AFFILIATION AGREEMENT
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THIS AGREEMENT is made and entered into this 11th day of December,
1996, by and among (the "Physician"), Flagship Health,
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P.A., a Maryland professional association with its principal offices at ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("Flagship"), and Physicians
Quality Care, Inc., a Delaware corporation with its principal offices at ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("PQC").
Any defined terms used herein and not defined herein shall have the
meaning assigned thereto in the Asset Purchase Agreement (as defined below).
Recitals
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The Physician owns and operates a medical practice (the "Practice") and
certain assets utilized in connection therewith.
PQC and Flagship have entered into an asset purchase agreement with the
Physician (the "Asset Purchase Agreement") pursuant to which Flagship is
acquiring substantially all of the assets used in the Practice.
Now therefore, in consideration of the respective representations,
warranties, covenants, agreements and conditions hereinafter set forth, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
AGREEMENT TO AFFILIATE
1.01 Agreement to Affiliate. In consideration of the agreement of
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PQC to make the Affiliation Payments set forth in Section
1.02, the Physician agrees to leave his current practice, to
become affiliated with Flagship as a licensed physician and to
enter into and keep in full force and effect during its stated
term the Employment Agreement executed on even date herewith.
1.02 Affiliation Payments. In consideration of the Physician
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performing the Physician's obligations under Section 1.01,
PQC agrees that PQC shall make the following payments to
the Physician:
(i) The amount of cash set forth on Schedule 1.02; and
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(ii) The number of shares of PQC Common Stock, $.01 par
value per share (the "PQC Shares"), determined in
accordance with Section 1.03 with an aggregate fair
market value set forth on Schedule 1.02, subject to
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the conditions set forth in Section 1.03
1.03 PQC Shares
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(a) The fair market value of the PQC Shares issued to the Physician
pursuant to Section 1.02 shall be equal to Two Dollars and Fifty Cents ($2.50)
per share.
(b) The Physician agrees to enter into, and the PQC Shares shall be
subject to, the Stockholders Agreement.
(c) The Physician represents, warrants and covenants to PQC as follows:
(i) The Physician is acquiring the PQC Shares for the
Physician's own account for investment only, and not
with a view to, or for sale in connection with, any
distribution of the PQC Shares in violation of the
Securities Act of 1933, as amended (the "Securities
Act"), or any rule or regulation under the Securities
Act.
(ii) The Physician has received a copy of the Confidential
Private Placement Memorandum, dated as of December,
1996, with respect to PQC and the PQC Shares and has
had such opportunity as the Physician has deemed
adequate to obtain from representatives of PQC such
information as is necessary to permit the Physician
to evaluate the merits and risks of his investment in
PQC.
(iii) The Physician has sufficient experience in business,
financial and investment matters to be able to
evaluate the risks involved in the acquisition of the
PQC Shares and to make an informed investment
decision with respect to such acquisition.
(iv) The Physician can afford a complete loss of the value
of the PQC Shares and is able to bear the economic
risk of holding such PQC Shares for an indefinite
period.
(v) The Physician understands that (i) the PQC Shares
have not been registered under the Securities Act and
are "restricted securities" within the meaning of
Rule 144 under the Securities Act; (ii) the PQC
Shares cannot be sold, transferred or otherwise
disposed of unless they are subsequently registered
under the Securities Act or an exemption from
registration is then available; (iii) in any event,
the exemption from registration under Rule 144 will
not be available for at least two (2) years and even
then will not be available unless a public market
then exists for the common stock of PQC, adequate
information concerning PQC is then available to the
public, and other terms and conditions of Rule 144
are complied with; and (iv) there is now no
registration statement on file with the Securities
and Exchange Commission with respect to any stock of
PQC and PQC has no obligation or current intention to
register the PQC Shares under the Securities Act.
(vi) A legend substantially in the following form will be
placed on the certificate representing the PQC
Shares:
"The shares represented by this certificate were
issued in a private placement, without registration
under the Securities Act of 1933, as
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amended (the "Act"), and may not be sold, assigned,
pledged or otherwise transferred in the absence of an
effective registration under the Act covering the
transfer or an opinion of counsel, satisfactory to
the issuer, that registration under the Act is not
required."
(vii) The Physician is an "accredited investor" as defined
in Rule 501 of the rules and regulations under the
Securities Act.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
The representations and warranties contained in Article II of the Asset
Purchase Agreement are incorporated herein and made by the Physician to PQC. The
representations and warranties contained in Article III of the Asset Purchase
Agreement are incorporated herein and made by PQC and Flagship to the Physician.
ARTICLE III
CONDITIONS TO OBLIGATIONS OF PQC
The obligations of PQC under this Agreement are subject to the delivery
on the Closing Date of the documents required to be delivered pursuant to
Article VI of the Asset Purchase Agreement and the satisfaction on the Closing
Date of the conditions set forth in Article VI of the Asset Purchase Agreement,
each of which deliveries and conditions may be waived in writing in the sole
discretion of PQC.
ARTICLE IV
CONDITIONS TO OBLIGATIONS OF THE PHYSICIAN
The obligations of the Physician under this Agreement are subject to
the delivery on the Closing Date of the documents set forth in Article VII of
the Asset Purchase Agreement and satisfaction on the Closing Date of the
conditions set forth in Article VII of the Asset Purchase Agreement, each of
which delivery and conditions may be waived in writing in the sole discretion of
the Physician.
ARTICLE V
TERMINATION
5.01 Optional Termination. This Agreement may be terminated at any
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time prior to the Closing Date as follows:
(i) by the mutual consent of the Physician, Flagship
and PQC;
(ii) by the Physician, upon a material breach of any
representation, warranty, covenant or agreement on
the part of PQC or Flagship set forth in this
Agreement or any other agreement referred to herein;
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(iii) by PQC or Flagship upon a material breach of any
representation, warranty, covenant or agreement on
the part of the Physician set forth in this Agreement
or any other agreement referred to herein; and
(iv) by either party if the Closing shall not have
occurred by December 20, 1996, or such other date
agreed to by the parties.
5.02 Effect of Termination.
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(a) In the event this Agreement is terminated as provided in Section
5.01 above, (i) each of the parties shall deliver to the other parties all
documents previously delivered (and copies thereof in its possession) concerning
one another and the transactions contemplated hereby, and (ii) none of the
parties nor any of their respective stockholders, directors, officers or agents
shall have any liability to the other parties, except for any deliberate breach
or deliberate omission resulting in breach of any of the provisions of this
Agreement. In such case, the breaching party shall be liable only for the
expenses and costs of the non-breaching party, and in no event shall any party
be liable for anticipated profits or consequential damages.
(b) After termination each party shall keep confidential all
information provided by the others pursuant to this Agreement which is not in
the public domain, shall exercise the same degree of care in handling such
information as it would exercise with similar information of its own, and shall
return any such information upon the other party's request.
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.01 Indemnification.
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(a) Physician shall indemnify, defend, and hold harmless each of
Flagship and PQC and their respective subsidiaries and affiliates and their
respective directors, officers, employees and agents or the successor of any of
the foregoing (collectively, the "PQC Indemnified Persons"), and reimburse the
PQC Indemnified Persons for, from and against all payments, demands, claims,
suits, judgments, liabilities, losses, costs, damages and expenses, including,
without limitation, interest, penalties and reasonable attorneys' fees,
disbursements and expenses ("Damages") imposed on or incurred by PQC Indemnified
Persons, directly or indirectly, which relate to or arise out of any of: (i)
breach of any representation and warranty of, or covenant or agreements to be
performed by, Physician contained in this Agreement, the Asset Purchase
Agreement or the Stockholders Agreement [or the Retiree Stockholders Agreement];
and (ii) any of the liabilities or obligations retained by Physician pursuant to
the Asset Purchase Agreement (which for purposes of this Article V shall be read
as if all qualifications as to the knowledge of the maker of such
representation, warranty or covenant and as to materiality or Material Adverse
Effects or changes were deleted therefrom). Notwithstanding the foregoing or any
other term or condition contained herein or in any other agreement or instrument
referred to herein, the indemnification obligations of Physician under this
Section 6.01(a) and under the Asset Purchase Agreement shall be
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limited, in the aggregate, to the dollar value on the Closing Date of the
aggregate purchase price under the Asset Purchase Agreement and the
consideration under this Agreement.
(b) Flagship and PQC shall indemnify and hold harmless Physician (the
"Indemnified Physician" and together with the PQC Indemnified Persons, the
"Indemnified Parties"), and reimburse such Indemnified Physician for, from, and
against all Damages imposed on or incurred, directly or indirectly, by such
Indemnified Physician which arise out of or relate to: (i) breach of any
representation or warranty of, or covenant to be performed by, PQC or Flagship,
in each case contained in this Agreement or the Asset Purchase Agreement; and
(ii) the Assumed Liabilities (as defined in the Asset Purchase Agreement).
(c) An Indemnified Party shall give prompt written notice to an
indemnifying party (the "Indemnifying Party") of any payments, demands, claims,
suits, judgments, liabilities, losses, costs, damages or expenses (a "Claim") in
respect of which such Indemnifying Party has a duty to provide indemnity to such
Indemnified Party under this Section 6.01, except that any delay or failure so
to notify the Indemnifying Party only shall relieve the Indemnifying Party of
its obligations hereunder to the extent, if at all, that it is prejudiced by
reason of such delay or failure.
(d) If a Claim is brought or asserted by a third party (a "Third-Party
Claim"), the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all expenses. The Indemnified Party shall have the right to employ
separate counsel in such Third-Party Claim and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Party. In the event that the Indemnifying Party, within twenty
(20) days after written notice of any Third-Party Claim, fails to assume the
defense thereof, or in the event the Indemnifying Party fails to demonstrate, to
the reasonable satisfaction of the Indemnified Party, that it has sufficient
assets to meet its indemnification obligations hereunder, the Indemnified Party
shall have the right to undertake the defense, compromise or settlement of such
Third-Party Claim for the account of the Indemnifying Party. Anything in this
Section 6.01(d) to the contrary notwithstanding, the Indemnifying Party shall
not, without the Indemnified Party's prior written consent, settle or compromise
any Third-Party Claim or consent to the entry of any judgment with respect to
any Third-Party Claim which would have any adverse effect on the Indemnified
Party, except as provided immediately below. The Indemnifying Party may, without
the Indemnified Party's prior written consent, settle or compromise any such
Third-Party Claim or consent to entry of any judgment with respect to any
Third-Party Claim which requires solely money damages paid by the Indemnifying
Party and which includes as an unconditional term thereof the release by the
claimant or the plaintiff of the Indemnified Party from all liability in respect
of such Third-Party Claim.
(e) With respect to any Claim other than a Third-Party Claim, the
Indemnifying Party shall have thirty (30) days from receipt of written notice
from the Indemnified Party of such Claim within which to respond thereto. If the
Indemnifying Party does not respond within such thirty (30) day period, the
Indemnifying Party shall be deemed to have accepted responsibility to make
payment and shall have no further right to contest the validity of such Claim.
If the Indemnifying Party notifies the Indemnified Party within such thirty (30)
day
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period that it rejects such Claim in whole or in part, the Indemnified Party
shall be free to pursue such remedies as may be available to the Indemnified
Party under applicable law.
6.02 Survival of Representations: Claims for Indemnification. All
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representations and warranties made by the parties herein or
in any instrument or document furnished in connection herewith
shall survive the Closing and any investigation at any time
made by or on behalf of the parties hereto. All such
representations and warranties and the Physician's obligations
pursuant to Sections 6.1(a)(i) and (ii) and PQC's and
Flagship's obligations pursuant to Section 6.1(b) shall expire
on the third anniversary of the Closing Date, except for
claims, if any, asserted in writing prior to such third
anniversary, which shall survive until finally resolved and
satisfied in full. All claims and actions for indemnity
pursuant to this Section 6 shall be asserted or maintained in
writing by a party hereto on or prior to the expiration of
such periods.
6.03 Set-off and Recoupment. Any amount or amounts due from any
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Indemnifying Party to PQC under this Section 6 may be paid to
PQC, at PQC's option, by set-off or recoupment against any
amounts due to the Indemnifying Party pursuant to this
Agreement or pursuant to any agreement between the
Indemnifying Party and PQC, Flagship or any of their
respective affiliates. Any such set-off will be without
prejudice to PQC's right to pursue any other remedies at law
or in equity available to it.
ARTICLE VII
GENERAL PROVISIONS
7.01 Amendment and Waiver. No amendment of any provision of this
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Agreement shall in any event be effective unless the same
shall be in writing and signed by the parties hereto. Any
failure of any party to comply with any obligation, agreement
or condition hereunder may only be waived in writing by PQC
and Flagship if such failure is by Physician and by Physician
if such failure is by PQC and Flagship, but such waiver shall
not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. No failure by any party to take
any action against any breach of this Agreement or default by
the other party shall constitute a waiver of such party's
right to enforce any provision hereof or to take any such
action.
7.02 Notices. All notices, requests, demands and other
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communications hereunder shall be in writing and shall be sent
by personal delivery or registered or certified mail, postage
prepaid, or by telecopier as follows:
(a) if to the Physician: Last known home address
of Physician as listed
in the records of Flagship
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with a copy to: ▇▇▇▇▇ & ▇▇▇▇▇▇▇
Columbia Square
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
(b) if to PQC or Flagship:
Physicians Quality Care, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Ropes & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Any party may change its address for receiving notice by written notice given to
the others named above. All notices shall be effective upon the earlier of
actual delivery or when deposited in the mail addressed as set forth above.
7.03 Counterparts. This Agreement may be executed simultaneously in
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two (2) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one (1)
and the same Agreement.
7.04 Parties in Interest. This Agreement shall bind and inure to
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the benefit of the parties named herein and their respective
heirs, successors and assigns. This Agreement shall not be
assignable by any party without the prior written consent of
the other parties, except that PQC may assign its rights and
obligations under this Agreement to any affiliate of PQC.
7.05 Entire Transaction. This Agreement and the other agreements,
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documents and instruments referred to herein contain the
entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all other
agreements and understandings among the parties.
7.06 Applicable Law. This Agreement shall be governed by and
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construed in accordance with the internal substantive laws of
the State of Maryland, and the parties hereby consent to the
sole jurisdiction of federal courts sited in the State of
Maryland over all matters relating to this Agreement.
7.07 Headings. The section and other headings contained in this
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Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
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7.08 Expenses. Each party to this Agreement shall pay its own costs
and expenses in connection with the transactions contemplated
hereby.
7.09 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person or
entity other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this
Agreement.
7.10 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
7.11 Gender. All references herein to the masculine gender shall be
deemed to include the feminine or neuter gender as
appropriate.
7.10 Cross Reference Table. The following terms defined elsewhere
in this Agreement in the Sections set forth below shall have
the respective meanings therein defined.
Term Definition
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"Accredited "Investor" Section 1.03(c)(vii)
"Asset Purchase Agreement" Recitals
"Claim" Section 6.01(c)
"Damages" Section 6.01(a)
"Flagship" Introduction
"Indemnified Parties" Section 6.01(b)
"Indemnifying Party" Section 6.01(c)
"Indemnified Physician" Section 6.01(b)
"PQC Shares" Section 1.02(ii)
"PQC" Introduction
"PQC Indemnified Persons" Section 6.01(a)
"Physician" Introduction
"Practice" Recitals
"Restricted securities" Section 1.03(c)(v)
"Securities Act" Section 1.03(c)(i)
"Third-Party Claim" Section 6.01(d)
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[Affiliation Agreement]
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed all as of the day and year first written above.
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FLAGSHIP HEALTH, P.A.
By:
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Its: President
PHYSICIANS QUALITY CARE, INC.
By:
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Its:
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