1
EXHIBIT 10.35
MANAGEMENT SERVICES AGREEMENT
by and among
New Allatoona E.N.T. & Facial Plastic Surgery, P.C., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
PSC Management Corp.
and
Physicians' Specialty Corp.
2
TABLE OF CONTENTS
Page
SECTION 1. KEY DEFINITIONS 1
1.1 GAAP 2
1.2 NET PRACTICE REVENUES 2
1.3 PHYSICIAN EXPENSES 2
1.4 PHYSICIAN SHAREHOLDERS 2
1.5 PRACTICE EMPLOYEES 2
1.6 PRACTICE EXPENSES 3
1.7 STATE 4
SECTION 2. ADVISORY BOARD 4
2.1 FORMATION AND OPERATION OF THE ADVISORY BOARD 4
2.2 FUNCTIONS OF THE ADVISORY BOARD 4
SECTION 3. OBLIGATIONS OF MANAGER 5
3.1 PROVISION OF SERVICES 5
3.2 MEDICAL OFFICES 6
3.3 FURNITURE, FIXTURES AND EQUIPMENT 6
3.4 FINANCIAL PLANNING AND GOALS 6
3.5 BUSINESS OFFICE SERVICES 6
3.6 DEPOSIT OF NET PRACTICE REVENUES 8
3.7 REVENUE REPORTS 8
3.8 SUPPORT SERVICES 8
3.9 ADMINISTRATOR 9
3.10 PERSONNEL 9
3.11 PROFESSIONAL SERVICES 10
3.12 PATIENT AND FINANCIAL RECORDS 10
3.13 MARKETING SERVICES 10
3.14 PHYSICIAN RECRUITMENT 11
3.15 EXPANSION OF PRACTICE 11
3.16 PERFORMANCE OF BUSINESS OFFICE SERVICES 11
3.17 FORCE MAJEURE 11
3.18 PAYMENT OF PRACTICE EXPENSES 11
3.19 BUDGETS 12
SECTION 4. OBLIGATIONS OF PRACTICE 13
4.1 PHYSICIAN EXPENSES 13
4.2 PROFESSIONAL STANDARDS 13
4.3 PROVIDER AND PAYOR RELATIONSHIPS 15
4.4 PHYSICIAN CONTRACTS AND POWERS OF ATTORNEY 15
4.5 RESTRICTIVE COVENANTS 15
4.6 PROFESSIONAL DUES AND EDUCATION EXPENSES 18
4.7 PROVISION OF SERVICES BY PRACTICE 18
4.8 PHYSICIAN SHAREHOLDER AGREEMENT 18
SECTION 5. INCENTIVE COMPENSATION; FINANCING MATTERS 19
5.1 INCENTIVE AMOUNTS 19
5.2 MECHANICS OF DRAWS 19
i
3
5.3 RECONCILIATION 19
5.4 ASSIGNMENT OF SECURITY INTEREST 20
SECTION 6. TERM AND TERMINATION 22
6.1 TERM 22
6.2 TERMINATION 22
6.3 REMEDIES UPON TERMINATION 23
6.4 REPURCHASE OF EQUIPMENT AND SUPPLIES 24
SECTION 7. REPRESENTATIONS AND WARRANTIES 24
7.1 REPRESENTATIONS AND WARRANTIES OF PRACTICE 24
7.2 REPRESENTATIONS AND WARRANTIES OF MANAGER 25
SECTION 8. INSURANCE AND INDEMNITY 25
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE 25
8.2 INDEMNIFICATION BY MANAGER 26
8.3 INDEMNIFICATION BY PRACTICE 26
8.4 INDEMNIFICATION PROCEDURE 26
8.5 KEY MAN INSURANCE 27
SECTION 9. ASSIGNMENT 27
SECTION 10. COMPLIANCE WITH REGULATIONS 27
10.1 PRACTICE OF MEDICINE 27
10.2 SUBCONTRACTS 28
SECTION 11. INDEPENDENT RELATIONSHIP 28
11.1 INDEPENDENT CONTRACTOR STATUS 28
11.2 REFERRAL ARRANGEMENTS 29
SECTION 12. GUARANTEES 29
SECTION 13. NAME; LICENSE 29
SECTION 14. MISCELLANEOUS 30
14.1 NOTICES 30
ii
4
14.2 ADDITIONAL ACTS 30
14.3 GOVERNING LAW 30
14.4 CAPTIONS, ETC 30
14.5 SEVERABILITY 31
14.6 CHANGES IN REIMBURSEMENT 31
14.7 MODIFICATIONS 31
14.8 NO RULE OF CONSTRUCTION 31
14.9 COUNTERPARTS 31
14.10 BINDING EFFECT 31
14.11 ENFORCEMENT RIGHTS 32
14.12 COSTS OF ENFORCEMENT 32
iii
5
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT, effective as of July 1, 1997 (the
"Effective Date"), by and among NEW ALLATOONA E.N.T. & FACIAL PLASTIC SURGERY,
P.C., a Georgia professional corporation (the "Practice"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
M.D., a Georgia resident ("▇▇. ▇▇▇▇▇▇"); PSC MANAGEMENT CORP., a Delaware
corporation ("Manager"); and PHYSICIANS' SPECIALTY CORP., a Delaware corporation
("Parent").
WITNESSETH:
WHEREAS, Manager is a wholly-owned subsidiary of Parent and is in the
business of managing medical practices and providing management services to
individual physicians and physician practice groups;
WHEREAS, pursuant to an Asset Acquisition Agreement dated as of July 1,
1997 among Allatoona ENT & Facial Plastic Surgery, P.C., ▇▇. ▇▇▇▇▇▇, Manager and
Parent (the "Asset Acquisition Agreement"), Manager has acquired substantially
all the assets utilized by Practice in connection with the medical practice
conducted by Allatoona ENT & Facial Plastic Surgery, P.C.
WHEREAS, subject to the terms and conditions of this Agreement,
Practice desires to engage Manager to provide to Practice management services,
facilities, personnel, equipment and supplies necessary for the medical practice
conducted by Practice, and Manager desires to accept such engagement; and
WHEREAS, the basis for the financial considerations provided in this
Agreement are derived from the revenues to be generated by the medical practice
of Practice, the basis for which has been documented by ▇▇. ▇▇▇▇▇▇ and delivered
to Manager prior to the formation and agreement of such financial
considerations.
NOW THEREFORE, in consideration of the premises and the covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties to this Agreement, Practice, ▇▇. ▇▇▇▇▇▇, Manager and Parent hereby agree
as follows:
SECTION 1. KEY DEFINITIONS.
For purposes of this Agreement, the following are certain important
defined terms used in this Agreement (a complete list of defined terms is set
forth on Appendix A.
6
1.1 GAAP. The term "GAAP" shall mean generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants, in
statements and pronouncements of the Financial Accounting Standards Board, in
such other statements by such other entity, or other practices and procedures as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination. For purposes of
this Agreement, GAAP shall be applied in a manner consistent with the practices
used by Parent and Manager.
1.2 NET PRACTICE REVENUES. The term "Net Practice Revenues" shall
mean all revenues, computed on an accrual basis as defined by GAAP, (after
taking into account adjustments for uncollectible accounts, discounts, Medicare,
Medicaid, workers' compensation, professional courtesy discounts and other
write-offs) generated by or on behalf of Practice or its employees as a result
of professional medical services furnished to patients, and other fees or income
generated by such persons in their capacity as Physician Shareholders, Practice
Employees and employees of Practice, whether rendered in an inpatient or
outpatient setting and whether generated from health maintenance organizations,
preferred provider organizations, Medicare, Medicaid or rendered to other
patients, including, but not limited to, payments received under any capitation
arrangement. The term "Net Practice Revenues" shall also include any ancillary
services revenues for services provided at the Medical Offices, but shall not
include remuneration received by ▇▇. ▇▇▇▇▇▇ from performing flight aviation
physical examinations and similar aviation-related medical duties on his own
time.
1.3 PHYSICIAN EXPENSES. The term "Physician Expenses" is defined
in Section 4.1 of this Agreement.
1.4 PHYSICIAN SHAREHOLDERS. The term "Physician Shareholders"
shall mean those individuals who are duly licensed to practice medicine in the
State and who are shareholders of Practice.
1.5 PRACTICE EMPLOYEES. The term "Practice Employees" shall mean:
(a) those individuals who are duly licensed to practice medicine in the State
and who are employees of Practice (other than Physician Shareholders), or those
individuals who are otherwise under contract with Practice to provide physician
and/or medical services to patients, specifically including nurse practitioners,
certified registered nurse anesthetists, physician assistants, Fellows, surgical
assistants, certified nurse midwives, individuals with a Masters in Social Work
degree, physical therapists, and psychologists with a Masters or a Doctorate
degree; and (b) those individuals (other than those described in Section 1.5(a))
required by law, regulatory authority or policy as of the Effective Date, who
must be billed through and by a licensed physician and who are therefore
required to be employees of the Practice.
1.6 PRACTICE EXPENSES. The term "Practice Expenses" shall mean all
expenses incurred in the operation of the medical practice of Practice at the
Medical Offices (as defined in Section 3.1) or otherwise, whether by Manager or
by Practice, including, but not limited to: (a) depreciation, amortization,
salaries, benefits and other direct costs of
2
7
all employees and independent contractors of Practice (but not including
salaries, benefits or other direct costs of Practice Employees (as defined in
Section 1.5) or Physician Shareholders (as defined in Section 1.4)); (b) rent
and other obligations under leases or subleases for the Medical Offices and
equipment used by Practice; (c) personal property taxes and intangible taxes
assessed against assets used by Practice; (d) charitable contributions budgeted
and approved by Manager and Practice; (e) interest expense on indebtedness of or
specifically related to the medical practice of Practice, including, without
limitation, capital expenditures; (f) utility expenses relating to the Medical
Offices; (g) subject to the limitation of Section 3.18, fifteen percent (15%) of
Net Practice Revenues (as defined in Section 1.2), such amount to be retained by
Manager as payment for its services and non-allocable costs incurred by Manager
attributable to the provision of management services; (h) other expenses
incurred by Practice or Manager in carrying out their respective obligations
under this Agreement, except as otherwise provided herein; (i) amounts paid by
Manager in reimbursement of Practice, pursuant to Section 4.1, for salaries and
benefits paid by Practice for those individuals described in Section 1.5(b); and
(j) any reserves reasonably deemed prudent by the Advisory Board for anticipated
costs or expenses of the medical practice of Practice.
The term "Practice Expenses" shall not include, among other things: (1)
any federal, state or local income taxes of Practice or Manager, or the costs of
preparing federal, state or local tax returns; (2) any salaries or benefits
payable to Practice Employees or Physician Shareholders, except as covered under
subsection (i) above; (3) physician licensure fees, board certification fees and
costs of membership in professional associations for Practice Employees and
Physician Shareholders; (4) costs of continuing professional education for
Practice Employees and Physician Shareholders; (5) costs associated with legal,
accounting and professional services incurred by or on behalf of Practice other
than as described in the first sentence of Section 3.11; (6) liability judgments
assessed against Practice, Practice Employees or Physician Shareholders; (7)
direct personal expenses of Physician Shareholders or Practice Employees of a
kind which are customarily charged to physician shareholders and practice
employees (including, but not limited to, cellular phone expenses, car
allowances, costs of employees providing personal services to particular
Physician Shareholders or Practice Employees, and like expenses personal in
nature); (8) capital expenditures except to the extent of depreciation and
amortization; or (9) any costs or expenses not designated in this Agreement as
being Practice Expenses or costs and expenses designated as the responsibility
of Manager.
Practice Expenses incurred in any budget period in excess of 120% of
budgeted amounts (measured on an aggregate, not line item, basis) resulting in
more than a 20% decrease in the budgeted pre-tax income of Practice shall be the
sole obligation of Manager, unless incurrence of such expenses is approved by
the Advisory Board described in Section 2.1 below, such approval not to be
unreasonably withheld if the expenses are commercially reasonable in nature and
amount under the circumstances.
1.7 STATE. The term "State" shall mean the State of Georgia, which
is where the medical practice of Practice is located.
3
8
SECTION 2. ADVISORY BOARD.
2.1 FORMATION AND OPERATION OF THE ADVISORY BOARD. Manager and
Practice shall establish an Advisory Board responsible for advising Manager in
connection with the development of management and administrative policies for
the overall operation of the medical practice of Practice. The Advisory Board
shall consist of four (4) members. Manager shall designate, in its sole
discretion and from time to time, two (2) members of the Advisory Board.
Practice shall designate, in its sole discretion and from time to time, two (2)
members of the Advisory Board. Except as may otherwise be provided, the act of a
majority of the members of the Advisory Board shall be the act of the Advisory
Board.
2.2 FUNCTIONS OF THE ADVISORY BOARD. The Advisory Board shall
review, evaluate and make recommendations to Practice and Manager with respect
to the following matters:
(a) Annual Budgets. All annual capital and operating
budgets prepared by Manager, as set forth in Sections 3.4 and 3.19, shall be
subject to review and approval by the Advisory Board, which shall make
recommendations to Manager with respect to proposed changes therein.
(b) Physician Employment and Recruitment. The Advisory
Board shall advise Manager and Practice with respect to the types of physicians
required for the efficient operation of the medical practice of Practice and the
content of all physician employment and recruitment contracts to be utilized by
Practice.
(c) Strategic Planning. The Advisory Board shall make
recommendations to Manager regarding the development of long-term strategic
planning objectives for Practice.
(d) Capital Expenditures. The Advisory Board shall make
recommendations to Manager regarding the priority of major capital expenditures
for the medical practice of Practice.
(e) Capital Improvements and Expansion. Any renovation
and expansion plans and capital equipment expenditures with respect to the
operations of the medical practice of Practice shall be reviewed by the Advisory
Board and shall be based, in the judgment of Manager, upon economic feasibility,
physician support, productivity and then-current market conditions.
(f) Provider and Payor Relationships. The Advisory Board
shall review and advise Manager and Practice with respect to the establishment
or maintenance of relationships with institutional healthcare providers and
payors.
(g) Ancillary Services. The Advisory Board shall review
and make recommendations to Manager and Practice regarding the provision of
ancillary services based upon the pricing, access to and quality of such
services.
4
9
(h) Patient Fees, Collection Policies. At least annually,
the Advisory Board shall review and advise Manager and Practice with respect to
the fee schedule for all physicians and ancillary services rendered by Practice.
(i) Advertising. The Advisory Board shall advise Manager
with respect to all advertising and other marketing of services performed at the
Medical Offices of Practice, including design and erection of exterior signs.
(j) Exceptions to Inclusion in Net Practice Revenues. The
Advisory Board will review and make recommendations to Manager and Practice with
respect to the proposed exclusion of any revenue from Net Practice Revenues.
(k) Grievance Referrals. The Advisory Board shall
consider, review and make recommendations to Manager and Practice with respect
to any matters arising in connection with the operations of Practice that are
not specifically addressed in this Agreement and as to which Manager or Practice
requests consideration by the Advisory Board.
Notwithstanding any contrary provision of this Agreement, it is acknowledged and
agreed that other than as provided in Section 2.2(a), recommendations of the
Advisory Board are intended for the advice and guidance of Manager and Practice
and that the Advisory Board does not have the power to bind Manager or Practice.
Where discretion with respect to any matter is vested in Manager under the terms
of this Agreement, Manager shall have ultimate responsibility for the exercise
of such discretion, notwithstanding any recommendation of the Advisory Board.
Manager and Practice shall, however, take such recommendations of the Advisory
Board into account in good faith in the exercise of such discretion.
SECTION 3. OBLIGATIONS OF MANAGER.
3.1 PROVISION OF SERVICES. Practice hereby engages Manager for the
term of this Agreement, and Manager hereby accepts such engagement, to provide
to Practice the business management and services, personnel, equipment and
supplies provided for in this Section 3 (collectively "Management Services").
Manager shall provide the Management Services at the medical office located at
the locations set forth on Exhibit 3.1, or at such other place or places as may
be agreed upon by the parties. The medical offices or such other places at which
the Management Services are to be provided are referred to as the "Medical
Offices."
3.2 MEDICAL OFFICES. Manager shall pay out of Net Practice
Revenues all rent due from the Effective Date forward with respect to the
Medical Offices, and all costs of repairs, maintenance and improvements,
telephone, electric, gas and water utility expenses, insurance, normal
janitorial services, refuse disposal and all other costs and expenses reasonably
incurred in connection with the operations of Practice including, but not
5
10
limited to, related real or personal property lease payments and expenses, taxes
and insurance. Manager shall consult with Practice with respect to the
condition, use and needs of the Medical Offices, as expanded, improved or
relocated from time to time.
3.3 FURNITURE, FIXTURES AND EQUIPMENT. Manager agrees to provide
or have provided to the Medical Offices those supplies and items of furniture,
fixtures and equipment as are determined by Manager, after consultation with
Practice, to be necessary and/or appropriate for Practice's operations at the
Medical Offices during the term of this Agreement (all such items of furniture,
fixtures and equipment are collectively referred to hereinafter as the "FFE")
subject, however, to the following conditions:
(a) Practice shall have the use of the FFE only during
the term of this Agreement and title to the FFE shall be and remain in Parent,
Manager and/or PSC at all times during such term.
(b) Manager shall be responsible for, and pay for out of
Net Practice Revenues, all repairs and maintenance of the FFE, except for
repairs and maintenance necessitated by the negligence of Practice, its
employees and agents. Replacements of FFE shall be provided or paid for by
Manager and all depreciation charges and interest costs with respect to
replacement FFE shall be included within the definition of Practice Expenses. If
a particular repair and maintenance expense is greater than $500, then the
repair and maintenance item shall be treated as a replacement item for purposes
of the immediately preceding sentence.
3.4 FINANCIAL PLANNING AND GOALS. Manager will prepare, in
consultation with Practice, annual capital and operating budgets reflecting, in
reasonable detail anticipated revenues and sources and uses of capital for
growth in the medical practice of Practice.
3.5 BUSINESS OFFICE SERVICES. Practice hereby appoints Manager as
its sole and exclusive manager and administrator of all business functions and
services related to Practice's services during the term of this Agreement.
Without limiting the generality of the foregoing, in providing the Management
Services, Manager shall perform the following functions:
(a) Manager shall evaluate, negotiate and administer all
managed care contracts on behalf of Practice and shall consult with Practice on
all professional or clinical matters relating thereto.
(b) Manager shall provide ongoing assessment of business
activity including product line analysis, outcomes monitoring and patient
satisfaction.
(c) Manager shall be responsible for ordering and
purchasing all medical and office supplies reasonably required in the day-to-day
operation of the medical practice of Practice at the Medical Offices.
6
11
(d) Manager shall make application and negotiate for the
procurement of professional liability insurance covering persons in the coverage
amounts set forth in Section 8.1. This coverage shall be made available to
Practice. Practice, however, shall have the right to obtain coverage from an
alternative provider reasonably acceptable to Manager.
(e) Manager shall ▇▇▇▇ and collect from payors,
intermediaries and patients all professional fees for medical services and for
ancillary services performed at the Medical Offices by Practice and Practice's
employees and agents, including, but not limited to, Physician Shareholders and
Practice Employees. For the term of this Agreement, Practice hereby appoints
Manager power of attorney and as its true and lawful attorney-in-fact for the
following purposes:
(i) To ▇▇▇▇ payors, fiscal intermediaries or
patients in Practice's name, under its provider number(s) when obtained and on
its behalf, and until such time as Practice has obtained its provider number(s),
▇▇▇▇, in the Physician Shareholders' and Practice Employees' names under their
respective provider numbers and on their behalf;
(ii) To collect accounts receivable and claims
for reimbursement that are generated by such ▇▇▇▇▇▇▇▇ in Practice's name and on
Practice's behalf, and in the name and on behalf of all Physician Shareholders
and Practice Employees;
(iii) To place such accounts for collection,
settle and compromise claims, and institute legal action for the recovery of
accounts, consistent with the policy approved by the Advisory Board from time to
time regarding institution of legal action for collection;
(iv) Following receipt by Practice, to take
possession of payments from patients, Blue Shield, insurance companies,
Medicare, Medicaid and all other payors with respect to services rendered by
Practice, Physician Shareholders and Practice Employees, and Practice hereby
covenants to forward such payments to Manager for deposit;
(iv) To endorse in the name of Practice, or any
Physician Shareholder or Practice Employee, any notes, checks, money orders,
insurance payments and any other instruments received by Practice as payment of
such accounts receivable;
(v) To collect in Practice's name and on its
behalf, and in the name and on behalf of all Physician Shareholders and Practice
Employees, all Net Practice Revenues;
(vi) To pledge the accounts receivable as
collateral or otherwise encumber the accounts receivable without the approval of
the Advisory Board or Practice (all actions with respect to any discounting,
selling or encumbering accounts receivable involving Medicare or Medicaid shall
not be inconsistent with applicable laws and regulations relating thereto); and
7
12
(vii) To sign checks on behalf of Practice and
make withdrawals from Practice bank accounts for payments specified in this
Agreement and as requested from time to time by Practice.
3.6 DEPOSIT OF NET PRACTICE REVENUES. During the term of this
Agreement, all Net Practice Revenues collected shall be received directly by
Practice at the Practice location, and each business day Practice will transfer
all collected Net Practice Revenues into a bank account as specifically directed
by Manager, of which Manager or Parent shall be the owner and from which Manager
or Parent shall have the sole right to make withdrawals to pay Practice Expenses
and Incentive Compensation (as defined in Section 5.1) on a monthly basis and,
at the direction of Practice, to transfer pursuant to Section 5.2 remaining Net
Practice Revenues by the fifteenth day of each month in arrears to an account
designated by Practice from which Practice will pay Physician Expenses. Manager
shall maintain its accounting records in such a way as to clearly identify Net
Practice Revenues from other funds of Manager. Practice and Manager hereby agree
to execute from time to time such documents and instructions as shall be
required by the Credit Facility Lender (as defined in Section 5.4(b)) and
mutually agreed upon to effectuate the foregoing provisions and to extend or
amend such documents and instructions.
3.7 REVENUE REPORTS. Manager shall maintain revenue reports, as
determined by the books and records of Manager, with respect to the operations
of Practice. Revenue reports shall reflect the total gross revenues and Net
Practice Revenues generated by or on behalf of the medial practice of Practice.
Manager shall provide Practice with monthly revenue reports and shall provide a
year-end revenue report for Practice within ninety (90) days after the end of
each calendar year.
3.8 SUPPORT SERVICES. Manager shall provide all reasonable and
necessary computer, management information, bookkeeping, billing and collection
services, accounts receivable and accounts payable management services, laundry,
linen, janitorial and cleaning services and management services to improve
efficiency and workflow systems and procedures, as determined by Manager after
consultation with Practice.
3.9 ADMINISTRATOR. Manager shall provide an Administrator to
manage and administer all of the day-to-day business functions and services of
the medical practice of Practice. The Administrator will be selected by Manager
after prior consultation with Practice, and Manager shall determine the salary
and fringe benefits of the Administrator, but shall consult with Practice with
respect thereto.
3.10 PERSONNEL. Manager shall provide such non-physician personnel
as determined by Manager, after consultation with Practice, to be reasonably
necessary for the effective operation of the medical practice of Practice at the
Medical Offices, subject, however, to the following:
(a) Manager shall provide to Practice all nurses, medical
records personnel and other medical support personnel as requested by Practice
and as shall be
8
13
reasonably necessary for the operation of Practice's medical practice at the
Medical Offices. As to the nursing and non-physician medical support personnel
provided under this Section 3.10(a), Manager shall determine the salaries and
benefits of all such personnel, but shall consult with Practice with respect
thereto. Manager shall also recommend the assignment of all such personnel to
perform services at the Medical Offices; provided, however, that Practice shall
have the right to approve, based primarily on professional competence, the
assignment of all non-physician medical support personnel to provide services at
the Medical Offices and Manager shall, at Practice's request, reassign and
replace such personnel from time to time who are not, in Practice's reasonable
and good faith judgment, adequately performing the required professional
services.
(b) Manager shall provide to Practice all business office
personnel (i.e., clerical, secretarial, bookkeeping and collection personnel)
reasonably necessary for the maintenance of patient records, collection of
accounts receivable and upkeep of the financial books of account to the extent
that same are required for, and directly related to, the operation of the
medical practice by Practice. As to the personnel provided under this Section,
Manager shall determine the salaries and fringe benefits of all such personnel,
but shall consult with Practice with respect thereto.
(c) In exercising its judgment with regard to personnel
as provided in Section 3.9 and this Section 3.10, Practice agrees not to
discriminate against such personnel on the basis of race, religion, age, sex,
disability or national origin.
(d) In recognition of the fact that personnel provided to
Practice under this Agreement may perform services from time to time for others,
this Agreement shall not prevent Manager from performing such services for
others or restrict Manager from so using such personnel. Manager will make every
effort consistent with sound business practices to honor the specific requests
of Practice with regard to the assignment of such personnel; provided, however,
that except for non-physician medical support personnel, Manager hereby retains
the sole and exclusive decision-making authority regarding all such personnel
assignments.
(e) If Practice requests secretarial, clerical,
bookkeeping, management and non-physician medical support personnel in addition
to personnel determined to be necessary and/or appropriate by Manager and
Practice, and such personnel and/or services are provided by mutual agreement
between Manager and Practice, all costs and expenses incurred by Manager in
providing such additional personnel shall be paid to Manager by Practice.
3.11 PROFESSIONAL SERVICES. Manager shall use reasonable efforts to
arrange for or render to Practice such business, legal and financial management
consultation and advice as may be reasonably required or requested by Practice
and directly related to the operations of Practice. Manager shall not be
responsible for any services requested by or rendered to any individual,
employee or agent of Practice not directly related to the operations of Practice
nor shall Manager be responsible for rendering any legal or tax
9
14
advice or services or personal financial services to Practice or any employee or
agent of Practice.
3.12 PATIENT AND FINANCIAL RECORDS. Manager shall maintain all
files and records relating to the operation of Practice including, but not
limited to, customary financial records and patient files. The management of all
files and records shall comply in all material respects with all applicable
federal, state and local laws, statutes, rulings, orders, ordinances and
regulations ("Laws"), and all files and records shall be located so that they
are readily accessible for patient care, consistent with ordinary records
management practices. Practice shall supervise the preparation of, and direct
the contents of, patient medical records, all of which shall be and remain
confidential and the property of Practice. Manager shall have reasonable access
to such records and, subject to applicable Laws and accreditation policies,
Manager shall be permitted to retain true and complete copies of such records.
Manager hereby agrees to preserve the confidentiality of such patient medical
records and to use the information in such records only for the limited purposes
necessary to perform the Management Services and, within the limits of its
responsibilities hereunder, to ensure that provision is made for appropriate
care for patients of Practice.
3.13 MARKETING SERVICES. Manager shall use its commercially
reasonable efforts to market the medical services provided by Practice. Such
marketing shall be undertaken in a tasteful and professional manner, shall be in
compliance with applicable Laws relating to advertising by the medical
profession, and shall be subject to review by the Advisory Board as set forth in
Section 2.2(i). The parties agree that, with the prior consent of Practice and
Manager, the "Physicians' Specialty Corp." name may be included on any or all
signage, letterhead, professional announcements and the like relating to
Practice subject to state law restrictions on the corporate practice of
medicine.
3.14 PHYSICIAN RECRUITMENT. At the request of Practice, Manager
shall perform administrative services relating to the recruitment of physicians
for Practice. Practice shall determine the need for additional physicians in
consultation with Manager. All such physicians recruited by Manager and accepted
by Practice shall be shareholders or employees of Practice (if such physicians
are hired as employees) and not of Manager. Any expenses incurred in the
recruitment of physicians shall be treated as Practice Expenses. Practice agrees
that all physicians hired by the Practice shall execute a Physician Employment
Agreement in a form approved by Manager (the "Physician Employment Agreements").
Practice agrees not to change the form of the Physician Employment Agreement
without Manager's prior written consent.
3.15 EXPANSION OF PRACTICE. Manager will assist Practice in
attempting to add additional office-based procedures, in establishing new
satellite office(s) that are commercially reasonable and beneficial to Practice,
as determined by Practice and Manager to be beneficial to Practice, and in
developing relationships and affiliations with physicians and other specialists,
hospitals, networks, health maintenance organizations, preferred provider
organizations, and similar organizations, to assist in the continued growth and
development of the medical practice of Practice. Practice will cooperate with
10
15
Manager in such efforts and use its best efforts to assist Manager with respect
thereto. Without limiting the generality of the foregoing, Practice will not
enter into any agreements with respect to any such matters without the prior
consent of Manager.
3.16 PERFORMANCE OF BUSINESS OFFICE SERVICES. Manager is hereby
expressly authorized to perform its business office services hereunder in
whatever reasonable manner it deems appropriate to meet the day-to-day
requirements of the non-medical business functions of Practice's medical
practice at the Medical Offices. Manager may perform some or all of the business
office functions of Practice at locations other than at the Medical Offices.
3.17 FORCE MAJEURE. Manager shall not be liable to Practice for
failure to perform any of the services required under this Agreement in the
event of strikes, lockouts, calamities, acts of God, unavailability of supplies
or other events which are beyond the reasonable control of Manager for so long
as such event continues and for a reasonable period of time thereafter.
3.18 PAYMENT OF PRACTICE EXPENSES. Manager shall pay all Practice
Expenses as they become due out of Net Practice Revenues; provided, however,
that Manager may, in the name of and on behalf of Practice, contest in good
faith any claimed Practice Expenses as to which there is any dispute regarding
the nature, existence or validity thereof. Manager shall be entitled, on a
monthly basis, as a Practice Expense payable to itself, to retain from Net
Practice Revenues the amount specified in Section 1.6(g). The amounts retained
pursuant to Section 1.6(g) will not exceed $405,000 on an annual basis, unless
Practice expands its number of Physician Shareholders or physician Practice
Employees in connection with an asset or practice acquisition consummated by
Manager or Parent (or affiliate thereof). In such case the amount of $405,000 in
the preceding sentence shall be increased by an amount equal to the product of
(x) 150%, (y) the trailing twelve (12) months of net practice revenues of said
acquisition target and (z) 15%. For example, an acquisition of assets by Manager
or Parent (or affiliate thereof) of a practice which has physicians join the
Practice as Physician Shareholders or Practice Employees and has trailing twelve
months net practice revenue of $1.0 million will result in an increase in the
$405,000 amount described above by $225,000 ($1.0 million x 150% x 15%), which
would result in an aggregate retained amount on an annual basis of $630,000
after such acquisition. Practice acknowledges and agrees that the amount to be
retained by Manager pursuant to Section 1.6(g) is reasonable and fair, given
the undertakings of Manager as set forth in this Agreement and the other
benefits and value that accrue to Practice as a result of this Agreement.
3.19 BUDGETS.
(a) As part of the Manager's responsibilities under this
Agreement, the Manager shall prepare annual capital and operating budgets for
the Practice for each budget period in accordance with the provisions of this
Section 3.19. As used herein, a budget period means a fiscal year of Practice
unless otherwise provided.
11
16
With respect to each budget period following the initial
budget period, the Manager shall prepare and deliver a preliminary draft of each
such budget to the Advisory Board at least 30 days prior to the commencement of
the budget period to which such budget relates. The Advisory Board shall provide
any comments or suggested changes to such preliminary drafts to the Manager
within 15 days after receipt thereof. The Manager shall then submit a revised
budget to the Advisory Board for approval by the Advisory Board no later than 15
days after the end of the 15-day period referred to in the immediately preceding
sentence. The Advisory Board shall then approve or disapprove of, but not modify
or amend the budget within 15 days of receiving it. The foregoing time periods
during which drafts of the budget are to be delivered and approved shall be
subject to adjustment from time to time as determined appropriate by the
Advisory Board and Manager.
If prior to the commencement of any budget period, the
Advisory Board has not yet approved the budget, then the Manager and the
Advisory Board will work diligently in good faith to obtain such approvals, and
until such approvals are obtained, with respect to the budget, (i) as to any
disputed line items, the immediately preceding budget period's budget shall be
controlling until such time, if any, as agreement is reached on the amounts to
be allocated to such disputed line items, specifically as follows: (A)
non-recurring or extraordinary items shall not be continued from the budget for
the immediately preceding budget period, (B) if the previous budget was for a
budget period of less than 12 months, it shall be annualized, (C) all items
subject to an automatic increase, such as rent and taxes, shall be budgeted at
the increased rate (D) for items such as employee salaries and benefits, the
total salary and benefits number shall be adjusted to take into account changes
in the number and classifications of employees employed or contracted, and (ii)
as to any line items which are not in dispute, the revised budgets submitted by
the Manager shall control.
(b) The parties agree that the Manager shall have the
authority and discretion to reallocate cost and expense line items within the
budget, so long as the pre-tax income targets within such budgets are not
adversely impacted.
12
17
SECTION 4. OBLIGATIONS OF PRACTICE.
4.1 PHYSICIAN EXPENSES. Practice shall be solely responsible for
the payment, when due, of all costs and expenses incurred in connection with
Practice's operations that are not Practice Expenses ("Physician Expenses"),
including, but not limited to, insurance premiums for policies of malpractice
insurance, deductibles under such policies of malpractice insurance, any and all
costs and expenses incurred with respect to claims under such policies of
malpractice insurance, salaries and benefits, workers' compensation, retirement
plan contributions, health, disability and life insurance premiums, payroll
taxes, cellular phone and automobile expenses incurred by or in connection with
the employment of all Physician Shareholders and Practice Employees. Practice
shall be responsible for paying as a Physician Expense salaries, benefits and
other similar direct costs for all Practice Employees and Physician
Shareholders. Practice shall pay all Physician Expenses as they become due.
However, Practice shall pay the salaries and benefits for those individuals
described in Section 1.5(b), but Manager shall reimburse Practice for all such
salaries and benefits and such reimbursement amounts shall be a Practice Expense
under Section 1.6.
4.2 PROFESSIONAL STANDARDS.
(a) It is expressly acknowledged by the parties to the
Agreement that all medical services provided at the Medical Offices shall be
performed solely by physicians and allied healthcare professionals duly licensed
to practice medicine or to render such services in the State. The professional
services provided by Practice and its Physician Shareholders and Practice
Employees shall at all times be provided in accordance with applicable ethical
standards and Laws applying to the medical profession. Practice shall at all
times during the term of this Agreement be and remain legally organized and
authorized to provide medical care and services in a manner consistent with all
state and federal laws. Practice will cooperate with Manager in taking steps to
resolve any utilization review or quality assurance issues which may arise in
connection with the medical practice of Practice. If any disciplinary actions or
professional liability actions are initiated against any Physician Shareholder
or Practice Employee, Practice shall immediately inform Manager of such action
and the underlying facts and circumstances. Practice agrees to implement and
maintain a program to monitor the quality of medical care provided by Practice,
and Manager shall render administrative assistance to Practice on an
as-requested basis to assist Practice in implementing and maintaining such
program.
(b) Practice shall at all times during the term of this
Agreement assure that each physician of the Practice shall:
(i) maintain an unrestricted license to practice
medicine in the State and maintain good standing with the Medical Board of the
State;
(ii) maintain a federal Drug Enforcement
Administration certificate without restrictions, to prescribe controlled
substances as are customarily prescribed by physicians practicing in physician's
practice specialties;
13
18
(iii) maintain hospital medical staff memberships
and clinical privileges at those facilities set forth on Part Three of Exhibit A
of the Physician Employment Agreement as amended from time to time;
(iv) perform all professional services through
Practice and in accordance with all Laws and with prevailing standards of care
and medical ethics and with practice protocols and policies as adopted from time
to time by Practice;
(v) maintain Physician's skills through
continuing education and training, including participation in those programs
designated by Practice from time to time;
(vi) maintain eligibility for insurance under the
professional liability policy or policies at a commercially reasonable cost as
determined by Practice carried by or on behalf of Practice for Physician's
practice specialties, to the extent Physician is covered by such policy or
policies pursuant to Section 5.2 of the Physician Employment Agreement;
(vii) maintain Physician's board-certified or
board-eligible status in Physician's practice specialties;
(viii) qualify and maintain Physician's
qualification as a participating provider in the Medicare and State of Georgia
Medicaid programs;
(ix) abide by the Principles of Medical Ethics of
the American Medical Association and the Medical Society of the State;
(x) comply with all Laws applicable to the
conduct of Physician's activities, as well as with the articles of
incorporation, bylaws and other corporate governance documents of Practice and
other rules or regulations adopted from time to time by Practice;
(xi) promptly disclose to Practice (i) the
commencement or pen-dency of any legal action, administrative proceeding or
investigation, medical staff or professional disciplinary actions against
Physician or (ii) the existence of any circumstances that could reasonably be
expected to form the basis of or lead to any such action, proceeding or
investigation;
(xii) abide by any guidelines adopted by Practice
or any person or entity providing management services to Practice designed to
encourage the appropriate, efficient and cost-effective delivery of medical
services, subject always to the clinical judgment of Physician, and cooperate
with and participate in all Practice programs regarding quality assurance,
utilization review, risk management and peer review;
(xiii) maintain appropriate and accurate medical
records in accordance with accepted medical standards and Practice policies with
respect to all patients evaluated and treated; and
14
19
(xiv) satisfy such other reasonable requirements
as are established from time to time by Practice.
4.3 PROVIDER AND PAYOR RELATIONSHIPS. Practice shall advise
Manager on matters relating to the establishment or maintenance of relationships
with institutional healthcare providers and third-party payors, including, but
not limited to, managed care programs, health maintenance organizations and
preferred provider organizations. Without limiting the generality of the
foregoing, Practice shall cooperate with Manager in the development and
operation of integrated healthcare delivery systems developed from time to time
by Manager for the benefit of Manager's affiliates.
4.4 PHYSICIAN CONTRACTS AND POWERS OF ATTORNEY. (a) During the
term of this Agreement Practice shall maintain Employment Agreements
substantially in the form of Exhibit A hereto with all Physician Shareholders
and other physician practitioners employed or otherwise retained by Practice as
Practice Employees. Practice shall not amend any of the Employment Agreements or
waive any rights thereunder without the prior consent of Manager.
(b) Practice shall require all Physician Shareholders and
physician Practice Employees to execute and deliver to Manager powers of
attorney, satisfactory in form and substance to Manager, appointing Manager as
attorney-in-fact for each such Physician Shareholder and physician Practice
Employee for the purposes set forth in Section 3.5(e) to the extent authorized
by law.
4.5 RESTRICTIVE COVENANTS.
(a) Practice acknowledges and agrees that the services to
be provided by Manager hereunder are feasible only if Practice operates a
vigorous medical practice to which its Physician Shareholders and Practice
Employees devote their full time and attention (other than Physician
Shareholders or Practice Employees employed on a part-time basis with the
consent of Manager which consent will not be unreasonably withheld where it is
in the best interest of the Practice due to the approaching retirement of a
physician or will not adversely affect Net Practice Revenues). Accordingly,
Practice agrees that, during the term of this Agreement, it shall not, without
the prior written consent of Manager, establish, operate or provide physician
services at any medical office, clinic or other healthcare facility within a
twenty (20) mile radius of the Practice's office at ▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ (or successor office) which provides
services substantially similar to those offered by Practice at the Medical
Offices other than services at healthcare facilities in a manner consistent with
past practices of Practice or, prior to the date hereof, Allatoona E.N.T. &
Facial Plastic Surgery, P.C. In the event that Manager and Practice agree to
open any other Medical Offices for Practice, the parties shall amend this
Agreement to provide that Practice shall not, without the prior consent of
Manager, provide physician services at any medical office, clinic or healthcare
facility within a twenty (20) mile radius of such additional
15
20
Medical Office other than services at healthcare facilities in a manner
consistent with past practices of Practice or at another Medical Office managed
by Manager.
(b) During the term of this Agreement and for a period of
eighteen (18) months following the termination or expiration of this Agreement,
Practice shall not, in the State, alone or in conjunction with any other person
or entity, without the prior written consent of Manager, solicit or attempt to
solicit any employee, consultant, contractor or other personnel affiliated with
Manager (or who was affiliated with Manager at any point during the six months
prior to termination of this Agreement) to terminate, alter or lessen that
party's affiliation with Manager or to violate the terms of any agreement or
understanding between such employee, consultant, contractor or other person and
Manager.
(c) If this Agreement is terminated for any reason other
than by Practice pursuant to Section 6.2 (b) below, Practice shall not for a
period of eighteen (18) months following the effective date of such termination,
engage or contract with any person, firm or entity (or group of affiliated
entities) for the provision of comprehensive management services to Practice at
the Medical Offices (or at any new or replacement medical offices of Practice in
the State) substantially of the kind contemplated by this Agreement.
(d) The intellectual and other property rights in any
work product, discoveries or inventions developed or acquired by Practice, the
Physician Shareholders or Practice Employees or any other personnel or agents of
such parties (other than intellectual and other property rights developed or
acquired by a Physician Shareholder and specifically excluded in such
individual's employment agreement with Practice) during the term of this
Agreement (the "Practice IP") shall be deemed to be owned exclusively by the
Manager. The Practice hereby unconditionally and irrevocably transfers and
assigns to Manager all rights, title and interest the Practice may currently
have (or in the future may have) by operation of law or otherwise in or to any
Practice IP, including, without limitation, all patents, copyrights, trademarks,
service marks and other intellectual property rights. Practice agrees to execute
and deliver to Manager any transfers, assignments, documents or other
instruments which Manager may deem necessary or appropriate to vest complete
title and ownership of any Practice IP, and all associated rights, exclusively
in Manager. The Physician Employment Agreements shall have a provision
comparable to this paragraph (d) assigning these Practice IP rights from the
Practice physicians to Practice, in contemplation of their reassignment from
Practice to Manager as herein provided, subject only to such exclusions as are
provided in the form of Physician Employment Agreement approved by Manager.
(e) Practice acknowledges and agrees that Manager's Trade
Secrets and Confidential Information (both as defined below) represent a
substantial investment by Manager. Practice also acknowledges and agrees that
any unauthorized disclosure or use of any of Manager's Trade Secrets or
Confidential Information would be wrongful and would likely result in immediate
and irreparable injury to Manager. Except as required in order to perform
Practice's obligations under this Agreement, Practice shall not, without the
express prior written consent of Manager, redistribute, market, publish,
16
21
disclose or divulge to any other person or entity, or use or modify for use,
directly or indirectly in any way for any person or entity: (i) any Confidential
Information during the term of this Agreement and for a period of three (3)
years after the final date of the term of this Agreement; and (ii) any Trade
Secrets at any time (during or after the term of this Agreement) during which
such information or data shall continue to constitute a "trade secret" under
applicable law. Practice further agrees to cooperate with (and require its
physicians and other personnel to comply with) any reasonable confidentiality
requirements of Manager. Practice shall immediately notify Manager of any
unauthorized disclosure or use of any of the Trade Secrets or Confidential
Information of Manager of which Practice becomes aware. For purposes of this
Agreement "Confidential Information" shall mean valuable, non-public
competitively sensitive data and information relating to Manager's, Parent's or
PSC's business other than Trade Secrets (which shall have the meaning given that
term under applicable law) that is not generally known by or readily available
to competitors of Manager, including, without limitations, computer software and
management information systems provided by Manager.
(f) Unless otherwise agreed by Manager in writing,
Practice shall enforce vigorously the covenants (and any liquidated damages
provisions) of the Physician Shareholders and other physician employees of
Practice set forth in the Physician Employment Agreements (which the Parties
agree will be in substantially the form of Exhibit A) with counsel approved by
Manager. Practice and such counsel shall cooperate with Manager in any such
litigation and all major litigation decisions and strategy shall be subject to
approval of Manager, and Practice shall not compromise or settle any such
litigation without Manager's approval. In the event that the Practice recovers
liquidated damages (or other damages) from any physician for breach of such a
covenant, then the Practice shall promptly remit to Manager an amount equal to
any and all such amounts so received. Manager agrees to pay the fees and
disbursements of counsel of Practice approved by it. Practice shall not take any
action that, under this Agreement, is to be taken only by Manager. The Parties
agree and the Physician Employment Agreement shall provide that the actual
losses to be suffered by Manager will be difficult to ascertain, but the
liquidated damages set forth have been arrived at after good faith effort to
estimate such losses. Practice specifically acknowledges and agrees that Manager
would not have entered into this Agreement but for Practice's covenant to
enforce the Physician Employment Agreements as provided above and that the
failure of any physician to comply with such agreements will result in Manager
suffering extensive economic damages.
(g) Manager and Practice acknowledge and agree that
Manager's remedy at law for any breach or attempted breach of the foregoing
provisions may be inadequate and that Manager shall be entitled to specific
performance, injunction or other equitable relief in the event of any such
breach or attempted breach, in addition to any other remedies which might be
available at law or in equity. If the duration, scope or geographic area
contemplated by the foregoing provisions is determined to be unenforceable by a
court of competent jurisdiction, the parties agree that such duration, scope or
geographic area shall be deemed to be reduced to the greatest scope, duration or
geographic area which would be enforceable.
17
22
4.6 PROFESSIONAL DUES AND EDUCATION EXPENSES. Practice and its
Physician Shareholders and Practice Employees, subject to Manager approval,
shall be solely responsible for all costs and expenses associated with
membership in professional associations and continuing professional education.
Practice shall ensure that each of its Physician Shareholders and Practice
Employees participates in such continuing medical education activities as are
necessary for such physicians to remain current in their respective specialties,
including, but not limited to, the minimum continuing medical education
requirements imposed by applicable laws and policies of applicable specialty
boards.
4.7 PROVISION OF SERVICES BY PRACTICE. Practice shall maintain at
least the same quality and scope of medical practice and other health care
services provided by Allatoona E.N.T. & Facial Plastic Surgery, P.C. prior to
the date hereof and shall use its reasonable good faith efforts to enhance the
medical practice of the Practice and to comply with all Practice budgets.
Practice shall engage a sufficient member of Physician Shareholders or physician
Practice Employees to provide services to patients of the Practice at normal
office hours at the Medical Offices and to provide coverage during all
appropriate hours of all hospitalized patients of Practice whether on any
inpatient or outpatient basis.
4.8 PHYSICIAN SHAREHOLDER AGREEMENT. Practice represents that it
has delivered (or, should one be executed) will deliver to Manager a true and
correct copy of the shareholder agreement between Practice and its Physician
Shareholders and will cause all new shareholders of Practice to execute such
agreement prior to becoming a shareholder in Practice. Practice shall not amend
any such shareholder agreement so as to cause the shareholder agreement to
contravene or conflict with this Agreement or the Employment Agreements between
Practice and its physician employees.
SECTION 5. INCENTIVE COMPENSATION; FINANCING MATTERS
5.1 INCENTIVE AMOUNTS. Practice agrees that Manager shall be
entitled to incentive compensation ("Incentive Compensation") as set forth on
Exhibit B. With respect to any partial calendar years during which this
Agreement is in effect, Incentive Compensation shall be prorated according to
the number of calendar days actually elapsed during such partial calendar year.
The Incentive Compensation will be paid, as described below, in the form of
monthly draws (which will provide Manager with an amount that is estimated in
accordance with the formula set forth on Exhibit B) with an adjustment at each
year end to account for any differences between the amount of Incentive
Compensation paid as draws and the amounts calculated based on the complete year
end revenue and expense figures.
5.2 MECHANICS OF DRAWS. Following the end of each month, Manager
shall make an estimate of the collection percentage ("Estimated Collection
Percentage") for such month's gross Practice revenues. The Estimated Collection
Percentage may vary depending on historical collection percentages, changes in
fee schedules, changes in third
18
23
party reimbursement, bad debt write-offs and similar adjustments. The Estimated
Collection Percentage will then be applied to such month's gross Practice
revenues, resulting in estimated Net Practice Revenues for such month. Draws of
Incentive Compensation attributable to such month will be determined by applying
the formula set forth on Exhibit B to the excess of Net Practice Revenue over
Practice Expenses and will be paid by the 15th day of the following month. An
amount equal to the excess of Net Practice Revenues over Practice Expenses will
be transferred by Manager to Practice and used by Practice to pay Physician
Expenses on such 15th day.
5.3 RECONCILIATION.
(a) As soon as reasonably practicable, but in any event
not later than ninety (90) days after the end of each calendar year, Manager
will adjust the Estimated Collection Percentage based on actual net cash
collections attributable to the gross Practice revenues for such year and shall
determine actual Net Practice Revenues. Within forty-five (45) days after the
end of such one hundred twenty (120) day period, and based on the financial
statements prepared by Manager in good faith pursuant to Section 3.7, Manager
shall retain an amount equal to the aggregate Incentive Compensation payable
with respect to such calendar year, less the aggregate sum of all draws by
Manager pursuant to Section 5.2 during such period.
(b) In the event that, after making the calculation
contemplated by Section 5.3(a), it is determined that draws by Manager under
Section 5.2 for the applicable calendar year exceed the amount which it is
ultimately entitled to receive with respect to such year as Incentive
Compensation (an "overdraft"), Manager shall pay the amount of such overdraft to
Practice within ninety (90) days after the end of the year. In the event
Practice disagrees with Manager's computation of Net Practice Revenues or
Incentive Compensation, it shall have the right to review, upon reasonable
notice to Manager, the documents used in determining such amounts.
(c) Any disputes between the parties under Sections 2.2
(k), 3.3(b), 3.18, 3.19, 5.1, 5.2 or 5.3 hereof shall be settled by binding
arbitration between the parties in accordance with Section 14.13 hereof.
5.4 TRANSFER AND ASSIGNMENT.
(a) Practice hereby exclusively and irrevocably assigns
and sets over to Manager all of Practice's rights to all revenue and accounts
receivable and proceeds thereof generated by the Physician Shareholders and
Practice Employees with respect to any services rendered prior to the effective
date of expiration or termination of this Agreement, except as
19
24
otherwise provided in this Agreement, and grants to Manager the right to retain
such proceeds for its own account for application in accordance with this
Agreement, and shall obtain a like assignment from all Physician Shareholders
and Practice Employees; provided, that in the case of revenue and accounts
receivable generated as a result of billing for services under Medicare or
Medicaid such assignment shall only be an assignment of proceeds of accounts
receivable consistent with the provisions of applicable law. Practice shall
endorse (and shall cause each Physician Shareholder or Practice Employee to
endorse) any payments received on account of such services to the order of
Manager and shall take such other actions as may be necessary to confirm to
Manager the rights set forth in this Section 5.4(a).
Without limiting the generality of the foregoing, it is the intent of
the parties that the assignment to Manager of the rights described in Section
5.4(a) above shall be inclusive of the rights of Practice and the Physician
Shareholders and Practice Employees to proceeds of payment with respect to any
services rendered prior to the effective date of any expiration or termination
of this Agreement. Practice agrees and shall cause each Physician Shareholder
and Practice Employee to agree, that Manager shall retain the right to collect
any and all accounts receivable and claims for reimbursement relating to any
such services rendered prior to the effective date of any such expiration or
termination ("Pre-Termination Accounts Receivable"), and that the proceeds
thereof will be transferred to Manager's account to be applied in accordance
with Section 3.6 and the other provisions of this Agreement.
In addition and as a supplement to Practice's obligations as otherwise
set forth herein, Practice shall, with all deliberate speed, apply for and
maintain in effect any and all provider and/or supplier numbers, including but
not limited to Medicare and Medicaid numbers, in Practice's name. If Practice is
unable to obtain such provider and/or supplier numbers, Practice shall cause
Physician Shareholders to maintain each of their provider numbers, including but
not limited to Medicare and Medicaid numbers, necessary or appropriate to obtain
payment or reimbursement for all medical services provided by such Physician
Shareholders and shall further cause each Physician-Shareholder who provides
services to the Practice to execute any and all documentation necessary to
effectuate the assignments of revenues to Manager as contemplated by this
Agreement.
(b) Practice acknowledges that Manager and Parent may, to
the extent permitted by law, grant a security interest in the Pre-Termination
Accounts Receivable and proceeds thereof to their factor(s) or lender(s) who
provide senior debt financing to Manager or Parent for their general corporate
needs or for working capital (whether one or more, "Credit Facility Lender"), as
in effect from time to time. Practice agrees that such security interest of the
Credit Facility Lender is intended to be a first priority security interest and
is superior to any right, title or interest which may be asserted by Practice or
any Physician Shareholder or Practice Employee with respect to Pre-Termination
Accounts Receivable or the proceeds thereof under this Agreement. Practice
further agrees, and shall cause each Physician Shareholder and Practice Employee
to agree, that, upon the occurrence of an event which, under the terms of such
working capital credit facility, would allow the Credit Facility Lender to
exercise its right to collect Pre-Termination Accounts Receivable and apply the
proceeds thereof toward amounts due under such working capital credit facility,
the Credit Facility Lender will succeed to all rights and powers of Manager
under the powers of attorney provided for in Sections 3.5 and 4.4 above as if
such Credit Facility Lender had been named as the attorney-in-fact therein.
20
25
(c) If, contrary to the mutual intent of Manager and
Practice, the assignment described in this Section 5.4 shall be deemed for any
reason to be ineffective, then Practice and each Physician Shareholder and
Practice Employee shall to the extent permitted by applicable Laws, effective as
of the date of this Agreement, be deemed to have granted (and Practice does
hereby grant, and shall cause each Physician Shareholder and Practice Employee
to grant) to Manager a first priority lien on and security interest in and to
any and all interests of Practice and such Physician Shareholders and Practice
Employees in any accounts receivable generated by the medical practice of
Practice and its Physician Shareholders and Practice Employees or otherwise
generated through the operations of the medical practice of Practice, and all
proceeds with respect thereto, to secure the payment to Manager hereunder of all
Practice Expenses and Incentive Compensation, and this Agreement shall be deemed
to be a security agreement to the extent necessary to give effect to the
foregoing. Practice shall execute and deliver, and cause each Physician
Shareholder and Practice Employee to execute and deliver, all such financing
statements as Manager may request in order to perfect such security interest.
Practice shall not grant (and shall not suffer any Physician Shareholder or
Practice Employee to grant) any other lien on or security interest in or to such
accounts receivable or any proceeds thereof or in or to this Agreement to any
other person or entity.
SECTION 6. TERM AND TERMINATION.
6.1 TERM. The initial term of this Agreement shall be for a period
of forty (40) years commencing on July 1, 1997 and ending on June 30, 2037. This
Agreement may be extended for separate and successive five-year periods (each
such five-year period referred to hereinafter as an "extended term"), under such
terms and conditions as stated herein with respect to any such extended term;
provided, however, that: (a) Practice and Manager mutually agree to extend the
term of this Agreement and mutually agree upon the documents to be in effect
during any such extended term hereto, not less than sixty (60) days prior to
expiration of the initial term or extended term then in effect; and (b) Practice
is not in material default hereunder on the date of commencement of the extended
term.
6.2 TERMINATION.
(a) Manager may terminate this Agreement, and have no
further liability or obligation hereunder, upon the occurrence of one or more of
the following events:
(i) Practice repeatedly fails to perform in a
material respect its material obligations hereunder and such repeated failure
continues for a period of forty-five (45) days after Practice's receipt of
written notice specifying such failure; provided, however, that if such failure
cannot be cured within forty-five (45) days, but is capable of being cured
within a reasonable period of time in excess of forty-five (45) days, then
Manager shall not be entitled to terminate this Agreement if Practice commences
the cure of such failure within the first forty-five (45) day period and
thereafter diligently and in good faith continues to prosecute such cure until
completion; provided, further, that if Practice or any Physician Shareholder or
Practice Employee shall be in breach of Section
21
26
4.5(a) of this Agreement, Manager may terminate this Agreement immediately upon
written notice to Practice.
(ii) Practice voluntarily files a petition in
bankruptcy or makes an assignment for the benefit of creditors or otherwise
seeks relief from creditors under any federal or state bankruptcy, insolvency,
reorganization or moratorium statute, or Practice is the subject of an
involuntary petition in bankruptcy which is not set aside within sixty (60) days
of its filing.
(iii) Practice is in material breach or default
under any other written agreement with Manager, subject to any applicable notice
and cure periods provided in any such agreement.
(iv) If in any calendar year the license of ▇▇.
▇▇▇▇▇▇ to practice medicine in the State of Georgia is suspended or revoked, or
is subjected to final disciplinary action by the State Board of Medicine or any
similar body on any grounds, other than minor, immaterial or insubstantial
grounds, or ▇▇. ▇▇▇▇▇▇ dies or becomes mentally or physically disabled and, by
reason of such disability, is in the reasonable judgment of Manager unable to
conduct medical practice on substantially the same basis as conducted prior to
such disability, or if in any calendar year ▇▇. ▇▇▇▇▇▇ retires or sells his
interest in Practice and ceases to practice medicine on substantially a
full-time basis as Practice Employees; provided, however, that in any such event
Practice shall have one hundred eighty (180) days from the date on which Manager
gives Practice written notice of its intent to terminate this Agreement pursuant
to this Section 6.2(a)(v) to replace ▇▇. ▇▇▇▇▇▇ with an other physician
satisfactory to Manager, in its reasonable discretion; provided further,
however, that Manager and Practice may agree to bring in a locum tenens
physicians to provide physician services during such one hundred eighty (180)
day period.
(v) Manager gives Practice written notice of
termination pursuant to Section 11.1(b) hereof.
(b) Practice may terminate this Agreement, and have no
further liability hereunder, upon the occurrence of one or more of the following
events:
(i) Manager repeatedly fails to perform in a
material respect its material obligations hereunder and such repeated failure
continues uncured for a period of forty-five (45) days after Manager's receipt
of written notice specifying such failure, provided, however, that if such
failure cannot be cured within forty-five (45) days, but is capable of being
cured within a reasonable period of time in excess of forty-five (45) days, then
Practice shall not be entitled to terminate this Agreement if Manager commences
the cure of such failure within the first forty-five (45) day period and
thereafter diligently and in good faith continues to prosecute such cure until
completion.
(ii) Manager voluntarily files a petition in
bankruptcy or makes an assignment for the benefit of creditors or otherwise
seeks relief from creditors under
22
27
federal or state bankruptcy, insolvency, reorganization or moratorium statute,
or Manager is the subject of an involuntary petition in bankruptcy which is not
set aside within sixty (60) days of its filing.
(iii) Manager is in material breach or default
under any other written Agreement with Practice, which material breach or
default is not cured within thirty (30) days after receipt of written notice
from Practice specifying same and providing Manager the opportunity to cure such
material breach or default.
(c) In the event Manager and Practice shall mutually
agree in writing, this Agreement may be terminated on the date specified in such
written agreement.
6.3 REMEDIES UPON TERMINATION.
If this Agreement is terminated pursuant to Section 6.2,
Incentive Compensation shall be deemed earned through the date of termination.
Any Incentive Compensation due Manager shall be paid within thirty (30) days
after the effective date of termination. If this Agreement is terminated
pursuant to Sections 6.2(a)(i), 6.2(a)(iii), 6.2(b)(i), or 6.2(b)(iii) of this
Agreement, the non-breaching party may pursue such other legal or equitable
relief as may be available in addition to such proration. In addition, in the
event this Agreement is terminated pursuant to Section 6.2(b)(i) or 6.2(b)(iii),
the restrictive covenant provisions of Sections 4.5(a), 4.5(c) and 4.5(f) shall
cease to apply.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
7.1 REPRESENTATIONS AND WARRANTIES OF PRACTICE. Practice hereby
represents and warrants to Manager as follows:
(A) ORGANIZATION AND GOOD STANDING. Practice is a professional
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia. Practice has all necessary power to own all of its
properties and assets and to carry on its business as now being conducted.
(B) NO VIOLATIONS. Practice has the corporate authority to
execute, deliver and perform this Agreement and all agreements executed and
delivered by it pursuant to this Agreement, and has taken all action required by
law, its Articles or Certificate of Incorporation, its Bylaws or otherwise to
authorize the execution, delivery and performance of this Agreement and such
related documents. The execution and delivery of this Agreement does not and,
subject to the consummation of the transactions contemplated hereby, will not,
violate any provisions of the Articles or Certificate of Incorporation or Bylaws
of Practice or any provisions of or result in the acceleration of, any material
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree, to which Practice is a party, or by which
it is bound. This Agreement has been duly executed and delivered by Practice and
constitutes the legal, valid and binding obligation of Practice, enforceable in
accordance with its terms.
23
28
(C) PROFESSIONAL LIABILITY. No Physician Shareholder or physician
Practice Employee has ever (a) had his license to practice medicine in any state
or his Drug Enforcement Agency number suspended, relinquished, terminated,
restricted or revoked; (b) been reprimanded, sanctioned or disciplined by any
licensing board, or any federal, state or local society or agency, governmental
body or specialty board; (c) had entered against him final judgment in, or
settle without judgment, a malpractice or similar action for an aggregate award
or amount to the plaintiff in excess of Fifty Thousand and No/100 Dollars
($50,000.00); or (d) had his medical staff privileges at any hospital or medical
facility suspended, terminated, restricted or revoked other than temporary
suspension for failure to timely complete medical records.
7.2 REPRESENTATIONS AND WARRANTIES OF MANAGER. Manager hereby
represents and warrants as follows:
(A) ORGANIZATION AND GOOD STANDING. Manager is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Manager has all necessary power to own all of its properties and
assets and to carry on its business as now being conducted.
(B) NO VIOLATIONS. Manager has the corporate authority to execute,
deliver and perform this Agreement and has taken all action required by law, its
Articles or Certificate of Incorporation, its Bylaws or otherwise to authorize
the execution, delivery and performance of this Agreement. The execution and
delivery of this Agreement does not and, subject to the consummation of the
transactions contemplated hereby, will not, violate any provisions of the
Articles or Certificate of Incorporation or Bylaws of Manager or any provisions
of or result in the acceleration of, any material obligation under any mortgage,
lien, lease, agreement, instrument, order, arbitration award, judgment or
decree, to which Manager is a party, or by which it is bound. This Agreement has
been duly executed and delivered by Manager and constitutes the legal, valid and
binding obligation of Manager, enforceable in accordance with its terms.
SECTION 8. INSURANCE AND INDEMNITY.
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE. Practice shall
provide, or shall arrange for the provision of, and maintain throughout the
entire term of this Agreement, professional liability insurance coverage on
Practice and each of Practice's employees and agents, including, but not limited
to, all Physician Shareholders and Practice Employees, in the minimum amount of
Three Million and No/100 Dollars ($3,000,000.00) per occurrence and Five Million
and No/100 Dollars ($5,000,000.00) annual aggregate including "tail coverage" to
the extent necessary to ensure continuity of coverage. Practice shall provide to
Manager written documentation evidencing such insurance coverage. Practice
shall, at its sole cost and expense, pay the premium costs of all such
professional liability insurance coverage during the term of this Agreement.
Practice shall provide, or shall arrange for the provision of, and shall
maintain throughout the entire term of this Agreement, workers' compensation
insurance coverage on Practice and each of its employees and agents, including,
but not limited to, all Physician Shareholders and
24
29
Practice Employees, in the amounts required by law. Practice shall provide to
Manager written documentation evidencing such insurance coverage. Practice
shall, at its sole cost and expense, pay the premium costs of all such workers'
compensation insurance coverage. Manager agrees to administer and manage the
above insurance.
8.2 INDEMNIFICATION BY MANAGER. Manager shall indemnify and hold
harmless Practice, its shareholders, directors, officers, agents, employees and
other personnel from and against any and all claims, demands, liabilities,
losses, damages, costs and expenses (including reasonable attorney's fees, court
costs and other expenses incurred in defending against claims or otherwise
connected therewith) (hereinafter a "Loss" or "Losses") resulting in any manner,
directly or indirectly, from the gross negligence or intentional acts or
omissions of Manager, its directors, officers, employees, independent
contractors or agents.
8.3 INDEMNIFICATION BY PRACTICE. Practice shall indemnify and hold
harmless Manager, its shareholders, directors, officers, agents, employees and
other personnel from and against any all Losses resulting in any manner,
directly or indirectly, from the gross negligence, professional malpractice or
intentional acts or omissions of Practice, its Physician Shareholders, Practice
Employees or independent contractors.
8.4 INDEMNIFICATION PROCEDURE. Within 60 days after an indemnified
person under Section 8.2 or 8.3 (an "Indemnified Person") receives written
notice of the commencement of any action or other proceeding, or otherwise
becomes aware of any claim or other circumstance, in respect of which
indemnification or reimbursement may be sought under Section 8.2 or Section 8.3,
such Indemnified Person shall notify the Party required to indemnify hereunder
(the "Indemnitor"). If any such action or other proceeding shall be brought
against any Indemnified Person, Indemnitor shall, upon written notice given
within a reasonable time following receipt by Indemnitor of such notice from
Indemnified Person, be entitled to assume the defense of such action or
proceeding with counsel chosen by Indemnitor and reasonably satisfactory to
Indemnified Person; provided, however, that any Indemnified Person may at its
own expense retain separate counsel to participate in such defense.
Notwithstanding the foregoing, Indemnified Person shall have the right to employ
separate counsel at Indemnitor's expense and to control its own defense of such
action or proceeding if, in the reasonable opinion of counsel to such
Indemnified Person, (a) there are or may be legal defenses available to such
Indemnified Person or to other Indemnified Persons that are different from or
additional to those available to Indemnitor and which could not be adequately
advanced by counsel chosen by Indemnitor, or (b) a conflict or potential
conflict exists between Indemnitor and such Indemnified Person that would make
such separate representation advisable; provided, however, that in no event
shall Indemnitor be required to pay fees and expenses hereunder for more than
one firm of attorneys in any jurisdiction in any one action or proceeding or
group of related actions or proceedings. Indemnitor shall not, without the prior
written consent of any Indemnified Person, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding to which such Indemnified Person is a party unless such settlement
compromise or consent includes an unconditional release of such Indemnified
Person from
25
30
all liability arising or potentially arising from or by reason of such claim,
action or proceeding.
8.5 KEY MAN INSURANCE. Practice agrees, and shall cause its
Physician Shareholders and Practice Employees to agree, that Manager may obtain,
at its sole expense (and not as a Practice Expense) and for its sole benefit,
"key man" life insurance policies on any or all Physician Shareholders and
Practice Employees. Neither Practice nor any Physician Shareholder or Practice
Employee shall have any right, title or interest in or to the proceeds of any
such insurance policies. Practice shall cause its Physician Shareholders and
Practice Employees to cooperate with Manager, as reasonably requested by Manager
from time to time, in obtaining any such insurance policies, including, but not
limited to, causing such Physician Shareholders and Practice Employees to submit
to such physical examinations and providing such information relating to
insurability as Manager may reasonably request from time to time.
SECTION 9. ASSIGNMENT.
The parties hereby agree that this Agreement shall not be assigned by
either party without the prior written consent of the other; provided, however,
that this Agreement may be assigned, in whole or in part, by Manager, in its
sole discretion, without the consent of Practice, to any parent, subsidiary or
affiliate of Manager or to any person or entity that acquires all or a
substantially part of the assets of Manager or Parent. Notwithstanding the
foregoing, the Practice agrees and consents to the Manager granting to the
Credit Facility Lender a security interest in all of the Manager's right, title
and interest in and under this Agreement as security for the Manager's
obligations under a guaranty of all of the Parent's indebtedness and other
obligations owing to the Credit Facility Lender. Any such assignment shall not
affect the guaranty by Parent of the obligations of Manager hereunder.
SECTION 10. COMPLIANCE WITH REGULATIONS.
10.1 PRACTICE OF MEDICINE. The parties hereto acknowledge that
Manager is not authorized or qualified to engage in any activity which may be
construed or deemed to constitute the practice of medicine. Neither of the
Parties shall suggest or hold Manager out to the public as being engaged in the
practice of medicine. To the extent any act or service herein required of
Manager should be construed or deemed to constitute the practice of medicine,
the performance of said act or service by Manager shall be deemed waived and
forever unenforceable. Practice and its Physician Employees and Practice
Employees shall be unfettered in the exercise of their professional medical
judgment with respect to matters under consideration which require the exercise
of such judgment.
10.2 SUBCONTRACTS. Pursuant to Title 42 of the United States Code
and applicable rules and regulations thereunder, until the expiration of four
(4) years after termination of this Agreement, Manager shall make available,
upon appropriate written
26
31
request by the Secretary of the United States Department of Health and Human
Services or the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, a copy of this
Agreement and such books, documents and records as are necessary to certify the
nature and extent of the costs of the services provided by Manager under this
Agreement. Manager further agrees that if it carries out any of its duties under
this Agreement through a subcontract with a value or cost of Ten Thousand and
No/100 Dollars ($10,000.00) or more over a twelve (12) month period with a
related organization, such subcontract shall contain a clause to the effect that
until the expiration of four (4) years after the furnishing of such services
pursuant to such subcontract, the related organization shall make available,
upon appropriate written request by the Secretary of the United States
Department of Health and Human Services or the Comptroller General of the United
States General Accounting Office, or any of their duly authorized
representatives, a copy of such subcontract and such books, documents and
records of such organization as are necessary to verify the nature and extent of
such costs. Disclosure pursuant to this Section shall not be construed as a
waiver of any other legal right to which Manager may be entitled under law or
regulation.
SECTION 11. INDEPENDENT RELATIONSHIP.
11.1 INDEPENDENT CONTRACTOR STATUS.
(a) It is acknowledged and agreed that Practice and
Manager are at all times acting and performing hereunder as independent
contractors. Manager shall neither have nor exercise any control or direction
over the methods by which Practice, Physician Shareholders and Practice
Employees practice medicine. The sole function of Manager hereunder is to
provide all Management Services in a competent, efficient and satisfactory
manner. Manager shall not, by entering into and performing its obligations under
this Agreement, become liable for any of the existing obligations, liabilities
or debts of Practice. In its management role, Manager will have only an
obligation to exercise reasonable care in the performance of the Management
Services. Manager shall have no liability whatsoever for damages suffered on
account of the willful misconduct or negligence of any employee, agent or
independent contractor of Practice. Each party shall be solely responsible for
compliance with all state and federal laws pertaining to employment taxes,
income withholding, unemployment compensation contributions and other employment
related statutes regarding their respective employees, agents and servants.
(b) If any court or regulatory authority shall determine
that the independent contractor relationship established hereby violates any
statutes, rules or regulations (or in the event that Manager, in good faith,
determines that there is a material risk that such a determination would be made
by any court or regulatory authority), then the parties will negotiate in good
faith to enter into an employment arrangement between Manager and the
then-current Physician Shareholders and Practice Employees which substantially
preserves for the parties the relative economic benefits of this Agreement. If
the parties cannot reach agreement on such an employment arrangement, Manager
may
27
32
terminate this Agreement upon ninety (90) days prior written notice to Practice.
11.2 REFERRAL ARRANGEMENTS. The parties hereby acknowledge and
agree that no benefits to Practice hereunder require or are in any way
contingent upon the admission, recommendation, referral or any other arrangement
for the provision of any item or service offered by Manager or any of its
affiliates, to any patients of Practice, Practice's employees or agents.
SECTION 12. GUARANTEES.
Irrevocable Guaranty by Parent. To induce Practice to execute
and deliver this Agreement, Parent hereby unconditionally and irrevocably
guarantees to Practice the full, prompt and faithful performance by Manager of
all covenants and obligations to be performed by Manager under this Agreement.
This guaranty shall be a guaranty of payment and performance, not merely
collection, and shall be unaffected by any subsequent modification or amendment
of this Agreement whether or not Parent has knowledge of or consented to such
modification or amendment. In the event of bankruptcy, termination, liquidation
or dissolution of Manager, this unconditional guaranty shall continue in full
force and effect. In the event of any extension of time for payment or
performance or other modification of any guaranteed obligation or covenant, or
any waiver thereof or other compromise or indulgence with respect thereto or any
release or impairment of any security for any such obligation or covenant, or
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor, no notice to, or consent of, Parent shall be
required.
Irrevocable Guaranty by ▇▇. ▇▇▇▇▇▇. To induce Manager and
Parent to execute and deliver this Agreement, ▇▇. ▇▇▇▇▇▇ hereby unconditionally
and irrevocably guarantees to Manager and Parent the full, prompt and faithful
performance by Practice of all covenants and obligations to be performed by
Practice under Sections 3.6, 4.2, 4.4, 4.5, 4.7, 5.4, 6.4, 7.1, 8.1, 8.3, 12(b),
14.6, 14.11, and 14.12 of this Agreement during the term of ▇▇. ▇▇▇▇▇▇'▇
employment with Practice and, unless such employment is renewed and continues on
a full-time basis in accordance with ▇▇. ▇▇▇▇▇▇'▇ Physician Employment Agreement
for at least nine (9) consecutive years from the date of this Agreement, for a
period of eighteen (18) months after termination of employment.. This guaranty
shall be a guaranty of payment and performance, not merely collection, and shall
be unaffected by any subsequent modification or amendment of this Agreement
whether or not such guarantor has knowledge of or consented to such modification
or amendment. In the event of bankruptcy, termination, liquidation or
dissolution of Practice, this unconditional guaranty shall continue in full
force and effect. In the event of any extension of time for payment or
performance or other modification of any guaranteed obligation or covenant, or
any waiver thereof or other compromise or indulgence with respect thereto or any
release or impairment of any security for any such obligation or covenant, or
any other circumstance which might otherwise constitute a legal or equitable
discharge of a surety or guarantor, no notice to, or consent of, ▇▇. ▇▇▇▇▇▇
shall be required.
28
33
SECTION 13. NAME; LICENSE. Practice agrees that it shall conduct its
medical practice under the name of, and only under the name of "New Allatoona
E.N.T., & Facial Plastic Surgery, P.C." or "Allatoona E.N.T. & Facial Plastic
Surgery," subject to the terms of the Trademark License between the parties of
even date herewith. In the event of any termination of the Trademark License,
Practice agrees to change the name under which it conducts its medical practice
to a distinctly different name.
SECTION 14. MISCELLANEOUS.
14.1 NOTICES. Any notice required or permitted by this Agreement or
any agreement or document executed and delivered in connection with this
Agreement shall be deemed to have been served properly if hand delivered or sent
by overnight express, charges prepaid and properly addressed, or by facsimile,
to the respective party to whom such notice relates at the following addresses:
If to Practice or ▇▇. ▇▇▇▇▇▇:
New Allatoona E.N.T. & Facial Plastic Surgery, P.C.
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
Facsimile:
If to Manager or Parent:
PSC MANAGEMENT CORP.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address as shall be furnished in writing by any party to the other
party. All such notices shall be considered received when hand delivered or one
business day after delivery to the overnight courier.
14.2 ADDITIONAL ACTS. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
14.3 GOVERNING LAW. This Agreement shall be interpreted, construed
and enforced in accordance with the laws of the State applied without giving
effect to any conflicts-of-law principles.
29
34
14.4 CAPTIONS, ETC. The captions or headings in this Agreement are
made for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement. Whenever the context so requires, the singular number includes the
plural and the plural includes the singular, and the gender of any pronoun
includes the other gender. All Addenda and Exhibits to this Agreement are hereby
incorporated into this Agreement by this reference.
14.5 SEVERABILITY. In the event any term, covenant, condition,
agreement, section or provision hereof shall be deemed invalid or unenforceable
by a court of competent and final jurisdiction in the premises, the same shall
be severable and this Agreement shall not terminate or be deemed void or
voidable, but shall continue in full force and effect without such stricken
provision.
14.6 CHANGES IN REIMBURSEMENT. If Medicare, Medicaid, Blue Shield
or any other third party payor, or any other Federal, state or local laws,
rules, regulations or interpretations, at any time during the term of this
Agreement, prohibit, restrict or in any way materially and adversely change the
method or amount of reimbursement or payment for services rendered by Practice
pursuant to this Agreement or of the method of compensation for either party
provided for in this Agreement, then the parties shall use commercially
reasonable efforts to amend this Agreement to provide for payment of
compensation in a manner consistent with any such prohibition, restriction or
limitation and which takes into account any materially adverse change in
reimbursement or payment from such third party payors for such physician
services, provided such amendments are consistent with the overall economic and
other objectives of the parties set forth in this Agreement.
14.7 MODIFICATIONS. This instrument contains the entire agreement
of the parties and supersedes any and all prior or contemporaneous negotiations,
understandings or agreements between the parties, written or oral, with respect
to the transactions contemplated hereby. This Agreement may not be changed or
terminated orally, but may only be changed by an agreement in writing signed by
a duly authorized officer of Manager if Manager is the party against whom
enforcement of any such waiver, change, modification, extension, discharge or
termination is sought, or by Practice if Practice is the party against whom
enforcement of any such waiver, change, modification, extension, discharge or
termination is sought.
14.8 NO RULE OF CONSTRUCTION. The parties acknowledge that this
Agreement was initially prepared by Manager solely as a convenience and that all
parties and their counsel have read and fully negotiated all the language used
in this Agreement. The parties acknowledge and agree that because all parties
and their counsel participated in negotiating and drafting this Agreement, no
rule of construction shall apply to this Agreement which construes any language,
whether ambiguous, unclear or otherwise, in favor of, or against any party by
reason of that party's role in drafting this Agreement.
14.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts
30
35
shall, together, constitute and be one and the same instrument.
14.10 BINDING EFFECT. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto, and their successors and permitted
assigns. Subject to the foregoing sentence, no person not a party hereto shall
have any right under or by virtue of this Agreement.
14.11 ENFORCEMENT RIGHTS. Practice acknowledges that both Practice
and Manager will be directly or indirectly affected by the enforcement of
Practice's rights against third parties and by Practice's enforcement of the
rights of third parties the enforcement rights of which were delegated to
Practice by such third parties, and that Manager may need from time to time to
take legal action against third parties to enforce such rights. Therefore,
Practice hereby appoints Manager its nonexclusive true and lawful
attorney-in-fact to enforce any and all rights of Practice, other than any
rights Practice may have against Manager, and to enforce the rights of third
parties the enforcement rights of which were delegated to Practice by such third
parties, to the extent not contrary to applicable law. Practice agrees to
execute any instrument reasonably requested by Manager to evidence such
appointment or to reappoint Manager as such attorney-in-fact upon any
termination of the appointment made hereby. Such appointment is coupled with an
interest and irrevocable.
14.12 COSTS OF ENFORCEMENT. If either party files suit in any court
against the other party to enforce the terms of this Agreement against the other
party or to obtain performance by it hereunder, the prevailing party will be
entitled to recover all reasonable costs, including reasonable attorneys' fees,
from the other party as part of any judgment in such suit. The term "prevailing
party" shall mean the party in whose favor final judgment after appeal (if any)
is rendered with respect to the claims asserted in the Complaint.
14.13 ARBITRATION OF CERTAIN DISPUTES. Any dispute, controversy or
claim (including without limitation tort claims, requests for provisional
remedies or other interim relief, and issues as to arbitrability of any matter)
arising out of (1) Sections 2.2(k), 3.3(b), 3.18, 3.19, 5.1, 5.2 or 5.3 of this
Agreement, or (2) the adoption of, or any modifications or amendments to, the
then current capital and operating budgets for the medical practice of Practice,
that cannot be settled through agreement or negotiation shall be settled (a)
first, by the parties trying in good faith to settle the dispute by mediation
under the Commercial Mediation Rules of the American Arbitration Association
("AAA") (such mediation session to be held in Atlanta, Georgia, and to commence
within fifteen (15) days of the appointment of the mediator by the AAA), and (b)
if the controversy, claim or dispute cannot be settled by mediation, then by
arbitration administered by the AAA under its Commercial Arbitration Rules (such
arbitration to be held in (15) days of the appointment of the arbitrator by the
AAA), and judgment on the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.
IN WITNESS WHEREOF, Practice, Manager and Parent have duly executed
this Agreement on the day and year first above written.
31
36
NEW ALLATOONA E.N.T. &
PSC MANAGEMENT CORP. FACIAL PLASTIC SURGERY, P.C.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------- --------------------------
Title: Vice President Title: President
----------------------- ------------------------
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
PHYSICIANS' SPECIALTY CORP. ------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, M.D.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------
Title: Vice Chairman
----------------------
32
37
EXHIBIT A
FORM OF PHYSICIAN EMPLOYMENT AGREEMENT
33
38
EXHIBIT 3.1
OFFICE LOCATION
▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
34
39
EXHIBIT B
INCENTIVE COMPENSATION TO MANAGER
On an annual basis, after Manager has received the annual retained amount of
$405,000 (or such increased amount as provided in Section 3.18) pursuant to
Section 1.6(g) (the "Retained Amount"), Manager shall receive as incentive
compensation an amount equal to the product of (A) the excess of Net Practice
Revenues over Practice Expenses with respect to the period after the Retained
Amount was reached in such year, determined in accordance with generally
accepted accounting principles, multiplied by (B) 80%, multiplied by (C) a
fraction, the numerator of which is the Retained Amount and the denominator of
which is the excess of Net Practice Revenues over Practice Expenses (without
regard to the Retained Amount) with respect to the period ending when the
Retained Amount was reached, determined in accordance with generally accepted
accounting principles. An example of the calculation of incentive compensation
follows:
(000's) 11 Months 1 Month Total Year
----------------- ---------------- ------------------
$ % $ % $ %
Net Practice Revenues 2,700,000 100.0% 300,000 100.0% 3,000,000 100.0%
Practice Expenses 1,080,000 40.0% 120,000 40.0% 1,200,000 40.0%
1,620,000 60.0% 180,000 60.0% 1,800,000 60.0%
Base Fee 405,000 15% N/A --- 405,000 13.5%
Incentive Fee 36,000 12.0%(B) 36,000 1.2%
Available for M.D.
Compensation & Benefits $1,215,000 45% $144,000 48% $1,359,000 45.3%
========== ===== ======== ===== ========== =====
Base Fee as % of Excess 25%(A)
(A) 15% divided by 60% = 25%
(B) 25% (per above) x 80% = 20% of Available Amounts
In applying the formula stated above, Manager will fairly allocate
expenses in accordance with generally accepted accounting principles to the
periods before and after the Retained Amount is achieved and account on a proper
basis for partial months. In the event of a dispute over such calculations, the
parties agree to refer the matter to an independent public accountant at a
nationally recognized accounting firm with an office in Atlanta, Georgia for an
independent determination of the calculation, which determination shall be final
and binding on all parties. In the event the parties are unable to agree upon
the selection of the independent accountant within a period of 30 days after
notice of dispute is given by Practice, such accountant shall be selected, and
the determination made, pursuant to the rules applicable to arbitration between
the parties under Section 14.13.
40
APPENDIX A
DEFINITIONS
Defined Term Section
Asset Acquisition Agreement Background
Confidential Information 4.5(e)
Credit Facility Lender 5.4(b)
Effective Date Preamble
Estimated Collection Percentage 5.1
extended term 6.1
FFE 3.3
GAAP 1.2
Incentive Compensation 5.1
Indemnified Person 8.4
key man 8.5
Laws 3.12
Management Services 3.1
Manager Preamble
Medical Offices 3.1
Net Practice Revenues 1.2
Parent Preamble
Physician Employment Agreements 3.14
Physician Expenses 4.1
Physician Shareholders 1.4
Practice Preamble
Practice IP 4.5(d)
Practice Employees 1.5
Practice Expenses 1.6