HEART CLINIC, P.A.
SERVICE AGREEMENT
BETWEEN
PHYSICIAN MANAGEMENT OF MCALLEN, INC.
AND
HEART CLINIC, P.A.
JULY 31, 1996
TABLE OF CONTENTS
Page
ARTICLE I-RELATIONSHIP OF THE PARTIES.........................................................................- 1 -
SECTION 1.1 Independent Relationship..................................................- 1 -
SECTION 1.2 Responsibilities of the Parties...........................................- 1 -
SECTION 1.3 Practice's Matters........................................................- 2 -
SECTION 1.4 Patient Referrals.........................................................- 2 -
SECTION 1.5 Use of Associated PAs.....................................................- 2 -
ARTICLE II-DEFINITIONS........................................................................................- 2 -
ARTICLE III-FACILITIES TO BE PROVIDED BY PRACTICE.............................................................- 6 -
SECTION 3.1 Facilities................................................................- 6 -
SECTION 3.2 Independence of Practice..................................................- 7 -
ARTICLE IV-DUTIES OF THE EXECUTIVE COMMITTEE..................................................................- 7 -
SECTION 4.1 Composition and Operation of the Executive Committee......................- 7 -
SECTION 4.2 Duties and Responsibilities of the Executive Committee....................- 7 -
SECTION 4.3 Additional Material Decisions.............................................- 9 -
ARTICLE V-ADMINISTRATIVE SERVICES TO BE PROVIDED BY MANAGER...................................................- 9 -
SECTION 5.1 Performance of Management Functions.......................................- 9 -
SECTION 5.2 Financial Planning Goals.................................................- 10 -
SECTION 5.3 Financial Statements.....................................................- 11 -
SECTION 5.4 Inventory and Supplies...................................................- 11 -
SECTION 5.5 Management Services and Administration...................................- 11 -
SECTION 5.6 Executive Director.......................................................- 14 -
SECTION 5.7 Personnel................................................................- 14 -
SECTION 5.8 Events Excusing Performance..............................................- 15 -
SECTION 5.9 Compliance with Applicable Laws..........................................- 15 -
SECTION 5.10 Quality Assurance........................................................- 15 -
SECTION 5.11 Ancillary Services.......................................................- 15 -
ARTICLE VI-OBLIGATIONS OF PRACTICE...........................................................................- 16 -
SECTION 6.1 Professional Services....................................................- 16 -
SECTION 6.2 Medical Practice.........................................................- 16 -
SECTION 6.3 Employees of Practice....................................................- 16 -
SECTION 6.4 Professional Insurance Eligibility.......................................- 17 -
SECTION 6.5 Events Excusing Performance..............................................- 17 -
SECTION 6.6 Fees for Professional Services...........................................- 17 -
SECTION 6.7 Name.....................................................................- 17 -
SECTION 6.8 Services of Physician Shareholders.......................................- 17 -
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SECTION 6.9 Life Insurance...........................................................- 18 -
ARTICLE VII-RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES.....................................................- 18 -
SECTION 7.1 Restrictions on Practice.................................................- 18 -
SECTION 7.2 Restrictive Covenants By Current Physician Shareholders
and Physician Employees..................................................- 18 -
SECTION 7.3 Restrictive Covenants By Future Physician Employees......................- 19 -
SECTION 7.4 Liquidated Damages.......................................................- 20 -
SECTION 7.5 Development of Exclusive Ventures........................................- 21 -
SECTION 7.6 Enforcement..............................................................- 22 -
ARTICLE VIII-FINANCIAL ARRANGEMENTS..........................................................................- 22 -
SECTION 8.1 Management Fees..........................................................- 22 -
SECTION 8.2 Collection of Management Fee.............................................- 24 -
SECTION 8.3 Reduction of Management Fee..............................................- 24 -
SECTION 8.4 Resignation of Physician Shareholder.....................................- 24 -
ARTICLE IX-RECORDS...........................................................................................- 25 -
SECTION 9.1 Patient Records..........................................................- 25 -
SECTION 9.2 Records Owned by Manager.................................................- 25 -
SECTION 9.3 Access to Records........................................................- 25 -
ARTICLE X-INSURANCE AND INDEMNITY............................................................................- 25 -
SECTION 10.1 Insurance to be Maintained by Practice...................................- 25 -
SECTION 10.2 Insurance to be Maintained by Manager....................................- 26 -
SECTION 10.3 Tail Insurance Coverage..................................................- 26 -
SECTION 10.4 Additional Insureds......................................................- 26 -
SECTION 10.5 Indemnification..........................................................- 26 -
SECTION 10.6 Rules Regarding Indemnification..........................................- 27 -
SECTION 10.7 Offset...................................................................- 27 -
ARTICLE XI-TERM AND TERMINATION..............................................................................- 28 -
SECTION 11.1 Term of Agreement........................................................- 28 -
SECTION 11.2 Termination by Practice..................................................- 28 -
SECTION 11.3 Termination by Manager...................................................- 28 -
SECTION 11.4 Actions after Termination................................................- 29 -
SECTION 11.5 Closing of Repurchase by Practice and Effective Date of
Termination..............................................................- 29 -
ARTICLE XII-GENERAL PROVISIONS...............................................................................- 30 -
SECTION 12.1 Assignment...............................................................- 30 -
SECTION 12.2 Whole Agreement, Modification............................................- 30 -
SECTION 12.3 Notices..................................................................- 30 -
SECTION 12.4 Binding on Successors....................................................- 30 -
SECTION 12.5 Waiver of Provisions. ...................................................- 30 -
SECTION 12.6 Governing Law............................................................- 31 -
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SECTION 12.7 Severability.............................................................- 31 -
SECTION 12.8 Additional Documents.....................................................- 31 -
SECTION 12.9 Attorneys' Fees..........................................................- 31 -
SECTION 12.10 Time is of the Essence...................................................- 31 -
SECTION 12.11 Confidentiality..........................................................- 31 -
SECTION 12.12 Contract Modifications for Prospective Legal Events......................- 31 -
SECTION 12.13 Remedies Cumulative......................................................- 32 -
SECTION 12.14 Language Construction....................................................- 32 -
SECTION 12.15 No Obligation to Third Parties...........................................- 32 -
SECTION 12.16 Communications...........................................................- 32 -
SECTION 12.17 Counterpart Executions; Facsimiles.......................................- 32 -
SECTION 12.18 Arbitration..............................................................- 33 -
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SERVICE AGREEMENT
THIS SERVICE AGREEMENT is made and entered into this 31st day of July,
1996 by and between PHYSICIAN MANAGEMENT OF McALLEN, INC., a North Carolina
corporation ("Manager") and HEART CLINIC, P.A., a Texas professional association
("Practice") and is effective as of the 1st day of October, 1996 which shall be
the date of this Agreement. While this Agreement shall be binding on the parties
upon execution, it shall not commence until October 1, 1996.
RECITALS:
WHEREAS, Practice is a group medical practice with offices in the Texas
cities of McAllen, Harlingen, Weslaco and Brownsville, which provides medical
care to the general public;
WHEREAS, Manager is in the business of managing and administering
medical clinics, and providing support services to and furnishing medical
practices with the necessary support staff while recognizing that Practice,
through its physicians, shall retain sole responsibility for the medical care of
its patients and thereby respecting the physician-patient relationship which
shall be maintained strictly between the physicians of Practice and their
patients;
WHEREAS, Practice desires to obtain the services of Manager in
performing such management functions so as to permit Practice to devote its
efforts on a concentrated and continuous basis to the rendering of medical
services to its patients;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Practice hereby agrees to purchase the management and support
services herein described and Manager agrees to provide such services on the
terms and conditions provided in this Agreement commencing on October 1, 1996.
ARTICLE I
RELATIONSHIP OF THE PARTIES
SECTION 1.1 Independent Relationship. Practice and Manager
intend to act and perform as independent contractors, and the provisions hereof
are not intended to create any partnership, joint venture, agency or employment
relationship between the parties. Notwithstanding the authority granted to
Manager herein, Manager and Practice agree that Practice shall retain the
authority to direct the medical, professional, and ethical aspects of its
medical practice. Each party shall be solely responsible for and shall comply
with all state and federal laws pertaining to employment taxes, income
withholding, unemployment compensation contributions and other employment
related statutes applicable to that party.
SECTION 1.2 Responsibilities of the Parties. As more specifically set forth
herein, Manager, through the Executive Director, shall provide Practice with
professional management services and expertise, access to funds and financing
for capital needs, and day-to-day
implementation of the directives of the Executive Committee. As more
specifically set forth herein, Practice shall provide all offices and
facilities, equipment, supplies, professionals, support personnel, and working
capital necessary for operation of the Clinic and shall be responsible for the
recruitment and hiring of physicians. Manager shall neither exercise control
over nor interfere with the physician-patient relationship, which shall be
maintained strictly between the physicians of Practice and their patients.
SECTION 1.3 Practice's Matters. Tax preparation, tax planning, and pension
and investment planning (and expenses relating solely to these internal business
matters) shall remain the sole responsibility of Practice and the individual
Physician Shareholders.
SECTION 1.4 Patient Referrals. The parties agree that the benefits to
Practice hereunder do not require, are not payment for, and are not in any way
contingent upon the admission, referral or any other arrangement for the
provision of any item or service offered by Manager to any of Practice's
patients in any facility or laboratory controlled, managed or operated by
Manager.
SECTION 1.5 Use of Associated PAs. Subject to the requirements and
limitations below, Practice may fulfill its obligations hereunder to provide the
services of the Physician Shareholders for the operation of the Clinic by
entering into Independent Contractor Agreements with Associated PAs provided
that all health care related revenues (and the rights to such revenues)
generated by the Associated PA or its employees are the property of Practice and
that the Associated PA will take all actions necessary to cause such revenues to
be paid to Practice. All such Independent Contractor Agreements and the written
employment agreements that the Associated PA has with the Physician Shareholder
employed by it, including but not limited to those being executed as a condition
to the Master Transaction Agreement, must be approved by Manager (and may not be
terminated or modified without the approval of Manager) to ensure that the
restrictions and obligations on the Physician Shareholders providing the
services are sufficient to preserve the benefits that Manager and Practice would
have if such individuals were direct employees of Practice pursuant to
employment agreements containing the restrictions and obligations set forth in
Article VII hereof. Practice shall not be permitted to utilize such Independent
Contractor Agreements if such relationships would cause Practice to be in
violation of any statutes, rules or regulations or if Practice would be required
to forego or relinquish any of its economic rights or benefits to avoid such a
violation. In such an instance, Practice shall secure the provision of the
services of the Physician Shareholders for the operation of the Clinic by
employing the Physician Shareholders directly.
ARTICLE II
DEFINITIONS
For the purposes of this Agreement, the following definitions
shall apply:
"Adjustments" shall mean any adjustments for uncollectible
accounts, discounts, Medicare and Medicaid disallowances, worker's
compensation, employee/dependent
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health care benefit programs, professional courtesies according to
historical practice of Practice and other activities that do not generate
a collectible fee.
"Affiliate" of a corporation means (i) any person or entity
directly or indirectly controlled by such corporation, (ii) any person
or entity directly or indirectly controlling such corporation, (iii)
any subsidiary of such corporation if the corporation has a fifty
percent (50%) or greater ownership interest in the subsidiary, or (iv)
such corporation's parent corporation if the parent has a fifty percent
(50%) or greater ownership interest in the corporation. Practice is not
an affiliate of Manager.
"Agreement" shall mean this Service Agreement between Practice
and Manager.
"Associated PA" shall mean a Texas professional association
which is (i) permitted by law to employ licensed physicians for the
provision of medical services to patients, (ii) owned entirely by an
individual who is also a Physician Shareholder, (iii) employs its sole
shareholder pursuant to an arrangement through which such individual
works full time for such professional association and provides all of
his professional medical services to Practice through such professional
association, and (iv) has a written employment agreement in place with
any physician it employs in a form satisfactory to Manager that
requires such physicians to provide medical services through the
professional association to Practice and which has a duration and
noncompete tail period and the other obligations that Practice would be
required to impose on them pursuant to Article VII hereof if they were
direct employees of Practice and which employment agreements make
Practice, Manager and Parent third party beneficiaries thereof with the
ability to enforce the rights of the Associated PA thereunder in the
event the Associated PA does not enforce those rights.
"Executive Committee" shall mean the board established
pursuant to Section 4.1.
"Executive Director" shall mean the individual hired by
Manager pursuant to Section 5.6 hereof to manage and administer all of
the day-to-day business functions of Practice.
"Independent Contractor Agreement" shall mean an agreement
entered into by Practice and an Associated PA that (i) obligates the
Associated PA to provide the exclusive, full time professional medical
services of its employees, including its sole shareholder, to Practice
such that Practice can fulfill its obligations under this Agreement,
(ii) contains provisions acceptable to Manager that require the
Associated PA to ensure that through written employment agreements the
physicians it employs are subject to an employment duration and
noncompete tail period and other obligations that Practice would be
required to impose on them pursuant to Article VII hereof if they were
employees of Practice, (iii) is in compliance with all statutes, rules
and regulations and which in performance does not cause Practice to be
in violation of any statutes, rules or regulations in its operation of
the Clinic (or cause Practice to forego or relinquish any economic
rights or advantages in order to avoid committing any such violation),
and (iv) makes Manager and Parent third party beneficiaries of such
agreement with the ability to
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enforce the rights of Practice thereunder in the event Practice does
not enforce those rights.
"Manager Expenses" shall mean, in addition to those expenses
identified elsewhere herein, all operating and non-operating expenses
of Manager incurred in the operation of Practice, including, without
limitation:
(i) Salaries, benefits and other direct
costs of all employees of Manager at
Practice, including the Executive Director;
(ii) Direct costs of all employees or
consultants of Manager (including Affiliates of Manager) or
Practice engaged by the Executive Director pursuant to the
Annual Budget or with Executive Committee approval to provide
services at or in connection with Practice or who actually
provide services at or in connection with Practice required
for improved clinic performance; provided, however, only that
portion of such employee's or consultant's costs without
xxxx-up by Manager that is allocable to work performed at or
for the benefit of Practice will be a Manager Expense;
(iii) Obligations of Manager, if any, under
leases or subleases relating to the operations of Practice;
(iv) Personal property and intangible taxes
assessed against Manager's assets, if any, related to and used
in substantial connection with Practice, commencing on the
date of the Service Agreement;
(v) The amount of interest on all advances
made by Manager to Practice upon their written agreement with
respect thereto at any time to provide financing or working
capital to cover Manager Expenses, Physician Expenses, capital
additions and expenditures, and the Management Fee (interest
expense will be charged for funds borrowed from outside
sources as well as from Manager; in the latter case, charges
will be computed at a floating rate that is equal to the prime
rate of interest charged by First Union National Bank plus one
percent);
(vi) Malpractice insurance expenses to the
extent provided in Article X hereof;
(vii) Other expenses incurred by Manager in
carrying out its obligations under the Service Agreement in
accordance with the budget adopted by the Executive Committee
or otherwise approved by the Executive Committee;
(viii) Payment of interest on indebtedness
incurred by Manager with Practice's consent for the use or
benefit of Practice;
(ix) Amortization or depreciation or
write-off of assets acquired by Manager for the use or benefit
of Practice;
4
(x) Compensation to which Manager is
entitled pursuant to Section 4.2(i) hereof for any day or
partial day during which there is no Executive Director
(either because the initial Executive Director has not
commenced work or a replacement Executive Director has not
commenced work following the resignation or removal of an
Executive Director); and
(xi) Expenses incurred by affiliates of
Manager to the extent allocable to the operation of the
Clinic, including expenses in connection with travel, meals
and lodging of employees of such affiliates relating thereto,
Practice specifically acknowledging the benefits it will
receive from the involvement of such affiliates and their
employees (such as the President of Parent's Practice
Management Division) in the management of the Clinic;
provided, expenses for travel, meals and lodging shall only be
reimbursed to the extent they are reasonable and approved by
the Executive Committee.
Manager Expenses shall not include (A) any corporate overhead charges,
other than the kind of items listed above, from the Parent; (B) any
federal or state income taxes of Manager; (C) any expenses which are
expressly designated herein as Physician Expenses which are expenses or
responsibilities directly of Practice or (D) any costs for life
insurance Manager chooses to obtain on the life of a physician in
accordance with Section 6.9 hereof.
"Master Transaction Agreement" shall mean that certain
agreement between Parent, Practice and the physician employees of
Practice of even date herewith to which this Service Agreement is an
exhibit.
"Net Practice Revenues" shall mean all fees recorded (or
recordable) each month (net of Adjustments) after September, 1996, by
or on behalf of Practice as a result of professional medical services
personally furnished to patients by employees of Practice or of any
Associated PA and other fees or income generated by employees of
Practice or of any Associated PA in their capacity as professionals,
whether rendered in an inpatient or outpatient setting plus any other
amounts received by Practice for medical matters, including revenues
from ancillary services, medical director fees, capitation agreements
and health care related investments. Net Practice Revenues shall not
include any fees received for services performed prior to the date
Manager begins providing services to Practice hereunder.
"Parent" shall mean MedCath Incorporated, the sole shareholder
of Manager.
"Physician Expenses" shall mean all of the costs to operate
the Clinic in accordance with the Annual Budget or as otherwise
approved pursuant to the terms hereof other than Manager Expenses,
including but not limited to those expenses to be paid by Practice as
set forth in Section 3.1, Section 5.4, Section 6.3, exclusive in all
events, however, of all direct and indirect compensation, benefits and
bonuses paid by Practice on account of or to any Physician Shareholder
or any amounts paid by Practice pursuant
5
to an Independent Contractor Agreement, any income taxes, and interest
payments on any loans made to Practice pursuant to Section 5.8 of the
Master Transaction Agreement. In addition, Physician Expenses also
shall not include (i) any costs incurred by Practice in connection with
the collection of fees that are not included in Net Practice Revenues,
(ii) any costs or expenses relating to periods ending prior to October
1, 1996, (iii) any costs or expenses relating to negotiating or
entering into this Agreement, the Master Transaction Agreement, or any
other agreement under the Master Transaction Agreement, including any
legal or accounting fees associated therewith, (iv) any costs or
expenses connected with the preparation, maintenance or operation of
any Independent Contractor Agreement or connected with any Associated
PA, (v) any costs or expenses relating to the merger or reorganization
of Heart Clinic, Inc. and Heart Clinic, P.A., (vi) any costs or
expenses, including rental payments, made to any Physician Shareholder
or relative of any Physician Shareholder, or any entity in which a
Physician Shareholder or his relative owns any type of interest to the
extent such costs or expenses are in excess of the reasonable fair
market value of what Practice is receiving in the transaction being
reviewed, (vii) any expenses of Practice or any other entity or person
for or relating to qualified or nonqualified retirement plans, or
(viii) any expenses, costs, interest, penalties or liabilities relating
to or associated with payroll taxes or withholdings involving Physician
Shareholders.
"Physician Shareholders" shall mean those physicians who are
shareholders of Practice at the time this Agreement is executed or at
any time thereafter.
"Practice Account" shall mean the bank account of Practice
established as described in Section 5.5(b)(ii).
"Territory" shall mean the Texas counties of Starr, Hidalgo,
Cameron and Willacy.
ARTICLE III
FACILITIES TO BE PROVIDED BY PRACTICE
SECTION 3.1 Facilities. Practice hereby agrees to provide to Manager,
at Practice's expense, the use of its offices and facilities, including
without limitation all of its furnishings, equipment, computers,
information systems, data and records, in order to enable Manager to
fulfill its obligations to Practice hereunder. Manager shall consult with
Practice regarding the condition, use and needs for the offices, facilities
and improvements thereto. Practice hereby covenants that Manager will have
the quiet enjoyment of Practice's offices and facilities during the term of
this Agreement and that Practice will not sell or convey any such offices
or facilities other than in the ordinary course of business in which event
reasonable replacements therefore first shall be obtained or leased by
Practice and made available to Manager hereunder. If Manager utilizes its
own (or any of its Affiliates') assets in this regard because Practice
lacks the necessary assets to allow Manager to fulfill its obligations
hereunder, Manager shall be reimbursed for such usage. The cost of these
facilities shall be Physician Expenses.
6
SECTION 3.2 Independence of Practice. Manager and Practice agree that
Practice, as an independent contractor, is a separate organization that
retains the authority to direct the medical, professional, and ethical
aspects of its medical practice.
ARTICLE IV
DUTIES OF THE EXECUTIVE COMMITTEE
SECTION 4.1 Composition and Operation of the Executive Committee. The
Executive Committee of Heart Clinic, P.A. shall be responsible for
developing management and administrative policies for the overall operation
of Practice. The Executive Committee shall consist of the shareholders of
Heart Clinic, P.A. and two members designated by Manager from time to time.
Except as may otherwise be provided, the act of a majority of the members
of the Executive Committee shall be the act of the Executive Committee.
SECTION 4.2 Duties and Responsibilities of the Executive Committee.
The Executive Committee shall have the following duties and obligations:
(a) Capital Improvements and Expansion. Any renovation and
expansion plans and capital equipment expenditures with respect to
Practice first shall be reviewed and approved by the Executive
Committee, which for purposes of this subsection must include the
approval of at least one Executive Committee member designated by
Manager, and shall be based upon economic feasibility, physician
support, productivity and then current market conditions, provided
however, if so approved by the Executive Committee, any such plans and
expenditures shall in all events be subject to the final approval of
Practice.
(b) Annual Budgets. All annual capital and operating budgets
shall be prepared by Manager, as set forth in Section 5.2, and shall be
subject to the review and approval of the Executive Committee, provided
however, if so approved by the Executive Committee, all such budgets
shall be further subject to the final approval of Practice.
(c) Advertising. All advertising and other marketing of the
services performed at Practice, other than advertising or marketing
programs historically implemented by Practice within the budget
approved by the Executive Committee and Practice, shall be subject to
the prior review and approval of the Executive Committee, provided
however, that all advertising or marketing programs shall be further
subject to the final approval of Practice.
(d) Patient Fees. As a part of the annual operating budget, in
consultation with Practice and Manager, the Executive Committee shall
review and adopt the fee schedule for all physician and ancillary
services rendered by Practice subject to final approval of Practice.
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(e) Provider and Payor Relationships. Decisions regarding the
establishment or maintenance of relationships with institutional health
care providers and payors and approval of managed care contracts shall
be made by the Executive Committee in consultation with Practice.
(f) Strategic Planning. Manager shall develop and submit to
the Executive Committee for approval long-term strategic planning
objectives.
(g) Financing. All loans, leases and other financing obtained
or proposed to be obtained for the benefit of Practice for any reason
shall be subject to the review and approval of the Executive Committee.
(h) Physician Hiring. The Executive Committee shall determine
the number and type of physicians required for the efficient operation
of Practice; provided that Practice shall have final authority over
physician hiring and termination decisions. The approval of the
Executive Committee, which for the purposes of this subsection must
include the approval of at least one Executive Committee Member
designated by Manager, shall be required for any variations to, or any
exceptions from, the restrictive covenants in any physician employment
contract. Notwithstanding anything herein to the contrary, all
decisions with respect to hiring and terminating the employment of
physicians shall be subject to the final approval of Practice.
(i) Executive Director. The selection and retention of the
Executive Director pursuant to Section 5.6 by Manager shall be subject
to the reasonable approval of the Executive Committee, which for
purposes of this subsection must include the approval of at least one
Executive Committee member designated by Manager. If Practice is
dissatisfied with the services provided by the Executive Director,
Practice shall refer the matter to the Executive Committee. Manager and
the Executive Committee shall each in good faith determine whether the
performance of the Executive Director could be brought to acceptable
levels through counsel and assistance, or whether the Executive
Director should be terminated. Manager shall have the ultimate
authority to terminate the Executive Director. Prior to the time the
initial Executive Director commences work in connection with the Clinic
or during any time period for which there is no Executive Director,
Manager shall use its other personnel (or personnel of its affiliates)
to perform the function of the Executive Director and shall be
compensated at the rate of two hundred dollars ($200) for each eight
(8) hour day for doing so and such compensation shall be a Manager
Expense.
(j) Grievance Referrals. The Executive Committee shall
consider and make final decisions regarding grievances pertaining to
matters not specifically addressed in this Agreement as referred to it
by Practice's Board of Directors.
SECTION 4.3 Additional Material Decisions. In addition to any other
rights of Manager set forth in this Agreement, the following actions or
decisions shall be made or taken, directly or indirectly, by Practice and/or
the Physician Shareholders only with consent of at least one (1) member of the
Executive Committee designated by Manager:
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(a) Entering into any transaction pursuant to which a
material portion of the assets of Practice are sold, assigned,
encumbered, leased or conveyed;
(b) Entering into any merger or similar transaction unless
Practice is the surviving entity and after which the Physician
Shareholders as of the date of the closing of such merger own at least
fifty-one percent (51%) of the capital stock of the surviving entity or
entering into any sale or series of related sales by Practice or the
Physician Shareholders of capital stock of Practice to any party who is
not a Physician Shareholder as of the date hereof except to individual
physicians who become shareholders of Practice in the ordinary course
of Practice's operations and business;
(c) The payment of money or other property by Practice or the
Physician Shareholders for the majority of the capital stock or all or
substantially all the assets constituting a business of any person or
entity;
(d) The entering into or modification of an Independent
Contractor Agreement or of an employment agreement between a Physician
Shareholder and his Associated PA;
(e) Releasing or consenting to the release of any restrictive
covenant rights it may have with respect to any physician, whether such
physician is employed by Practice or provided to Practice pursuant to
an Independent Contractor Agreement; and
(f) The entering into or modification of any lease or other
type of agreement by Practice with a Physician Shareholder or a
relative of a Physician Shareholder, or an entity in which a Physician
Shareholder or his relative owns any kind of interest; provided, the
consent of the Executive Committee members designated by Manager shall
not be unreasonably withheld.
ARTICLE V
ADMINISTRATIVE SERVICES TO BE PROVIDED BY MANAGER
SECTION 5.1 Performance of Management Functions. Manager shall provide or
arrange for the services set forth in this Article V and otherwise as set forth
in this Agreement, the cost of all of which shall be included in Manager
Expenses. Manager is hereby expressly authorized to perform its services
hereunder in whatever manner it deems reasonably appropriate to meet the
day-to-day requirements of Practice operations in accordance with the decisions
of the Executive Committee, including, without limitation, performance of some
of the business office functions at locations other than Practice. It is the
intention of the parties hereto that Manager shall fulfill its obligations
hereunder through the Executive Director and his utilization of the assets and
employees of Practice and third parties to do so. Practice will not act in a
manner which would prevent Manager from efficiently managing the day-to-day
operations of Practice in a business-like manner. It is specifically agreed that
Manager shall not be in default hereunder due to the absence of an Executive
Director if Manager is diligently trying to find an individual to serve in that
position and is using other resources to manage the Clinic in the
9
interim.
SECTION 5.2 Financial Planning Goals
(a) Preparation of Budgets. Annually and at least thirty (30)
days prior to the commencement of each fiscal year of Practice, Manager
shall prepare and deliver to the Executive Committee and Practice for
their approval an operational and capital budget for such fiscal year
("Annual Budget"), setting forth an estimate of the operating revenues
and expenses associated with the provision of professional services by
Practice (including, without limitation, all costs associated with the
leased premises used by Practice, equipment, supplies, and services,
used by Practice and all compensation costs associated with Practice
and Practice personnel) and sources and uses of capital expenditures.
Such Annual Budget shall separately address Physician Expenses and
Manager Expenses which are in support of Practice and which shall be in
line with historical expenses of Practice and which are reasonable and
customary for Practice. Any non-budgeted expenses must be reviewed and
approved by the Executive Committee. Any such non-budgeted expense in
excess of $5,000 per year undertaken by Practice without approval by
the Executive Committee (which for these purposes shall require the
approval of at least one Executive Committee member designated by
Manager) shall, except for emergency circumstances, be excluded from
the calculation of Physician Expenses. Any expenses which are personal
in nature that are incurred by any Physician Shareholder shall be
deducted from his compensation unless approved by the Executive
Committee (which for these purposes shall require the approval of at
least one Executive Committee member designated by Manager) and shall
not be a Physician Expense. Manager shall use its best efforts to
perform its duties and obligations under this Agreement such that the
actual revenues, costs, and expenses associated with the provision of
professional services during any applicable period of Practice's fiscal
year shall be consistent with the Annual Budget. Manager shall prepare
and submit to the Executive Committee and Practice for their approval,
and shall thereafter adopt, an Annual Budget for the current fiscal
year as soon as practicable. Manager shall specify the targeted profit
margin for Practice which shall be reflected in the Annual Budget. In
the event that the Executive Committee or Practice does not approve any
such Annual Budget, then the Annual Budget for the previous year shall
be used until the Executive Committee and Practice, using their best
efforts, approve a new Annual Budget.
(b) Service Development. Manager realizes that Practice has
opportunities to provide new services and utilize new technologies that
will require capital expenditures and Manager anticipates that such
opportunities may include new and replacement equipment as may be
economically justified and medically necessary. Development of new
services will depend on, among other factors, physician composition,
anticipated volume, reimbursement and number of physicians, physician
support, performance, and appropriate physician specialty mix, and will
require Executive Committee approval as a precondition to any capital
expenditure.
(c) Capital Investment. Manager will use its commercially
reasonable best efforts to obtain funds for all capital expenditures
approved by the Executive Committee.
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Sources of capital, including working capital, for such funds shall be
determined by the Executive Committee and may be with Practice's
consent (i) intracompany borrowings from Manager (at the rate set forth
in Article II at subparagraph (v) of the definition of Manager Expenses
or (ii) borrowings, leases or other financing methods through
independent third-party financial institutions in accordance with
Section 4.2(h) hereof. Manager shall use its reasonable efforts to make
its funds available for borrowing by Practice but Manager only shall be
obligated to make such loans as it determines in its sole and absolute
discretion on a case-by-case basis that it should make. Whenever
Manager makes such a loan, to benefit Practice's operations, the
repayment of all interest on any such indebtedness shall constitute
Manager Expenses.
SECTION 5.3 Financial Statements.
Manager shall cause to be prepared annual financial statements for the
operations of Practice. Manager shall also cause to be prepared monthly
financial statements containing a balance sheet and statements of income from
Practice operations, which shall be delivered to Practice within thirty (30)
days after the close of each calendar month. In addition, Practice shall be
solely responsible for the cost of the preparation and any audit of the
financial statements and the tax returns of Practice.
SECTION 5.4 Inventory and Supplies.
Manager shall, on behalf of Practice, order and purchase inventory and supplies,
and such other ordinary, necessary or appropriate materials of a quality
consistent with the past and customary course of conduct and manner of
operating Practice, the cost of which shall be Physician Expenses.
SECTION 5.5 Management Services and Administration.
(a) Practice hereby appoints Manager as its sole and exclusive
manager and administrator of all day-to-day business functions and
Manager hereby accepts such appointment subject to the terms of this
Agreement. Manager shall perform these duties through the Executive
Director who shall utilize the assets and employees of Practice and
third parties to do so. Practice agrees that the purpose and intent of
this Service Agreement is to relieve the Physician Shareholders, to the
maximum extent possible, of the administrative, accounting, personnel
and business aspects of its medical practice. The current business of
Practice handled by employees of Practice will be administered and
supervised by Manager, with Manager assuming responsibility and being
given all necessary authority to administer and supervise these
functions in accordance with the general standards approved by the
Executive Committee. Manager agrees that Practice and only Practice
will perform the medical functions of its medical practice. Manager
will have no authority, directly or indirectly, to perform, and will
not perform, any medical function. Manager may, however, advise
Practice as to the relationship between its performance of medical
functions and the overall administrative and business functioning of
its medical practice. To the extent that they assist Practice in
performing medical functions, all clinical personnel performing patient
care services shall be subject to the professional direction and
supervision of Practice and, in the performance of such medical
functions, shall not be subject to any direction or control by, or
liability, to, Manager, except as may be specifically authorized by
Practice.
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(b) (i) Manager shall, on behalf of Practice, xxxx
patients and collect the professional fees for medical
services rendered by Practice, for services performed outside
Practice for Practice's hospitalized patients, and for all
other professional and Practice services. Practice hereby
appoints Manager for the term hereof to be its true and lawful
attorney-in-fact, for the following purposes: (A) to xxxx
patients in Practice's name and on its behalf; (B) to collect
accounts receivable resulting from such billing in Practice's
name and on its behalf; (C) to receive payments and
prepayments from Blue Shield, insurance companies, health care
plans, Medicare, Medicaid and all other third party payors;
(D) to take possession of and endorse in the name of Practice
(and/or in the name of an individual physician providing
services on behalf of Practice, such payment intended for
purpose of payment of a physician's xxxx) any notes, checks,
money orders, insurance payments and other instruments
received in payment of accounts receivable; and (E) to
initiate the institution of legal proceedings in the name of
Practice to collect any accounts and monies owed to Practice
in accordance with policies and procedures adopted by the
Executive Committee, to enforce the rights of Practice as
creditors under any contract or in connection with the
rendering of any service, and to contest adjustments and
denials by governmental agencies (or their fiscal
intermediaries) as third-party payors. All Adjustments shall
be made in a reasonable manner consistent with past practice
of Practice.
(ii) Practice shall establish and control a bank
account at a bank (the "Bank") acceptable to Manager (the
"Practice Account"). In connection herewith and throughout the
term of the Agreement, Practice hereby appoints Manager as
Practice's true and lawful agent and attorney-in-fact, and
grants Manager a special power of attorney and Manager hereby
accepts such special power of attorney and appointment, to
deposit in the Practice Account all funds, fees, and revenues
generated by Practice and collected by Manager. Practice shall
execute any and all additional documents required by the Bank
where the Practice Account is held to effectuate the power of
attorney granted herein. Manager shall pay from funds in the
Practice Account all Manager Expenses and the Management Fee
as required under the terms of this Agreement and pay from
that account, on behalf of Practice, the other costs and
expenses of operating the Clinic, including the Physician
Expenses as provided under the terms of this Agreement. The
Practice Account shall have signatories a person designated
from time to time by Manager and a person designated from time
to time by Practice. Each such signatory shall have the
ability to sign checks on the Practice Account for $10,000 or
less but checks for more than $10,000 must be signed by both
signatories.
(c) Manager shall supervise and, to the extent necessary,
maintain custody of all files and records relating to the operation of
Practice, including but not limited to accounting, billing, patient
medical records, and collection records. Patient medical records shall
at all times be and remain the property of Practice and shall be
located at Practice facilities so that they are readily accessible for
patient care. The management of all files and records shall comply with
applicable state and federal statutes. Manager shall use its best
efforts consistent with the past practice of Practice to preserve the
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confidentiality of patient medical records and use information
contained in such records only for the limited purpose necessary to
perform the services set forth herein; provided, however, in no event
shall a breach of said confidentiality be deemed a default under this
Agreement.
(d) Manager shall supervise and be responsible for making sure
that Practice has the necessary clerical, accounting, bookkeeping and
computer services, printing, postage and duplication services, medical
transcribing services and any other ordinary, necessary and appropriate
service for the operation of Practice.
(e) Manager shall supervise Practice's personnel and make sure
that Practice has the data necessary for Practice to prepare its annual
income tax returns and financial statements. Except as provided above,
Manager shall have no responsibility for the preparation of Practice's
federal or state income tax returns or the payment of such income taxes
and such costs shall not be Physician Expenses.
(f) Manager shall assist Practice in recruiting additional
physicians, carrying out such administrative functions as may be
appropriate such as advertising for and identifying potential
candidates, checking credentials, and arranging interviews; provided,
however, Practice shall interview and make the ultimate decision as to
the suitability of any physician to become associated with Practice.
Candidate screening and interviewing procedures shall be consistent
with the past practice of Practice or as otherwise adopted by the
Executive Committee. All physicians recruited by Manager and accepted
by Practice shall be the sole employees of Practice, to the extent such
physicians are hired as employees. Any expenses incurred in the
recruitment of physicians, including, but not limited to, employment
agency fees, relocation and interviewing expenses shall be budgeted
Physician Expenses. Manager shall also provide certain recruiting
incentives as described in Section 5.12 below.
(g) Manager shall negotiate and administer all managed care
contracts on behalf of Practice and shall consult with Practice on all
professional or clinical matters relating thereto.
(h) Subject to the provisions of Sections 5.3 and Section
5.5(e) and the approval of the Executive Committee, Manager shall
arrange for legal and accounting services related to Practice
operations the expense for which has been incurred traditionally in the
ordinary course of business, including the cost of enforcing any
physician contract containing restrictive covenants, but any cost and
all other aspects of malpractice suits against Practice shall be
governed by Article X hereof.
(i) Manager shall be responsible for administering the proper
cleanliness of the premises in compliance with applicable federal and
state regulations, and maintenance and cleanliness of the equipment,
furniture and furnishings located upon such premises.
(j) From the Practice Account, Manager shall make payment for
the cost of professional licensure fees, board certification fees,
medical staff dues, and national organization fees required to maintain
professional licenses, all as historically paid by
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Practice in accordance with past practice.
SECTION 5.6 Executive Director. Subject to the provisions of Section
4.2(i), Manager shall hire and appoint an Executive Director to manage and
administer all of the day-to-day management functions of Practice. Manager, with
the approval of the Executive Committee, shall determine the salary and fringe
benefits, of the Executive Director consistent with the budget adopted by the
Executive Committee. The salary, benefits and other direct costs of the
Executive Director shall be a Manager Expense. At the direction, supervision and
control of Manager, the Executive Director, subject to the terms of this
Agreement, shall implement the policies established by the Executive Committee
and shall generally perform the duties and have the responsibilities of an
administrator. The Executive Director shall be responsible for organizing the
agenda for the meetings of the Executive Committee referred to in Article IV.
SECTION 5.7 Personnel. Manager shall supervise and administer all
non-physician professional support (other than those performing patient care)
and administrative personnel, clerical, secretarial, bookkeeping and collection
personnel of Practice reasonably necessary for the conduct of Practice
operations. Manager shall determine and cause to be paid the salaries and fringe
benefits of all such personnel. All such personnel shall be employees of
Practice but shall be under the supervision of Manager, with those personnel
performing patient care services subject to the professional supervision of
Practice. If Practice is dissatisfied with the services of any person, Practice
shall consult with Manager. Manager shall in good faith determine whether the
performance of that employee could be brought to acceptable levels through
counsel and assistance or whether such employee should be terminated. All of
Manager's obligations regarding staff shall be governed by the overriding
principle and goal of providing high quality medical care consistent with past
practice of Practice. Employee assignments shall be made to assure consistent
and continued rendering of high quality medical support services and to ensure
prompt availability and accessibility of individual medical support personnel to
physicians in order to develop constant, familiar and routine working
relationships between individual physicians and individual members of the
medical support personnel. Manager shall maintain established working
relationships wherever possible and Manager shall make every effort consistent
with sound business practices to honor the specific requests of Practice with
regard to the assignment of Practice's employees.
SECTION 5.8 Events Excusing Performance. So long as Manager uses its
commercially reasonable best efforts, Manager shall not be liable to Practice
for failure to perform any of the services required herein in the event of
strikes, lockouts, calamities, acts of God, unavailability of supplies or other
events over which Manager has no control for so long as such events continue,
and for a reasonable period of time thereafter.
SECTION 5.9 Compliance with Applicable Laws. Manager shall comply with
all applicable federal, state and local laws, regulations and restrictions in
the conduct under this Agreement of its obligations under this Agreement.
SECTION 5.10 Quality Assurance. Manager shall assist Practice in
fulfilling its obligations to its patients to maintain a high quality of medical
and professional services.
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SECTION 5.11 Ancillary Services. Manager shall operate such ancillary
services as approved by the Executive Committee.
SECTION 5.12 Recruiting Incentives. The decision to hire a physician
shall be made pursuant to Section 4.2(h). Manager recognizes the need for
Practice to expand its physician base of cardiologists. As such, to the extent
Manager is in agreement with the hiring of a cardiologist by Practice (as
evidenced by Manager's written notice of agreement), Manager shall extend to
Practice, through advances of funds as necessary, the ability for Practice to
guaranty to each such newly-hired cardiologist a pre-tax compensation level as
agreed to by Practice and Manager (the "Compensation Level") for each of the
first two twelve (12) month periods of such individual's employment by Practice.
The amount of such advances shall be the excess, if any, of (a) the Compensation
Level, over (b) the Net Practice Revenues generated by that cardiologist for the
applicable twelve (12) month period less the "Overhead Charge" to that
cardiologist for the applicable twelve (12) month period. The "Overhead Charge"
shall be the pro rata amount of Practice general overhead allocated to each
physician employed by Practice for the period, consistent with Practice's
customary method for charging its overhead costs among its other physicians. If
Manager makes such an advance relating to the first twenty-four (24) months of a
cardiologist's employment by Practice under the above provision, Practice shall
not thereafter increase such cardiologist's compensation without Manager's
consent until such advance has been repaid to Manager by Practice, so that
Practice shall be able to repay Manager such an advance to the extent that in a
future period, using the above formula, the amount in (b) exceeds the amount in
(a). Practice and Manager shall work together in determining when such a new
cardiologist should be eligible to become a shareholder in Practice and how the
balance of any advances that have not been repaid to Manager should be repaid.
In the event such a cardiologist leaves the employ of Practice, any remaining
unpaid portion of any advances shall be repaid only to the extent of collections
in the future of revenues from services performed by such physician while
associated with Practice. This Section 5.12 shall not be construed in any way to
limit the ability of Practice to recruit and hire a physician but rather it is
an additional incentive that Practice will be able to offer a physician in
certain cases.
ARTICLE VI
OBLIGATIONS OF PRACTICE
SECTION 6.1 Professional Services. Practice shall provide professional
services to patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession. Practice shall ensure that each
of its physicians providing medical care to patients in the State of Texas are
licensed by the State of Texas. In the event that any disciplinary actions or
medical malpractice actions are initiated against any such physician, Practice
shall immediately inform Manager of such action and the underlying facts and
circumstances. Practice shall carry out a program to monitor the quality of
medical care which it provides.
SECTION 6.2 Medical Practice. Manager shall not interfere with the
physician-patient relationship between Practice's physicians and their patients.
Practice shall provide the facilities, including equipment, materials and
supplies needed for the medical practice, and use
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and occupy its facilities exclusively for the practice, and shall comply with
all applicable local rules, ordinances and all standards of medical care. It is
expressly acknowledged by the parties that the medical practice or practices
conducted at Practice shall be conducted solely by physicians associated with
Practice, and no other physician or medical practitioner shall be permitted to
use or occupy Practice without the prior written consent of the Executive
Committee.
SECTION 6.3 Employees of Practice.
(a) Except for the Executive Director, Practice shall employ
all personnel necessary for the operation of the Clinic, including
licensed health care personnel, such as physicians, nurses, vocational
nurses and physician assistants, as Practice deems reasonably necessary
and appropriate, subject to the Annual Budget, for Practice's operation
of its medical practice and provision of professional services, each of
whom shall be subject to the applicable provisions of this Agreement,
and such clerical and administrative personnel deemed necessary by
Manager. Practice shall have the sole responsibility for paying the
salaries and fringe benefits of all personnel, and the sole
responsibility to withhold, as required by law, any sums for income
tax, unemployment insurance, social security, or any other withholding
pursuant to any applicable law or governmental requirements. Manager
shall, in the name of and on behalf of Practice, establish and
administer and pay when due the compensation with respect to such
personnel and, on behalf of Practice and out of funds available in the
Practice Account, ensure that proper tax withholdings from such
compensation are made and timely remitted to the appropriate
governmental entities. Each physician retained by Practice shall at all
times hold and maintain a valid and unlimited license to practice in
the State of Texas. Practice shall enter into and maintain with each
such physician a written agreement which shall include, without
limitation, the provisions of Section 7.2 hereof; provided, to the
extent permitted by Section 1.5 hereof and the other provisions of this
Agreement, Practice may secure the services of the Physician
Shareholders through Independent Contractor Agreements instead of
directly employing the Physician Shareholders. Practice shall ensure
that each of its physicians participates in such continuing medical
education as is consistent with past practice.
(b) Practice shall continuously and uninterruptedly, during
the term hereof, during all business hours and on such days as
businesses of like nature in the area are open for business, provide
services in a manner calculated to produce the maximum volume of
revenue which is consistent with the professional obligation of
Practice and in the best interest of Practice's patients. Practice
shall cause the work load, patient load and criteria for its
physicians, taken as a whole, to remain substantially the same as their
historical practice during the immediate past three (3) years.
(c) Practice and the Physician Shareholders and the Associated
PAs shall take all actions necessary or appropriate, including without
limitation, adjusting amounts paid or distributed to Physician
Shareholders or Associated PAs, on at least a quarterly basis, to
ensure from time to time that the compensation paid to the Physician
Shareholders or Associated PAs by Practice in the aggregate, never
exceeds Net Income (as hereafter
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defined), to the extent such payments reasonably would be expected to
leave Practice with an insufficient amount of working capital for the
normal operation of the Clinic including the payment of the Management
Fee.
SECTION 6.4 Professional Insurance Eligibility. Practice shall
cooperate in the obtaining and retaining of professional liability insurance by
assuring that its physicians are insurable, and by participating in an on-going
risk management program.
SECTION 6.5 Events Excusing Performance. Practice shall not be liable
to Manager for failure to perform any of the services required herein in the
event of strikes, lockouts, calamities, acts of God, unavailability of supplies
or other events over which Practice has no control for so long as such events
continue, and for a reasonable period of time thereafter.
SECTION 6.6 Fees for Professional Services. Practice shall be solely
responsible for legal, accounting and other professional services fees incurred
and retained by Practice, and not approved by the Executive Committee, except as
set forth in Article V herein.
SECTION 6.7 Name. Manager shall be entitled to use the name "Heart
Clinic" in connection with the operation of Practice.
SECTION 6.8 Services of Physician Shareholders. Practice shall be
obligated hereunder to secure the exclusive, full-time professional medical
services for the operation of the Clinic of each Physician Shareholder as of the
date hereof through at least the five (5) consecutive year period beginning on
the effective date hereof (regardless of whether such individual continues to
remain a Physician Shareholder). To the extent provided in this Agreement,
Practice may do so by directly employing each such Physician Shareholder or by
securing his services through a permitted Independent Contractor Agreement. Each
of the Physician Shareholders as of the date hereof agrees that he shall provide
his exclusive, full time professional services to Practice in accordance with
the terms of his employment agreement with Practice dated as of the date hereof
or through a permitted Independent Contractor Agreement between Practice and his
Associated PA, and in any case the term of such arrangement for the provision of
his services shall not be less than the five (5) consecutive year period
beginning on the effective date hereof unless attributable to the death or
permanent disability of the Physician Shareholder.
SECTION 6.9 Life Insurance. Practice shall cause each of its physician
employees to and the Physician Shareholders shall cooperate fully with any
efforts by Manager to obtain insurance policies on the life of any such
physicians under which Manager would be the owner and beneficiary. Manager will
be responsible for the costs of any such insurance and such costs shall not be
Manager Expenses.
ARTICLE VII
RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that Parent paid a substantial amount to Practice
in connection with
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this Agreement and that Manager is making a substantial commitment of
time and resources in providing management and services hereunder, and that
the services to be provided by Manager shall be feasible only if Practice
operates an active medical practice to which the physicians associated with
Practice devote their full time and attention. To that end:
SECTION 7.1 Restrictions on Practice. During the term of this
Agreement, Practice covenants that Practice shall not, directly or indirectly,
either as a shareholder, partner, member, manager or otherwise establish,
operate or provide physician services at any medical office, clinic or other
health care facility providing services, including but not limited to ancillary
services, substantially similar to those provided by Practice pursuant to this
Agreement anywhere within the Territory. Additionally, during the term of this
Agreement and for a period of twenty-four (24) months following the termination
hereof prior to the 40th anniversary of the date hereof due to a default by
Practice, Practice covenants that Practice shall not, directly or indirectly,
enter into any agreement or arrangement similar to this Agreement with any other
person or party (whether in a single transaction or series of related
transactions) or sell substantially all the assets of Practice or sell or issue
interests (whether through a sale, merger or otherwise) constituting ownership
of Practice (except that ownership interests in Practice may be sold or issued
to individual physicians who become shareholders of Practice in the ordinary
course of Practice's operations and business). The Physician Shareholders hereby
covenant to take all steps necessary to ensure that Practice abides by and
fulfills the covenants of this Section 7.1.
SECTION 7.2 Restrictive Covenants By Current Physician Shareholders
and Physician Employees.
(a) Practice shall obtain and enforce formal written
agreements from its physicians (whether direct employees of Practice or
employees of Associated PAs) pursuant to which the physicians agree not
to within the Territory, directly or indirectly, (i) whether as a
shareholder, partner, employee, director, consultant, agent or
otherwise establish, operate or provide, other than through Practice,
physician services or other professional medical services at any
medical office, hospital, clinic or outpatient and/or ambulatory
treatment or diagnostic facility providing services, including but not
limited to ancillary services, substantially similar to those provided
by Practice or by the Associated PAs or their employees or (ii) solicit
or employ any employee or consultant of Practice or of Manager, in all
cases of (i) or (ii) during the term of their employment by Practice
or, if applicable, service relationship with Practice through an
Independent Contractor Agreement and for a period of twelve (12) months
after any termination of such employment or, if applicable, service
relationship for any reason (unless this Agreement has been terminated
as of such date as a result of a default hereunder by Manager);
provided, after the eighth (8th) year of this Agreement, the
above-referenced twelve (12) month tail period shall be eliminated for
any physician who has provided his exclusive, full time professional
services to Practice for at least eight (8) years. By their executions
of this Agreement, the Physician Shareholders hereby agree to the above
restrictions and to abide and be bound by them and no additional
written agreement with them shall be required. The Physician
Shareholders also agree that Manager and Parent are third party
beneficiaries of such restrictions.
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(b) In addition to the other restrictions in this Article VII,
the Physician Shareholders hereby agree with Practice and Manager (and
all future Physician Shareholders of Practice shall be required to
agree in writing) and shall enter into a similar covenant with
Practice, which Practice agrees to fully enforce, that they shall
(unless this Agreement has been terminated as of such date as a result
of a default hereunder by Manager) neither accept employment to
practice medicine or become a consultant for the purpose of providing
such medical services from or with any other party or entity, or group
of affiliated parties or entities (a "New Employer") if at least
fifty-one percent (51%) of the then current Physician Shareholders of
Practice within any twelve (12) month period accept employment or enter
into any consulting or other similar arrangement with such New Employer
at the same time or in a series of related circumstances, nor engage in
any other transaction which is substantially similar to that described
in this sentence (a "Group Departure") unless such New Employer or the
Physician Shareholders personally assume all liabilities and
obligations of Practice to Manager under Article VIII with respect to
such Physician Shareholders and under other provisions herein related
to such obligations and liabilities.
(c) The parties executing this Agreement hereby agree that a
waiver of any of the restrictions in Article VII shall only be
effective if it is in writing, it is executed by Manager and Parent and
it specifically refers to this Agreement and the provision herein being
waived.
SECTION 7.3 Restrictive Covenants By Future Physician Employees.
Practice shall obtain and enforce formal agreements from each of its future
physician employees (and future Physician Shareholders who are not currently
physician employees), which contain the restrictions and covenants set forth in
Section 7.2.
SECTION 7.4 Liquidated Damages. A physician (existing or future), may
be released from his restrictive covenants by paying "Liquidated Damages" to
Practice, which Practice shall be immediately obligated to pay to Manager, in
the manner and in an amount as follows except that during the first two (2)
years of this Agreement the physician must obtain the written consent of Manager
(which consent may be given or withheld in the sole and absolute discretion of
Manager):
"Liquidated Damages" shall mean an amount equal to the gross collected
revenue generated by the efforts of the physician (including all physician
services and ancillary revenues from such physician's patients) for the most
recent ended twelve (12) month period. Notwithstanding the above provision, with
respect to any physician who was employed by Practice or whose professional
services were provided to Practice pursuant to an Independent Contractor
Agreement on the date of this Agreement, during the third, fourth and fifth year
of this Agreement such physician may be released from his restrictive covenant
without paying Liquidated Damages, provided he gives Manager and Practice
written notice at least 120 days' prior to the effective date of the termination
of the employment relationship or agreement for the provision of his services
with Practice and as long as he does not during any portion of those third,
fourth and fifth years, directly or indirectly (whether as a sole practitioner
or through his Associated PA or otherwise) enter into any service or management
agreement, employment
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relationship, income or expense guarantee relationship, or
other remuneration or compensation relationship of any kind with any person or
entity other than a professional association or partnership of licensed
physicians which is owned exclusively by physicians that devote substantially
all of their professional services to such professional association or
partnership and which receives substantially all of its revenue for services
rendered to patients and is not a recipient party to an income or expense
guarantee relationship or a party to a service or management agreement. The
above provision shall be treated as a part of such physician's employment
agreement with Practice or, if applicable, the Independent Contractor Agreement
between Practice and such physician's Associated PA, and the physician (and his
Associated PA if applicable) shall not be in breach of that employment
agreement, or if applicable, the Independent Contractor Agreement, if he
terminates his relationship with Practice in accordance with this provision;
provided such a release of restrictive covenants and termination of employment
or agreement for the provision of his services shall not relieve Practice or the
physician from any obligations they may have to make payments to Parent for a
breach of Section 5.7 of the Master Transaction Agreement due to the cessation
of the physician's provision of exclusive, full time professional services to
Practice prior to the fifth anniversary of this Agreement.
Such payment of Liquidated Damages or any recovery for breach shall be
made to Manager by Practice (after receipt from the physician or his Associated
PA or directly by the physician to Manager) simultaneously with the physician
being released from the restrictive covenants (if required to be consented to by
Manager) or any collection of a judgment. Such payment shall be first applied to
all costs incurred by Manager in the enforcement of the restrictive covenants
for that departing physician and in recruiting a replacement physician for that
departing physician. The remainder, if any, shall become an additional service
fee to be paid to Manager pursuant to Article VIII hereof.
Manager shall be entitled to designate which remedies shall be sought
by Practice for breaches of restrictive covenants or such employment agreements
or Independent Contractor Agreements and Practice shall diligently pursue those
remedies.
SECTION 7.5 Development of Exclusive Ventures.
(a) During the term of this Agreement (the "Exclusive Period")
subject to applicable law, Manager, Practice and the Physician
Shareholders, including any future shareholders of Practice may discuss
and explore the feasibility of acquiring or developing in the Territory
(i) a cardiac catheterization lab or other cardiac testing center
and/or (ii) a managed care plan or organization (e.g., a HMO, etc.)
(collectively the "Exclusive Ventures"). Subject to applicable law,
each such Exclusive Venture shall be owned by a joint venture, which in
turn would be owned fifty-one percent (51%) by Manager or its designee
and forty-nine percent (49%) by Practice and/or the Physician
Shareholders, unless, however, Manager, Practice and the Physician
Shareholders mutually agree upon different ownership percentages. Each
Exclusive Venture would be managed by Manager or its designee for a
management fee which would not exceed reasonable management fees which
are paid to other parties for managing similar facilities in bona fide
transactions involving unrelated persons or entities. Capital shall
20
be contributed to the joint venture on a pro rata basis by Manager or
its designee, on the one hand, and Practice and/or the Physician
Shareholders on the other hand, in accordance with their ownership
percentages. No additional payment would be due to Manager, Practice or
the Physician Shareholders in connection with the development or
ownership of any Exclusive Venture other than pro rata distributions to
them from the joint venture. All material decisions and determinations
to be made hereunder with respect to the development, ownership and
operation of any such Exclusive Venture, subject to applicable law,
shall be made by mutual consent of Manager and/or its designee on the
one hand, and a majority of the Physician Shareholders owning an
interest in the Exclusive Venture (directly or indirectly), on the
other hand. Manager, Practice and the Physician Shareholders agree to
cooperate and negotiate with one another in good faith with respect to
the development or acquisition of the Exclusive Venture and to enter
into all such additional agreements and to take all such additional
actions as are reasonably necessary or appropriate to fulfill the
purpose and intent of this Section 7.5.
In the event that health care counsel of Manager, which is
reasonably acceptable to Practice, advises that the legal entity owning
any such health care facility or service should be owned only by
Practice, the Physician Shareholders or Affiliates thereof, then the
parties hereto shall instead enter into a management and service
agreement which will provide Manager with substantially all of the
benefits which it would have received had it been legally entitled to
be an owner of such facility or service.
(b) During the Exclusive Period, Practice and Physician
Shareholders agree that they will not, directly or indirectly, develop
or acquire an interest in any Exclusive Venture, and the Physician
Shareholders agree that they will not develop or acquire an interest in
any venture, entity or investment whose business is similar to that
which would be conducted by the Exclusive Ventures as long as such
Physician Shareholder is a shareholder of Practice and for a period of
one (1) year thereafter, other than through a joint venture between
Manager or its designee, on the one hand, and Practice and/or the
Physician Shareholders on the other hand, as provided in (a) above,
exclusive of any such interests held at the time this Agreement is
executed including interests in MedCath of McAllen Limited Partnership.
SECTION 7.6 Enforcement. Manager, Practice and the Physician
Shareholders acknowledge and agree that since a remedy at law for any breach or
attempted breach of the provisions of this Article VII shall be inadequate,
either party shall be entitled to seek specific performance and injunctive or
other equitable relief in case of any such breach or attempted breach, in
addition to whatever other remedies may exist by law. If any provision of
Article VII relating to the restrictive period, scope of activity restricted
and/or the territory described therein shall be declared by a court of competent
jurisdiction to exceed the maximum time period, scope of activity restricted or
geographical area such court deems reasonable and enforceable under applicable
law, the time period, scope of activity restricted and/or area of restriction
held reasonable and enforceable by the court shall thereafter be the restrictive
period, scope of activity restricted and/or the territory applicable to the
restrictive covenant provisions in this Article VII. The invalidity or
non-enforceability of this Article VII in any respect shall not affect the
validity or enforceability of the remainder of this Article VII or of any other
provisions of this
21
Agreement. The provisions of this Article VII will not apply or be binding on
Practice, the PAs or the Physicians if MedCath fails to pay any amounts when
due under the Master Transaction Agreement after the expiration of the
applicable grace periods or this Agreement has been terminated by Practice
pursuant to Section 11.2 thereof.
ARTICLE VIII
FINANCIAL ARRANGEMENTS
SECTION 8.1 Management Fees. Practice and Manager agree that the
compensation set forth in this Article VIII is being paid to Manager in
consideration of the substantial commitment made by Manager hereunder and that
such fees are fair and reasonable.
(a) Manager shall be paid as its management fee (the
"Management Fee") the following amounts:
(i) An amount equal to all Manager Expenses;
(ii) [ ] Dollars ($[ ])
per annum (the "Base Fee"),
to be earned and accrued in equal monthly
installments; and
(iii) The Performance Bonus (as defined
below).
(b) Practice has retained Manager to provide services
hereunder due to Manager's unique expertise and Practice desires to
provide an additional incentive to Manager with respect to Manager's
performance of its obligations under this Agreement. Practice has
established the following goals for Manager: providing efficient and
uniform management services to Practice in a manner which enables
Practice's physicians to focus on patient care and to avoid
administrative responsibilities, provide updated management systems
which Practice would not otherwise be aware from time to time, assist
the practice in providing its services in a more efficient and cost
effective manner, assist Practice in analyzing the provision of
additional services and facilities, obtaining additional financing
sources for the expansion of Practice and its facilities, developing
relationships and agreements with managed care providers and other
health care providers and developing and administering positive and
uniform employment policies. Practice acknowledges that these goals
will have been met if Manager earns the Performance Bonus as set forth
below.
In the event that the Net Practice Revenues minus Physician
Expenses, Manager Expenses and the Base Fee, ("Net Income") exceeds
[ ] Dollars ($[ ]) for the then current year (pro
rated on a monthly basis), then Manager shall be entitled to a
performance bonus (the "Performance Bonus") for such year equal to
[ ] percent ([ ]%) of Net Income in excess of [ ]
Dollars ($[ ]). The Performance Bonus shall be earned and accrued
on a monthly basis.
(c) Notwithstanding anything herein to the contrary, in no
event shall
22
[ ] These portions have been omitted and filed separately with the commission
pursuant to a request for confidential treatment.
Manager's Management Fee due under Section 8.1(a)(ii) and
(iii) exceed [ ] percent ([ ]%) of Net Income except as may be later
agreed to by Manager and Practice pursuant to (d) below.
(d) The Base Fee and Performance Bonus portions of the
Management Fee shall be renegotiated in good faith by Manager and
Practice effective with the eighth (8th) anniversary of the date
Manager commenced providing services to Practice pursuant to this
Agreement, based on the fair value of the services to be performed over
the remaining thirty-two (32) years of this Agreement, and considering
the amounts paid by Parent to Practice pursuant to the Master
Transaction Agreement and the quality and efficiency of Manager's
performance hereunder over the first eight (8) years of this
relationship. If the parties cannot agree on a new Base Fee amount and
Performance Bonus formula, the matter shall be submitted to binding
arbitration.
(e) Notwithstanding a termination of this Agreement, Manager
shall be entitled to receive a Management Fee with respect to the Net
Income of Practice received after such termination to the extent it
relates to collections for services performed prior to such
termination.
(f) As a way of illustrating the calculation of the Management
Fee, based on the 1995 financial information of Practice's predecessor
(Heart Clinic, Inc.) attached hereto as Exhibit A, the Management Fee
earned for 1995 had this Agreement been effective would have been
$[ ]. The calculation of the Management Fee earned under this
Agreement shall be made in accordance with the methodology of the above
example to the greatest extent possible.
SECTION 8.2 Collection of Management Fee
(a) Manager shall be paid any portion of the Management Fee
resulting from Manager Expenses upon Manager's presentation to Practice
of reasonable documentation of such Manager Expenses.
(b) The remaining amounts to be paid to Manager under this
Article VIII shall be paid by Practice with respect to a month's Base
Fee and Performance Bonus as revenues relating to that month's Base Fee
and Performance Bonus are collected by Practice. In all cases Manager
shall be paid any accrued but unpaid Management Fee as of the end of
each month from the funds of Practice then remaining after payment of
Physician Expenses and Manager Expenses. No compensation shall be paid
by Practice to any Physician Shareholder prior to the time Manager has
been paid the Management Fee attributable to the revenues from which
the Physician Shareholder is being compensated.
SECTION 8.3 Reduction of Management Fee.
In the event that the gross compensation received by a Physician Shareholder
who is an employee of Practice or by an Associated PA through which a Physician
Shareholder provides services to Practice during any calendar year, as of the
end of such calendar year would fall below the "Base Amount"(as
23
[ ] These portions have been omitted and filed separately with the commission
pursuant to a request for confidential treatment.
defined below), then the Management Fee otherwise due under Section 8.1(a)(ii)
and (iii) above for the last month of that calendar year shall be reduced to the
extent necessary in order to ensure that the gross compensation payment does not
fall below the Base Amount; provided, such reduction shall not exceed the amount
of the total Management Fee for the calendar year allocated to the employed
Physician Shareholder or the Associated PA by Practice in determining his or its
compensation for that calendar year in accordance with Practice's customary
method of allocating such Management Fee among the Physician Shareholders and
the Associated PAs.
For the purposes of this Section 8.3, the "Base Amount" shall mean
$[ ] per annum (except that with respect to Xxxxxxxxxxx Xxxx, "$[ ]"
shall be substituted for "$[ ]"), which amount shall be adjusted downward
each year by the percentage, if any, by which the median total professional
compensation received by invasive cardiologists in the U.S. as published by the
Medical Group Management Association falls as compared to their 1996 median
compensation. The Base Amount shall be pro rated as reasonably necessary to
reflect circumstances under which the Physician Shareholder did not provide his
exclusive professional services during the entire calendar year to Practice as
an employee or pursuant to an Independent Contractor Agreement or did so but at
a reduced or part-time level.
SECTION 8.4 Resignation of Physician Shareholder.
In the event that any Physician Shareholder terminates his services
relationship with Practice in a manner which is not in violation of such
Physician Shareholder's employment agreement with Practice or, if applicable,
the relevant Independent Contractor Agreement and, in either case, the terms
of this Agreement and the Master Transaction Agreement, then Manager shall pay
to such Physician Shareholder or his Associated PA on behalf of Practice from
time to time an amount equal to the proceeds of accounts receivable generated
from the direct efforts of such Physician Shareholder prior to such
termination to the extent actually collected ("Physician Collections") less
the Expense Allocation. For purposes of this Section 8.4, the "Expense
Allocation" shall equal the percentage of total collected revenues of Practice
during the calendar year most recently ended used to pay all expenses and
obligations of Practice (including the Management Fee) other than compensation
to Physician Shareholders or Associated PAs multiplied by the amount of
Physician Collections. Any amounts due to a Physician Shareholder or Associated
PA under this Section 8.4 shall be subject to the full satisfaction of the
obligations of the Associated PA, such Physician Shareholder and Practice to
Manager and/or Practice under this Agreement, any employment agreement with
Practice, any Independent Contractor Agreement and the Master Transaction
Agreement.
ARTICLE IX
RECORDS
SECTION 9.1 Patient Records. Upon termination of this Agreement,
Practice shall retain all patient medical records maintained by Practice or
Manager in the name of Practice. Practice shall, at its option, be entitled to
retain copies of financial and accounting records relating to all services
performed by Practice.
24
[ ] These portions have been omitted and filed separately with the commission
pursuant to a request for confidential treatment.
SECTION 9.2 Records Owned by Manager. All records relating in any way
to the operation of Practice which are not the property of Practice under the
provisions of Section 9.1 above, shall at all times be the property of Manager.
SECTION 9.3 Access to Records. During
the term of this Agreement, and thereafter, Practice or its designee shall have
reasonable access during normal business hours to Practice's and Manager's
financial records which relate to Practice, including, but not limited to,
records of collections, expenses and disbursements as kept by Manager in
performing Manager's obligations under this Agreement, and Practice may copy any
or all such records.
ARTICLE X
INSURANCE AND INDEMNITY
SECTION 10.1 Insurance to be Maintained by Practice. Throughout the
term of this Agreement, Practice shall maintain comprehensive professional
liability insurance with limits of not less than $1,000,000 per claim and with
aggregate policy limits of not less than $3,000,000 for Practice and an excess
liability policy in the amount of not less than $5,000,000, with such carrier as
is approved by the Executive Committee. Malpractice premiums, deductibles and
such accruals shall be a Physician Expense. Practice shall be responsible for
all liabilities in excess of the limits of such policies. Manager shall have the
option, with Executive Committee approval, of providing such professional
liability insurance through an alterative program, provided such program meets
the requirements of the Insurance Commissioner of the State of Texas.
SECTION 10.2 Insurance to be Maintained by Manager. Throughout the term
of this Agreement, Manager will provide and maintain, as a Manager Expense,
comprehensive professional liability insurance for all professional employees of
Manager, if any, with limits and with such carrier as provided above and
comprehensive general liability and property insurance covering Practice
premises and operations with limits and with such carrier as determined
reasonable by Manager in its national program.
SECTION 10.3 Tail Insurance Coverage. Practice will cause each
individual physician who becomes associated with Practice after the date hereof
to enter into an agreement with Practice that if upon termination of such
physician's relationship with Practice for any reason, tail insurance is not
provided for such physician under Practice's insurance policies, tail insurance
coverage will be purchased by the individual physician; provided however, in the
event that such physician's relationship with Practice is terminated due to
death or disability or due to an uncured event of default by Practice under its
agreement for the services of such physician, then Practice, rather than such
physician, shall pay the costs of such tail insurance. Such provisions may be
contained in employment agreements, Independent Contractor Agreements,
restrictive covenant agreements or other agreements entered into by Practice and
the individual physicians or the Associated PAs, and Practice hereby covenants
with Manager to enforce such provisions relating to the tail insurance coverage
or to provide such coverage at the expense of Practice. The Executive Committee
may determine to provide coverage for a physician as a
25
Physician Expense on a physician by physician basis. The Executive Committee
may also decide to require other categories of physicians currently employed
by Practice to provide tail coverage upon termination of employment with
Practice.
SECTION 10.4 Additional Insureds. Practice and Manager agree to
use their reasonable efforts to have each other named as an additional insured
an the other's respective professional liability insurance programs.
SECTION 10.5 Indemnification. Practice shall indemnify, hold harmless
and defend Manager, its officers, directors, shareholders and employees, from
and against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of medical services or the performance of any
intentional acts, negligent acts or omissions by Practice and/or its
shareholders, agents, employees and/or subcontractors (other than Manager,
Parent or their agents) during the term hereof. Manager shall indemnify, hold
harmless and defend Practice, its officers, shareholders, directors and
employees, from and against any and all liability, loss, damage, claim causes of
action, and expenses (including reasonable attorneys' fees), whether or not
covered by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or omissions by Manager and/or its shareholders, agents,
employees and/or subcontractors (other than Practice) during the term of this
Agreement.
SECTION 10.6 Rules Regarding Indemnification. The obligations and
liabilities of each indemnifying party hereunder with respect to claims
resulting from the assertion of liability by the other party or third parties
shall be subject to the following terms and conditions:
(a) The indemnified party shall give prompt written notice to
the indemnifying party of any claim which might give rise to a claim by
the indemnified party against the indemnifying party based on the
indemnity agreement contained in Section 10.5 hereof, stating the
nature and basis of said claims and the amounts thereof, to the extent
known. If written notice is not given to the indemnifying party within
thirty (30) days from receipt of notice of the claim to be indemnified,
or such shorter time as shall otherwise prejudice the rights of the
indemnifying party, and in sufficient detail to apprise the
indemnifying party of the nature of the claim (in each instance taking
into account the facts and circumstances known by the indemnified party
with respect to such claim), the indemnifying party shall not be liable
to the party seeking indemnification. The indemnifying party shall have
the right, at its option, to compromise or defend, at its own expense
and by its own counsel, any claim involving the asserted liability of
the party seeking indemnification. If any indemnifying party shall
undertake to compromise or defend any such asserted liability, it shall
promptly notify the party seeking indemnification of its intention to
do so, and the party seeking indemnification agrees to cooperate fully
with the indemnifying party and its counsel in the compromise of, or
defense against, any such asserted liability. All costs and expenses
incurred in connection with such cooperation shall become by the
indemnifying party. In any event, the indemnified party shall have the
right, at its own expense and by its own counsel to participate in the
defense of such asserted liability.
26
(b) The indemnified party shall not make any settlement of any
claims without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld or delayed.
SECTION 10.7 Offset. Provided Manager or Parent is not in default under
this Agreement or the Master Transaction Agreement, Manager is hereby authorized
upon written notice to Practice to offset or apply any funds of Practice or the
Physician Shareholders or the Associated PAs which Manager holds from time to
time or which Manager or Parent owes to Practice or to the Physician
Shareholders or the Associated PAs against or to any amounts owed by Practice or
the Physician Shareholders or the Associated PAs to Manager or Parent under this
Agreement or the Master Transaction Agreement or Manager may exercise its offset
rights hereunder by reducing the principal under the Convertible Note and/or the
Additional Promissory Note under the Master Transaction Agreement; provided
however, if within ten (10) days of such written notice Practice or the
Physician Shareholders or the Associated PAs objects thereto, such objecting
party shall cause the matter to be submitted to binding arbitration and no
offset shall be made until that arbitration is resolved.
ARTICLE XI
TERM AND TERMINATION
SECTION 11.1 Term of Agreement. (a) This Agreement shall be binding on
the day and year first written above and shall commence on October 1, 1996, and
except as provided in (b) below, shall expire on the 40th anniversary its
commencement unless earlier terminated pursuant to the terms hereof. (b) At the
option of Manager, if it is not in default hereunder at the expiration of the
initial 40-year term, this Agreement may be extended for successive additional
5-year terms. If the preceding sentence would result in this Agreement being in
violation of any applicable law or would render this Agreement void or
unenforceable, such sentence shall be void and of no further force or effect.
SECTION 11.2 Termination by Practice. Practice may terminate this
Agreement as follows:
(a) In the event or the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by Manager, or
upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by Manager,
except for the filing of a petition in involuntary bankruptcy against
Manager which is dismissed within ninety (90) days thereafter, Practice
may give notice of the immediate termination of this Agreement;
(b) In the event Manager shall materially default in the
performance of any material duty or obligation imposed upon it by this
Agreement and such default shall continue for a period of ninety (90)
days after written notice thereof has been given to Manager by
Practice, Practice may terminate this Agreement. Termination of this
Agreement pursuant to this subsection (b) by Practice shall require the
affirmative vote of Physician Shareholders holding at least sixty-six
percent (66%) of the ownership of
27
Practice; or
(c) In the event Parent shall not pay to Practice the amounts
due to Practice under Section 2.2 of the Master Transaction Agreement
after the expiration of applicable cure periods.
SECTION 11.3 Termination by Manager. Manager may terminate this
Agreement as follows:
(a) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by Practice,
or upon other action or suffered, voluntary or involuntarily, under any
federal or state law for the benefit of debtors by Practice, except for
the filing of a petition in involuntary bankruptcy against Practice
which is dismissed within thirty (30) days thereafter, Manager may give
notice of the immediate termination of this Agreement; or
(b) In the event Practice shall materially default in the
performance of any material duty or obligation imposed upon it by this
Agreement, and such default shall continue for a period of ninety (90)
days after written notice thereof has been given to Practice by
Manager, Manager may give notice of the immediate termination of this
Agreement.
SECTION 11.4 Actions after Termination. Upon termination of this
Agreement by either party for any reason or upon expiration of this Agreement,
Practice, the Physician Shareholders and the Associated PAs jointly and
severally agree to:
(i) Solely if the termination is prior to the
fifth anniversary hereof and made other than by Practice
pursuant to Section 11.2, pay to Parent an amount equal to the
total price paid to Practice by Parent under the Master
Transaction Agreement net of the cumulative Management Fee
paid to Manager hereunder pursuant to Section 8.1(a)(ii) and
(iii) and purchase from Manager, at net book value, the
tangible personal property, if any, acquired by Manager and
used in the operation of Practice; and
(ii) Regardless of when the termination occurs
assume all debt and all contracts, payables and leases which
are obligations of Manager and which relate principally to the
performance of its obligations under this Agreement or any
properties leased or subleased by Manager but exclusive of
debts incurred by Parent to pay the Consideration to Practice
under the Master Transaction Agreement or by Manager without
the approval of Practice.
If the termination is made by Practice under Section 11.2, any of the above
amounts which would otherwise have been due to Manager or Parent if Manager had
then been permitted to terminate the Agreement pursuant to Section 11.3, shall
be used as an offset against any damages ultimately determined to have arisen
due to Manager's or Parent's default.
SECTION 11.5 Closing of Repurchase by Practice and Effective Date of
Termination. Practice, the Physician Shareholders and the Associated PAs shall
satisfy their
28
obligation to Parent and Manager for the amounts due pursuant to
Section 11.4 above by surrendering the Convertible Note and the Additional
Promissory Note plus an amount of cash equal to the difference between the
amounts due pursuant to Section 11.4 and the principal balance of the
Convertible Note and the Additional Promissory Note, except that if Practice
received any shares of MedCath Incorporated common stock upon a conversion of
the Convertible Note or the Additional Promissory Note pursuant to the Master
Transaction Agreement, the rules of Schedule 10.1(b) of the Master Transaction
Agreement, as reasonably modified to fit this situation, shall be applied to
cause shares of MedCath Incorporated common stock to be used to pay the amount
due by Practice, the Physician Shareholders and the Associated PAs. The amount
of the purchase price shall be reduced by the amount of debt and liabilities of
Manager assumed by Practice, the Physician Shareholders and the Associated PAs.
Practice, the Associated PAs and any physician associated with Practice shall
execute such documents as may be required to assume the liabilities set forth in
Section 11.4 and to remove Manager from any liability with respect to such
repurchased assets and with respect to any property leased or subleased by
Manager, Manager will execute and deliver such documents as are customary in
asset sales with general warranties of title, and such documents to be executed
and delivered by Manager. The closing date for the repurchase shall be
determined by Practice, but shall in no event occur later than 120 days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets. From and after any
termination, each party shall provide the other party with reasonable access to
books and records then owned by it to permit such requesting party to satisfy
reporting and contractual obligations which may be required of it.
ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1 Assignment. Manager shall have the right to assign its
rights hereunder to any person, firm or corporation controlling, controlled by
or under common control with Manager and to any lending institution, for
security purposes or as collateral, from which Parent or Manager obtains
financing, including without limitation, First Union National Bank, N.A., as
agent, or its successors and assigns under the credit agreement among Parent,
the bank parties thereto and First Union National Bank, N.A., for itself and as
agent, as amended or to any purchaser of substantially all of the assets of
Parent. Except as set forth above, neither Manager nor Practice shall have the
right to assign their respective rights and obligations hereunder without the
written consent of the other party.
SECTION 12.2 Whole Agreement, Modification. This Agreement constitutes
the entire agreement between the parties. There are no other agreements or
understandings, written or oral between the parties regarding this Agreement,
the Exhibits and the Schedules, other than as set forth herein. This Agreement
shall not be modified or amended except by a written document executed by both
parties to this Agreement, and such written modification(s) shall be attached
hereto.
SECTION 12.3 Notices. All notices required or permitted by this
Agreement shall be in writing and shall be addressed as follows:
29
To Manager: Physician Management of McAllen, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxx
To Practice: Heart Clinic, P.A.
0000 X. Xx Xxxxx Xxxxx, #0-X
Xxxxxxxxx, Xxxxx 00000
Attn: President
or to such other address as either party shall notify the other.
SECTION 12.4 Binding on Successors.
Subject to Section 12.1, this Agreement shall be binding upon the parties
hereto, and their successors, assigns, heirs and beneficiaries.
SECTION 12.5 Waiver of Provisions.
Any waiver of any terms and conditions hereof must be in writing, and signed by
the parties hereto. The waiver of any of the terms and conditions of this
Agreement shall not be construed as a waiver of any other terms and conditions
hereof.
SECTION 12.6 Governing Law. The validity, interpretation and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Texas. The parties 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. To the extent any act or service
required of Manager in this Agreement should be construed or deemed, by any
governmental authority, agency or court to constitute the practice of medicine,
the performance of said act or service by Manager shall be deemed waived and
forever unenforceable and the provisions of Section 12.12 shall be applicable.
SECTION 12.7 Severability. The provisions of this Agreement shall be
deemed severable and if any portion shall be held invalid, illegal or
unenforceable for any reason, the remainder of this Agreement shall be effective
and binding upon the parties.
SECTION 12.8 Additional Documents. Each of the parties hereto agrees
to execute any document or documents that may be requested from time to time by
the other party to implement or complete such party's obligations pursuant to
this Agreement.
SECTION 12.9 Attorneys' Fees. If legal action is commenced by either
party to enforce or defend its rights under this Agreement, the prevailing party
in such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
SECTION 12.10 Time is of the Essence. Time is hereby expressly
declared to be of the essence in this Agreement.
30
SECTION 12.11 Confidentiality. Except for disclosure to its attorneys,
accountants, bankers, underwriters or lenders, or as necessary or desirable for
conduct of business, including negotiations with other acquisition candidates,
neither party hereto shall disseminate or release to any third party any
information regarding any provision of this Agreement, or any financial
information regarding the other (past, present or future) that was obtained by
the other in the course of the negotiation of this Agreement or in the course
of the performance of this Agreement, without the other party's written
approval; provided, however, the foregoing shall not apply to information which
(i) is generally available to the public other than as a result of a breach of
confidentiality provisions, (ii) becomes available on a non-confidential basis
from a source other than the other party, or its affiliates or agents, which
source was not itself bound by a confidentiality agreement, or (iii) which is
required to be disclosed by law, including securities laws or pursuant to court
order. Notwithstanding the foregoing, Practice may disclose information it
deems advisable to its physician employees provided such physician employees
are advised of the confidential nature of such information and agree to keep
such information confidential as provided herein. Manager shall be a third
party beneficiary of such agreements.
SECTION 12.12 Contract Modifications for Prospective Legal Events. In
the event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision or regulatory agency or legal counsel in such a manner as to
indicate that the structure of this Agreement may be in violation of such laws
or regulations, Practice and Manager shall amend this Agreement as necessary to
eliminate such violation. To the maximum extent possible, any such amendment
shall preserve the underlying economic and financial arrangements between
Practice and Manager. To the extent the parties cannot agree on any such
amendment or changes, the matter shall be submitted to binding arbitration upon
the request of either party and through the arbitration process an equitable
modification shall be implemented or an equitable termination of the Agreement
and relationship shall be made based on all of the facts and circumstances.
SECTION 12.13 Remedies Cumulative. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct separate and cumulative and may be exercised from time to time
as often as occasion may arise or as may be deemed expedient. Pursuit of any
remedy set forth in this Agreement shall not preclude pursuit of any other
remedy provided in this Agreement or any other remedy provided for in this
Agreement constitute a waiver of any amount due from a defaulting party under
this Agreement or of any damages accruing by reason of the violation of any of
its terms, provisions and covenants. No waiver of any violation shall be deemed
or construed to constitute a waiver of any other violation or breach of any of
the terms, provisions and covenants contained in this Agreement, and forbearance
to enforce one or more of the remedies provided on an event of default shall not
be deemed or construed to constitute a waiver of such default or of any other
remedy provided for in this Agreement.
SECTION 12.14 Language Construction. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. The parties acknowledge that each party
and its counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities
31
are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.
SECTION 12.15 No Obligation to Third Parties. None of the obligations
and duties of Manager or Practice under this Agreement shall in any way or in
any manner be deemed to create any obligation of Manager or of Practice to, or
any rights in, any person or entity not a party to this Agreement.
SECTION 12.16 Communications. Practice and Manager agree that good
communication between the parties is essential to the successful performance of
this Agreement, and each pledges to communicate fully and clearly with the other
on matters relating to the successful operation of Practice.
SECTION 12.17 Counterpart Executions; Facsimiles. This Agreement may
be executed in any number of counterparts with the same effect as if all of the
parties had signed the same document. Such executions may be transmitted to the
parties by facsimile and such facsimile execution shall have the full force and
effect of an original signature. All fully executed counterparts, whether
original executions or facsimile executions or a combination, shall be construed
together and shall constitute one and the same agreement.
SECTION 12.18 Arbitration. The parties hereto agree that any dispute
between them other than an action or proceeding for injunctive or other
equitable relief, shall be resolved by binding arbitration. Such arbitration
shall be conducted by the American Arbitration Association in accordance with
its then existing commercial rules applicable to such disputes. Such arbitration
shall be conducted in Houston, Texas. The decision of such arbitrators shall be
final and binding upon the parties hereto and may be enforced by a court with
applicable authority.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the following execution page(s) to be binding as of the day and year first above
written and to be effective and commence on October 1, 1996.
32
EXECUTION PAGE
TO THE
SERVICE AGREEMENT
BETWEEN
PHYSICIAN MANAGEMENT OF MCALLEN, INC.
AND
HEART CLINIC, P.A.
JULY 31, 1996
PRACTICE:
HEART CLINIC, P.A.
Date: 8/8/96 By: /s/ Xxxx Xxxxx, M.D.
-------- --------------------
Title: President
--------------------
MANAGER:
PHYSICIAN MANAGEMENT OF McALLEN, INC.
Date 7/31/96 By: Xxxxx Xxxx
----------
Title: President
----------
EXECUTION PAGE
TO THE
SERVICE AGREEMENT
BETWEEN
PHYSICIAN MANAGEMENT OF MCALLEN, INC.
AND
HEART CLINIC, P.A.
JULY 31, 1996
The Physician Shareholders of Practice and the Associated PAs hereby execute
this Agreement for purposes of acknowledging and agreeing to be bound by the
terms of Section 1.5, Article II, Sections 5.5, 6.3, 6.8, 6.9, Article VII,
Sections 10.3, 10.7, 11.4 and 11.5 hereof.
ASSOCIATED PAS: PHYSICIAN SHAREHOLDERS:
XXXX XXXXX, M.D., P.A.
By: /s/ Xxxx Xxxxx, M.D. /s/ Xxxx Xxxxx, M.D.
--------------------- --------------------
Xxxx Xxxxx, M.D. Xxxx Xxxxx, M.D.
Date 7/31/96 Date 7/31/96
XXXXXXX XXXXX, M.D., P.A.
By: /s/ Xxxxxxx Xxxxx, M.D. /s/ Xxxxxxx Xxxxx, M.D.
----------------------- ------------------------
Xxxxxxx Xxxxx, M.D. Xxxxxxx Xxxxx, M.D.
Date 7/31/96 Date 7/31/96
XXXXXXX XXXXX, M.D., P.A.
By: /s/ Xxxxxxx Xxxxx, M.D. /s/ Xxxxxxx Xxxxx, M.D.
----------------------- ------------------------
Xxxxxxx Xxxxx, M.D. Xxxxxxx Xxxxx, M.D.
Date 7/31/96 Date 7/31/96
XXXX XXXXXXXXX, M.D., P.A.
By: /s/ Xxxx Xxxxxxxxx, M.D. /s/ Xxxx Xxxxxxxxx, M.D.
------------------------ -------------------------
Xxxx Xxxxxxxxx, M.D. Xxxx Xxxxxxxxx, M.D.
Date 7/31/96 Date 7/31/96
XXXXXXX XXXXXX, M.D., P.A.
By: /s/ Xxxxxxx Xxxxxx, M.D. /s/ Xxxxxxx Xxxxxx, M.D.
------------------------ -------------------------
Xxxxxxx Xxxxxx, M.D. Xxxxxxx Xxxxxx, M.D.
Date 7/31/96 Date 7/31/96
XXXXXXXXXXX XXXX, M.D., P.A.
By: /s/ Xxxxxxxxxxx Xxxx, M.D. /s/ Xxxxxxxxxxx Xxxx, M.D.
-------------------------- --------------------------
Xxxxxxxxxxx Xxxx, M.D. Xxxxxxxxxxx Xxxx, M.D.
Date 7/31/96 Date 7/31/96
XXXXXX XXXXXXXX, M.D., P.A.
By: /s/ Xxxxxx Xxxxxxxx, M.D. /s/ Xxxxxx Xxxxxxxx, M.D.
------------------------- -------------------------
Xxxxxx Xxxxxxxx, M.D. Xxxxxx Xxxxxxxx, M.D.
Date 7/31/96 Date 7/31/96
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