a request for confidential treatment.
LIST OF EXHIBITS
Letter Description
------ -----------
A Form of Service Agreement (filed as Exhibit 10.49
to this Report)
B Form of Independent Contractor Agreement
C Form of Bonus Agreement
D Form of Employment Agreement
E Form of Subordinated Promissory Note (filed as
Exhibit 10.50 to this Report)
F Supplemental Payment
G Form of Additional Promissory Note (filed as
Exhibit 10.51 to this Report)
H Form of Opinion of Practice's Counsel
EXHIBIT B
INDEPENDENT CONTRACTOR AGREEMENT
THIS INDEPENDENT CONTRACTOR AGREEMENT is made this 30th day of
September, 1996, by and between ________________, M.D., P.A., a Professional
Association, incorporated under the law of the State of Texas (hereinafter
referred to as the "Association"), and HEART CLINIC, P.A., a Texas Professional
Association, incorporated under the laws of the State of Texas (hereinafter
referred to as the "Company").
WITNESSETH:
1. The Company desires to contract with the Association for certain
professional medical services to be provided by the Association to the Company.
The Association agrees to devote its entire time and to provide such
professional medical services exclusively (hereinafter referred to as
"services") to the Company on the terms and conditions herein. The Association
acknowledges and agrees that all revenues generated as a result of its
professional medical services shall be the exclusive property of the Company.
2. The duties of the Association shall include but are not limited to:
(a) Keeping and maintaining, or causing to be kept and
maintained, appropriate records, reports, claims and correspondence necessary
and appropriate in connection with all professional services rendered by the
Association under this Agreement. All of such records, reports, claims, and
correspondence shall belong to the Company.
(b) Promoting, to the extent permitted by law and the
applicable canons of professional ethics, the professional practice of the
Company.
(c) Attending, to the extent reasonable, professional
conventions, post-graduate seminars, and functions of professional societies by
the employees of the Association.
(d) Performing all acts reasonably necessary to maintain and
improve the professional skills of employees of the Association.
(e) Providing the exclusive, full time professional services
of ________________, M.D. (the "Physician") to the Company for the treatment of
its patients.
(f) Abiding by and causing its employees to abide by the terms
of Paragraph 12 hereof.
The other duties of the Association shall be as the Company may from
time to time reasonable direct, including on duty and on call assignments at
night and on Saturdays and Sundays and holidays on a rotation schedule. The
services to be performed by the Association may be performed by any employee of
the Association assigned to such task by the Association.
3. This Agreement shall be for a period of five years beginning on
October 1, 1996 and ending September 30, 2001 and is subject to renewal
thereafter year by year by agreement of the parties.
4. For services rendered hereunder, the Association shall be entitled
to distributions which shall be determined on a monthly basis. The distribution
amounts shall be equal to the cash receipts earned from professional services
rendered to patients of the Company by employees of the Association and
collected by the Company less the Association's pro rata share of expenses
incurred in the operation of the Company. Cash receipts earned by the
Association as joint work with another association or individual doctor shall be
recorded in Combination Accounts and distributed equally to each association. A
mutual account for routine hospital work will be maintained to fund the
Company's overhead. If there are inadequate funds in the mutual account, the
Company has the right to require each association with which it contracts,
including the Association, to contribute its pro rata share to cover any such
shortage.
5. The Company agrees to provide office space, utilities, telephone
answering service, secretarial services, nursing services, accounting and
collection services to the Association. The facilities provided shall contain
such medical equipment and supplies and shall be stocked with such medicine,
drugs, dressings, and other items as are agreed on by the parties. The Company
shall furnish instruments, gloves, and items of apparel required to perform the
services under this Agreement.
6. All services rendered by the Association during the term of this
Agreement will be provided by employees of the Association. The Association will
assume full liability and responsibility for such employees' performance. The
Association agrees to operate under the name of HEART CLINIC, P.A., or any other
name as agreed with the Company. The Company assumes no liability for the
treatment of patients by the Association. The Association shall devote its full
time and best efforts to the performance of duties required under this Agreement
and shall cause its employees to do the same. During the term of this Agreement
and thereafter as applicable, the Association shall not at any time or place
engage in the practice of medicine or surgery to any extent, except under and
pursuant to this Agreement, including Paragraph 12.
7. The Association agrees to abide by the standard fees set by the
Company. Any deviation in such fees must be authorized by the Company.
8. Physician employees of the Association are encouraged and are
expected to attend scientific meetings, professional conventions, and
post-graduate courses and seminars, and other
-2-
education meetings in order to improve and maintain the professional skills of
the employees of the Association.
9. Physician employees of the Association are required at their expense
to maintain membership in the American Medical Association and the Texas Medical
Association or such other similar organizations as may be required by the
Company.
10. The Company shall, as a service to the Association, arrange for
medical malpractice insurance for the Association and its physician employees.
The Association shall have prior approval of the coverage provided and the
amount of premium payment. Any such payments on behalf of the Association shall
be deducted from any distributions made by the Company to the Association set
forth in Section 4 herein. The Association and its physician employees shall
hold the Company harmless and indemnify the Company and its successors and
assigns against any and all liabilities, claims and expenses, including
attorneys' fees, which arise out of the performance of the Association or its
physician employees.
11. The parties hereto agree to comply with and ensure that their
relationship hereunder complies with all applicable laws, rules and regulations.
12. The Company has entered into a Master Transaction Agreement with
MedCath Incorporated ("MedCath") and a Service Agreement with Physician Practice
Management of McAllen, Inc. ("Manager") pursuant to which Manager will manage
certain aspects of the Company's operations and the terms of this Agreement are
subject to the terms of the Master Transaction Agreement and Service Agreement.
Both the Master Transaction Agreement and the Service Agreement contain certain
requirements of and restrictive covenants pertaining to the Company, certain
professional associations, including the Association, and certain physicians
associated with the Company, including the Physician. The Association and the
Physician hereby agree that the provisions of Section 6.8 and Article VII of the
Service Agreement and Section 5.7, Article X and Schedule 10.1 (b) of the Master
Transaction Agreement are hereby incorporated herein by reference as if fully
set forth herein and they hereby acknowledge and agree that for purposes of this
Agreement, they shall be liable to the Company for all of the obligations and
liabilities of the Association and the Physician set forth in such provisions.
The Association and the Physician agree that they shall be jointly and severally
liable for any breaches of the provisions set forth in or incorporated into this
Paragraph 12 and that MedCath and Manager are specific and intended
beneficiaries of these provisions. The termination of this Agreement shall in no
way relieve the obligations of the Association and the Physician under the
Service Agreement or the Master Transaction Agreement. which obligations shall
survive such termination of this Agreement.
In the event this Agreement is not renewed or the Physician through the
Association ceases to provide the services stated herein for any reason, the
provisions of Section 8.4 of the Service Agreement are incorporated hereby by
reference and shall apply to determine the amount of money, if any, to which the
Association is entitled to subsequently receive that relates to
-3-
collections by the Company of accounts receivable generated from the direct
efforts of the Physician. In the event the Association or the Physician is in
breach of this Agreement, including but not limited to the provisions contained
in Paragraph 12 hereof, in addition to any other damages due to the Company,
MedCath or Manager from such breach, the Association shall forfeit its rights to
receive any payments under this Paragraph 12.
13. This Agreement shall be terminated upon the occurrence of any of
the following events:
(a) The expiration of its term if the Agreement has not been
renewed.
(b) The death or total disability of the Physician.
(c) The imposition of any restrictions or limitations by any
governmental or hospital authority having jurisdiction over the Association and
its employees to such an extent that the Physician cannot engage in the
professional practice required herein.
Upon termination or non-renewal of this Agreement for any
reason other than death or disability, the Association shall be entitled to
receive only the payments set out in Paragraph 12 herein.
14. In the event of the breach or threatened breach of any provision of
the contract by the Association, the Company shall be entitled to injunctions,
both preliminary and final, enjoining and restraining such breach or threatened
breach. Such remedies shall be in additional all other remedies available at law
or in equity, including the Company's right to recover from the Association any
and all damages that may be sustained as a result of the Association's breach of
contract.
In addition to any other remedies the Company may have available to it
under the terms of this contract, the Company shall be entitled to stop the
Association, by means of injunction, from violating any part of this contract.
The Company shall be entitled to recover its attorneys' fees and expenses in any
successful action by the Company to enforce this contract.
15. This Agreement supersedes any and all other agreements, either oral
or in writing, between the parties hereto with respect to the subject matter
hereof, and no other agreement, statement, or promise relating to the subject
matter of this agreement that is not contained herein shall be valid or binding
unless in writing, signed by both parties.
16. Neither this Agreement nor any duties or obligations hereunder
shall be assignable by the Association without the prior written consent of the
Company.
17. Subject to the provisions regarding assignment, this Agreement
shall be binding of the heirs, executors, administrators, successors, and
assigns of the respective parties.
-4-
18. If any action at law or in equity is brought to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees in addition to any other relief to which
he may be entitled.
19. The paragraph headings contained in the Agreement are for
convenience only and shall in no manner be construed as a part of this
Agreement.
20. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provision had never been included in the
Agreement.
21. All notices by either party to terminate this contract shall be in
writing and sent by certified mail, return receipt requested, to the other party
as herein provided.
22. The waiver by the Company of breach of any provision of this
contract by the Association shall not operate or be construed as a waiver of any
subsequent breach by the Association.
23. The Association shall be responsible for all required payroll taxes
and withholding taxes and other such taxes relating to its employees, including
the Physician and shall remit such amounts to the proper governmental parties on
a timely basis. The Association and the Physician will indemnify the Company and
hold it harmless from any and all costs, expenses, liabilities and losses
resulting from or relating to such payroll taxes and withholding taxes. The
Association will also make available to the Company when required from time to
time copies of all its remittances and filings related to such matters.
24. The parties acknowledge and agree that Manager has entered into the
Service Agreement with the Company and is a third-party beneficiary of the
Master Transaction Agreement between MedCath and the Company, which contracts
were entered into by Manager and MedCath in reliance on the covenants of the
Association and the Physician contained therein and in this Agreement.
Accordingly, the parties hereto agree that Manager and MedCath are specific,
intended third-party beneficiaries of such covenants, shall be independently
entitled to the benefit thereof, and shall have an independent right to enforce
same. In addition, the parties hereto covenant and agree with Manager and
MedCath that this Agreement shall not be terminated, modified or amended without
the prior written consent of Manager and MedCath, the giving or withholding of
which shall be in the sole and absolute discretion of Manager and MedCath. This
provision shall not apply with regards to MedCath or Manager if MedCath fails to
pay amounts when due under the Master Transaction Agreement after the expiration
of the applicable grace periods or the Service Agreement is terminated by Heart
Clinic, P.A. pursuant to Section 11.2 thereof.
-5-
25. The Company, the Association and the Physician all agree that the
terms and provisions of Section 10.3 of the Service Agreement shall be
incorporated herein by reference as if fully set forth herein, they will comply
with and fully satisfy those terms and provisions, and they are jointly and
severally liable for any breaches for failing to so comply and fully satisfy
those terms and provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the following execution page(s) effective as of the day and year first above
written.
-6-
EXECUTION PAGE
TO THE
INDEPENDENT CONTRACTOR AGREEMENT
ATTEST: HEART CLINIC, P.A.
______________________ By: ___________________
Authorized Officer
ATTEST:
M.D., P.A.
______________________ By: ___________________
President
The undersigned individual hereby executes this Independent Contractor Agreement
for the purposes of personally being bound by and liable for breaches of the
provisions of Paragraphs 12, 23, 24 and 25 hereof.
, M.D.
EXHIBIT C
AGREEMENT
This Agreement is made and entered into by and between HEART CLINIC, P.A.,
a Texas Professional Association ("Practice") and ________________, P.A., a
Professional Association ("P.A.") which by an Independent Contractor Agreement
has associated itself and its physician employee with Practice.
RECITALS:
A. Of even date hereof, Practice is entering into an agreement with
MedCath Incorporated, a North Carolina corporation ("MedCath") and an affiliate
of MedCath, namely Physician Management of McAllen, Inc. ("Manager") pursuant
to which Practice is contracted to receive certain professional services;
B. As part of said agreement, Practice is selling certain assets to
MedCath;
C. In connection with that transaction, MedCath has requested from
Practice that each P.A. and each physician employee of such P.A.s execute those
agreements, and be bound by certain restrictions as set forth in said
agreements, and execute new Independent Contractor Agreements with Practice;
D. In order to adequately compensate P.A. and physicians for entering
into such new Independent Contractor Agreements and for executing the other
agreements with MedCath and Manager, Practice desires to enter into this
agreement with P.A. in accordance with the terms hereof.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledge, the parties hereto agree as
follow:
1. As consideration for P.A. entering into the Agreements with MedCath
and Manager, and for fulfilling its obligations to Manager, and for P.A.
entering into a new Independent Contractor Agreement with Practice and
securing the continued employment of its physician employee, for and on
behalf of Practice, Practice hereby agrees to pay to P.A. on the date of
closing with MedCath, an amount equal to the following:
(a) Dollars
($___________________), in cash to be paid as of November 1, 1996;
(b) An additional amount determined in accordance with Exhibit A
attached hereto, to be paid on or about October 1, 1998; provided, however,
P.A. shall not be entitled to or have any right to the amount reflected on
Exhibit A unless and until Practice receives or is entitled to receive
payment, pursuant to its terms, of one certain promissory note dated October,
1, 1996 executed by MedCath and payable to Practice.
2. After October 1, 1996, Practice agrees to continue to pay
to P.A. compensation pursuant to the new Independent Contractor Agreement but
based on the formula for determining compensation under the current Independent
Contractor Agreement P.A. has with Practice.
3. This Agreement shall be governed by and construed in accordance with
the laws of the state of Texas. It may not be assigned, amended or terminated
by either party hereto without the written consent of each of the parties
hereto as well as the written consent of MedCath and Manager. This Agreement
contemplates the entire agreement with respect to the matters set forth herein.
4. The obligation of Practice to pay any sums hereunder to P.A. is subject
to P.A.'s not violating any of the terms of the new Independent Contractor
Agreement or the terms and conditions of the agreements with MedCath and
Manager.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
following execution page(s) effective as of the day and year first above
written.
DATED this 1st day of October, 1996.
HEART CLINIC, P.A.
By: ______________________
Title: ___________________
__________________________, P.A.
By: ______________________
Title: President
EXHIBIT A
TO THE
AGREEMENT
Practice agrees to pay to P.A. an additional amount of cash equal to
$_________________; provided, however, if Practice should exchange and convert
one certain promissory note dated October 1, 1996 executed by MedCath and
payable to Practice, into MedCath Common Stock, Practice, at its option, may
instead elect to have all or a portion of such cash amount set out herein
reduced, and deliver to P.A. shares of Common Stock of MedCath equal to the
reduction in cash, divided by the per share price which Practice converts
the promissory note into shares of common stock of MedCath.
P.A. acknowledges that said shares in MedCath, if converted and delivered
to it, would be non-registered stock and could not be sold for at least two
(2) years thereafter.
EXHIBIT D
__________________, M.D., P.A.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made and entered into
by and between ________________, M.D., (hereinafter "Employee"), and __________,
M.D., P.A., a Texas professional association (hereinafter "Employer") and is
effective the 1st day of October, 1996.
RECITALS:
This Agreement is made and entered into under the following
circumstances:
A. Whereas, MedCath Incorporated ("MedCath") and Heart Clinic, P.A.
("Practice") have entered into a Master Transaction Agreement pursuant to which
MedCath will pay certain consideration to Practice in exchange for certain
assets of Practice and for Practice entering into a Service Agreement with a
subsidiary of MedCath, Physician Practice Management of McAllen, Inc.
("Manager").
B. Whereas, under the Service Agreement Manager will manage certain
aspects of the business of Practice and some of the duties of Practice include
providing the exclusive, full time professional services of certain physicians
to that medical practice, including the services of Employee.
C. Whereas, in anticipation of making this Agreement with Employee,
Employer has entered into an Independent Contractor Agreement with Practice
pursuant to which Employer will provide the exclusive, full time professional
services of Employee to Practice for use in its medical practice.
D. Whereas, Employer desires, on the terms and conditions stated
herein, to employ Employee as a physician specializing in cardiology; and
E. Whereas, Employee desires, on the terms and conditions stated
herein, to be employed by Employer.
NOW, THEREFORE, in consideration of the foregoing recitals, and of the
promises, covenants, terms and conditions contained herein, the parties hereto
agree as follows:
SECTION 1. Employment and Term. Employer hereby employs Employee, and
Employee hereby accepts employment with Employer, as a cardiologist commencing
October 1, 1996 (hereinafter the "Effective Date") and continuing for a period
of five (5) years (hereinafter the "Term of Employment"). Upon the expiration
of the initial five (5) years, the Term of
Employment shall automatically be renewed for successive one (1) year periods
commencing upon the fifth anniversary of the Effective Date, unless either party
gives written notice of intent not to renew not less than sixty (60), nor more
than ninety (90), days prior to the end of any term.
SECTION 2. Duties and Qualifications. Employee shall provide medical
services to patients, on behalf of Practice through Employer, at Practice's
facilities located in Texas, or such other locations as requested by Employer
(hereinafter collectively referred to as the "Facilities"), in accordance
with the laws of the State of Texas and the principles of medical ethics of
the American Medical Association. During the Term of this Agreement,
Employee's economic contribution to Employer resulting from his provision of
medical services to patients shall remain substantially the same as Employee's
historical economic contribution during the immediate past three (3) years.
To the best of his ability, Employee shall continuously provide services in a
manner calculated to produce the maximum volume of revenue which is consistent
with the professional obligation of Employee and in the best interest of the
patients.
Employee shall: (i) devote his entire professional and business time,
attention and energies exclusively to the practice of Employer; and, (ii)
faithfully and competently perform his duties hereunder using his full
professional skill and knowledge; and, (iii) not engage in any other
professional or business activity; provided, however, that Employee shall be
permitted to invest his personal assets and manage his personal investment
portfolio in such a form and manner as will not require any professional or
business services on his part to any third party.
SECTION 3. Salary. During each year of the Term of Employment, subject
to the terms of the Independent Contractor Agreement dated as of the date hereof
to which Employer is a party, Employee shall be entitled to the compensation as
described on Exhibit A hereto.
SECTION 4. Termination. Notwithstanding any other provisions of this
Agreement, the Term of Employment shall terminate upon:
(a) the death of Employee; or,
(b) upon Employee's permanent disability.
SECTION 5. Restrictive Covenants. Both Employer and Employee agree
that the terms of this Agreement are subject to the terms of the Master
Transaction Agreement and Service Agreement. Both the Master Transaction
Agreement and the Service Agreement contain certain requirements of and
restrictive covenants pertaining to Practice, certain professional associations,
including Employer, and certain physicians associated with Practice, including
Employee. Employer and Employee agree that the provisions of Article VII of
the Service Agreement and Section 5.7, Article X and Schedule 10.1 (b) of the
Master Transaction Agreement are hereby incorporated herein by reference as if
fully set forth herein and they hereby acknowledge and agree that for purposes
of this Agreement, Employee shall be liable to Practice and Employer for all
of the obligations and liabilities of Employee set forth in such provisions.
Employer and Employee agree that they shall be jointly and severally liable
for any
-2-
breaches of the provisions set forth in or incorporated into this Section 5 and
that MedCath and Manager are specific and intended beneficiaries of these
provisions. The termination of this Agreement shall in no way relieve the
obligations of Employer and Employee under the Service Agreement or the Master
Transaction Agreement, which obligations shall survive such termination of this
Agreement.
In the event of the breach or threatened breach of any
provision of the contract by Employee, Employer shall be entitled to
injunctions, both preliminary and final, enjoining and restraining such breach
or threatened breach. Such remedies shall be in additional all other remedies
available at law or in equity, including Employer's right to recover from
Employee any and all damages that may be sustained as a result of Employee's
breach of contract.
In addition to any other remedies Employer may have available
to it under the terms of this contract, Employer shall be entitled to stop
Employee, by means of injunction, from violating any part of this contract.
Employer shall be entitled to recover its attorneys' fees and expenses in any
successful action by Employer to enforce this contract.
SECTION 6. Billing Services. Practice shall have sole responsibility
and authority for preparation of ▇▇▇▇▇▇▇▇ for, and collection of income
generated from, Employee's practice of medical and the operation of the
Facilities and, pursuant to this Agreement, the delegated authority to request,
demand, collect, receive and provide receipts for all income on behalf of
Employee including any payment or reimbursement from governmental agencies and
insurance carriers on account of medical services provided to patients of the
facility. Employee will provide Employer and Practice with Employee's provider
numbers to ▇▇▇▇ on behalf of Employee for payment and reimbursement from
governmental agencies and insurance carriers. All funds collected from
operation of the facilities and from Employee's practice of medicine hereunder
shall be the sole property of Practice and shall be deposited into Practice's
account and Practice shall have sole authority to make disbursements therefrom,
including refunds and repayment of payments received in error.
SECTION 7. Representations of Employee. Employee hereby makes the
following representations to Employer, each of which is material and is being
relied on by Employer and shall be true as of the date hereof and throughout the
Term of Employment:
(a) Employee Qualifications. Employee is, and will continue to
be, duly licensed to practice medicine in the State of Texas and is
experienced in cardiology, agrees to participate and does participate
in a continuing medical education program, and agrees to obtain and
maintain an American Medical Association C.M.E. certificate or its
equivalent.
(b) Factual Information. Any and all factual information
furnished by Employee to Employer is true and accurate in every
material respect as of the date on which such information was
furnished.
-3-
(c) Professional Conduct. Employee has and will continue to
conduct his professional activities in accordance and compliance with
any and all laws, regulations and ethical and professional standards
applicable thereto.
(d) Authority. Employee has full power and authority to enter
into this Agreement and perform all obligations hereunder. The
execution and performance of this Agreement by Employee will not
constitute a breach or violation of any covenant, agreement or contract
to which Employee is a party or by which Employee is bound.
SECTION 8. Books, Office Equipment, Etc.
(a) Employee's Ownership. All professional instruments, books,
office equipment and other property furnished by Employee shall remain
Employee's property. Notwithstanding the above, all patient records
shall at all times be and remain Employer's or Practice's property;
provided, however, that upon termination of this Agreement, Employer
shall provide Employee, at Employee's expense access to and copies of
such records relating to medical service performed at Employer's or
Practice's business by Employee during the term hereof, if so requested
by the patient or if required by Employee in defense of any
professional liability claim.
(b) Employer's Ownership. All instruments, equipment,
furniture, furnishings, supplies, samples, forms, charts, logs,
brochures, patient records, policies and procedures, contracts and any
other property, materials or information furnished by Practice or
Employer are and shall remain the sole property of Practice or
Employer. Upon termination of this Agreement, Employee shall return all
such property to Practice or Employer.
SECTION 9. Assignability. This Agreement and the rights and duties
created hereunder shall not be assignable or delegable by Employer or Employee.
SECTION 10. Notices. All notices or other communications provided for
herein to be given or sent to a party by the other party shall be deemed validly
given or sent if in writing and mailed, postage prepaid, by registered or
certified United States mail, addressed to the parties at their principal places
of business or at their addresses as provided from time to time to the other
party in writing, with copies to Practice, MedCath and Manager at their
principal places of business.
SECTION 11. Severability. Each section, subsection and lesser section
of this Agreement constitutes a separate and distinct undertaking, covenant or
provision hereof. In the event that any provision of this Agreement shall be
determined to be invalid or unenforceable, such provision shall be deemed
limited by construction in scope and effect to the minimum extent necessary to
render the same valid and enforceable, and, in the event such a limiting
construction is impossible, such invalid or unenforceable provision shall be
deemed severed from this Agreement, but every other provision of this Agreement
shall remain in full force and effect.
-4-
SECTION 12. Effect of Termination. The termination of this Agreement,
for whatever reason, shall not extinguish those obligations of Employee
specified in the restrictive covenants, nor shall the same extinguish the right
of either party to bring an action, either in law or in equity, for breach of
this Agreement by the other party.
SECTION 13. Waiver. The failure of a party to enforce any term,
provision or condition of this Agreement at any time or times shall not be
deemed a waiver of that term, provision or condition for the future, nor shall
any specific waiver of a term, provision or condition at one time be deemed a
waiver of such term, provision or condition for any future time or times.
SECTION 14. Parties. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their heirs, personal
representatives, legal representatives, and proper successors and assigns, as
the case may be.
SECTION 15. Governing Law. The validity, interpretation and performance
of this Agreement shall be governed by the laws of the State of Texas, without
giving effect to the principles of comity or conflicts of laws thereof. Each
party hereto agrees to submit to the personal jurisdiction and venue of the
state and federal courts having jurisdiction over Texas for a resolution of all
disputes arising in connection with the interpretation, construction, and
enforcement of this Agreement, and hereby waives the claim or defense therein
that such courts constitute an inconvenient forum.
SECTION 16. Captions. The captions of this Agreement have been assigned
thereto for convenience only, and shall not be construed to limit, define or
modify the substantive terms hereof.
SECTION 17. Entire Agreement; Counterparts; Facsimiles. This Agreement
constitutes the entire agreement between the parties hereto concerning the
subject matter hereof, and supersedes all prior agreements, memoranda,
correspondence, conversations and negotiations all of which are hereby
terminated. This Agreement may be executed in any number of counterparts with
the same effect as if all of the parties had signed the same document. Such
executions may be transmitted to the parties by facsimile and such facsimile
execution shall have the full force and effect of an original signature. All
fully executed counterparts, whether original executions or facsimile executions
or a combination, shall be construed together and shall constitute one and the
same agreement.
SECTION 18. Costs of Enforcement. In the event it is necessary for any
party to retain the services of an attorney or to initiate legal proceedings to
enforce the terms of this Agreement, the prevailing party shall be entitled to
recover from the nonprevailing party, in addition to all other remedies, all
costs of such enforcement, including reasonable attorneys, fees and including
trial and appellate proceedings.
SECTION 19. Gender, Etc. Words used herein, regardless of the number
and gender specifically used, shall be deemed and construed to include any other
number, singular or
-5-
plural, and any other gender, masculine, feminine or neuter, as the context
indicates is appropriate.
SECTION 20. Third-Party Beneficiary. The parties acknowledge and agree
that Manager has entered into the Service Agreement with Practice and is a
third-party beneficiary of the Master Transaction Agreement between MedCath and
Practice, which contracts were entered into by Manager and MedCath in reliance
on the covenants of Employer and Employee contained therein and in this
Agreement. Accordingly, the parties hereto agree that Manager and MedCath are
specific, intended third-party beneficiaries of such covenants, shall be
independently entitled to the benefit thereof, and shall have an independent
right to enforce same. In addition, the parties hereto covenant and agree with
Manager and MedCath that this Agreement shall not be terminated, modified or
amended without the prior written consent of Manager and MedCath, the giving or
withholding of which shall be in the sole and absolute discretion of Manager and
MedCath. This provision shall not apply with regards to MedCath or Manager if
MedCath fails to pay amounts when due under the Master Transaction Agreement
after the expiration of the applicable grace periods or the Service Agreement is
terminated by Heart Clinic, P.A. pursuant to Section 11.2 thereof.
SECTION 21. Tail Insurance Coverage. Employer and Employee all agree
that the terms and provisions of Section 10.3 of the Service Agreement shall be
incorporated herein by reference as if fully set forth herein, they will comply
with and fully satisfy those terms and provisions, and they are jointly and
severally liable for any breaches for failing to so comply and fully satisfy
those terms and provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the following execution page(s) effective as of the day and year first written
above.
-6-
EXECUTION PAGE
TO THE
EMPLOYMENT AGREEMENT
FOR
______________________, M.D., P.A.
Signed in the presence of: EMPLOYEE:
____________________________ ___________________________
EMPLOYER:
Signed in the presence of: ___________________, M.D., P.A.
a Texas professional association
ATTEST:
________________________________ By: ___________________________
Secretary
(Printed Name & Title)
EXHIBIT A
TO THE
EMPLOYMENT AGREEMENT
FOR
_____________________, M.D., P.A.
COMPENSATION
[INSERT THE DESIRED COMPENSATION LANGUAGE]
EXHIBIT F
TO THE
MASTER TRANSACTION AGREEMENT
BY AND BETWEEN
MEDCATH INCORPORATED
AND
HEART CLINIC, P.A.
July 31, 1996
Supplemental Payment
In addition to the Consideration described in Section 2.2(a)(i),
MedCath shall also pay to Practice additional Consideration through the
Supplemental Payment as described below.
To the extent the "Physician Net Production" of the applicable
Physician for calendar year 1997 exceeds the Standard "Physician Net Production"
of such Physician as indicated below, MedCath shall pay to Practice as a
Supplemental Payment of additional Consideration an amount equal to 140% of such
excess. In addition, to the extent the "Physician Net Production" of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ for calendar year 1998 exceeds the greater of his Standard "Physician
Net Production" and 1997 "Physician Net Production," MedCath shall pay to
Practice a further amount as a Supplemental Payment of additional Consideration,
equal to 140% of that excess. For these purposes, "Physician Net Production"
shall mean for the applicable calendar year the gross professional services
revenues generated as a result of the Physician's personal efforts and collected
by Practice less contractual allowances thereon and less the direct expenses of
Practice and the portion of the overhead of Practice allocated to the Physician
by Practice in accordance with normal allocation methods of Practice applied on
a consistent basis.
The Standard Physician Net Production for the relevant individuals is
as follows:
Name Standard Physician Net Production
▇▇▇▇ ▇▇▇▇▇ $[ ]
▇▇▇▇▇▇▇ ▇▇▇▇▇ [ ]
▇▇▇▇▇▇▇ ▇▇▇▇▇ [ ]
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ [ ]
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ [ ]
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ [ ]
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ [ ]
The obligation of MedCath to pay the Supplemental Payments shall be the
principal amount of the Additional Promissory Note.
[ ] These portions have been omitted and filed separately with the commission
pursuant to a request for confidential treatment.
EXHIBIT G
[J. ▇▇▇▇▇▇ ▇▇▇▇, ▇▇. Letterhead appears here]
October 1, 1996
MedCath Incorporated
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Gentlemen:
This law firm is counsel to the HEART CLINIC, INC., a Texas Corporation
("HCI"), HEART CLINIC, P.A., a Texas professional association ("HCPA"), ▇▇▇▇
▇. ▇▇▇▇▇, M.D., ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇, M.D., ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D., ▇▇▇▇▇▇▇▇▇▇▇
▇. ▇▇▇▇, M.D., ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D., and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, M.D. (individually a "Physician" and collectively the "Physicians")
whom are the individual shareholders of HCI and HCPA, and to the professional
associations individually owned by each of the Physicians (the "Physician
P.A.s"). All of the parties referred to above are at times referred to below
collectively as the "Heart Clinic Parties" in connection with the transactions
contemplated by the Master Transaction Agreement dated as of the date hereof
by and among MedCath Incorporated, a North Carolina corporation ("MedCath"),
HCPA and each of the Physicians (the "Master Transaction Agreement"). The
terms defined in the Master Transaction Agreement are used herein as therein
defined. Among other things, I have examined:
1. The Master Transaction Agreement;
2. The Service Agreement;
3. The Independent Contractor Agreements;
4. The Employment Agreements;
5. The Agreement;
6. The Articles of Incorporation and Bylaws of HCI, HCPA and the
Physician P.A.s;
7. The documents and instruments relating to the merger of HCI into
HCPA; and
8. The resolutions by unanimous written consent of the Board of
Directors of HCI, HCPA and Physician P.A.s.
MedCath Incorporated
October 1, 1996
Page 2
"Transaction Documents."
In such examination, I have assumed the genuineness of all signatures on all
documents other than those of the Heart Clinic Parties, the authenticity of
all documents submitted to me as originals, the conformity to originals of all
documents submitted to me as certified, photostatic or conformed copies, and
the authenticity of the originals of such documents. I have also assumed the
valid existence and good standing of all parties to the Transaction Documents
other than the Heart Clinic Parties and the due authorization, execution and
delivery of the Transaction Documents to be delivered by parties other than
the Heart Clinic Parties. As to factual matters, I have relied to the extent
deemed appropriate by me upon certificates and representations of the Heart
Clinic Parties. I have also examined executed copies of the Transaction
Documents and other corporate records and certificates of public officials
as I deemed appropriate for purposes of this opinion.
Based upon the foregoing, I am of the opinion that:
1. HCPA and each of the Physician P.A.s are professional associations
duly organized, validly existing and in good standing under the laws
of the State of Texas.
2. HCI has been merged into HCPA in accordance with the laws of the
State of Texas.
3. Each of HCPA and the Physician P.A.s have the full corporate power
and authority to own their properties and carry on their business
as now conducted and to execute any of the Transaction Documents to
which they are a party and to perform their obligations thereunder.
4. All corporate action required to be taken by any of the Heart Clinic
Parties necessary to the execution, delivery and validity of the
Transaction Documents and the performance of the obligations of the
Heart Clinic Parties thereunder has been duly taken or obtained and
the Transaction Documents do not conflict with (i) any provisions of
the Articles of Incorporation or Bylaws of any of the Heart Clinic
Parties or (ii) any judgments or orders of any court or any agreements
or contracts binding on any of the Heart Clinic Parties.
5. Each of the Transaction Documents to which any of the Heart Clinic
Parties are a party has been duly executed by and is a legal, valid
and binding obligation of the applicable Heart Clinic Parties and
is enforceable in accordance with its respective terms.
MedCath Incorporated
October 1, 1996
Page 3
6. The execution and delivery of the Transaction Documents by the Heart
Clinic Parties, the fulfillment by the Heart Clinic Parties of their
obligations under the Transaction Documents, the legal structure,
relationships and agreements between HCPA, the Physician P.A.s and
each of the Physicians which have been entered into on or prior to the
date hereof and the operation of the businesses contemplated thereby
do not violate any Texas or federal law, rule or regulation other than
those relating to the Medicare and Medicaid programs and other health
care laws, rules or regulations, and to the best of my knowledge, do
not violate those laws, rules or regulations.
7. There are no actions, suits or proceedings pending against or affecting
any of the Heart Clinic Parties at law or in equity before any court
or administrative office or agency except as disclosed in the
Transaction Documents.
My opinions expressed above are limited to the laws of the State of Texas and
the federal laws of the United States.
Very truly yours,
J. ▇▇▇▇▇▇ ▇▇▇▇, ▇▇.