SEPARATIONAGREEMENT BETWEEN THE REGISTRANT ANDPHYHEALTH CORPORATION

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Exhibit I - Tax Matters Agreement

 

 

SEPARATION AGREEMENT (“Agreement”) is dated as of October 31, 2009, by and between Physicians Healthcare Management Group, Inc., a Nevada corporation (“PHYH”), and Phyhealth Corporation, a Delaware corporation and wholly owned subsidiary of PHYH (“Phyhealth”).

 

W I T N E S S E T H:

 

WHEREAS, the board of directors of PHYH (the “Board”) has determined that it is advisable and in the best interests of PHYH and its stockholders to separate Phyhealth from PHYH (the “Separation”, Split-Off, or Spinoff), pursuant to the terms and subject to the conditions set forth in this Agreement, so that, following completion of the Separation, the Phyhealth Business will be conducted by Phyhealth as a separate, independent, publicly-traded company;

 

WHEREAS, PHYH and the Board intend that all of the assets and liabilities of PHYH and its subsidiaries attributed by the Board to Phyhealth (and no other assets or liabilities of PHYH or any subsidiary thereof) will be held by Phyhealth or one of the wholly owned Phyhealth Subsidiaries (as defined herein) once the Separation is consummated;

WHEREAS, to effect the Separation, (i) all of the assets attributed by the Board to Phyhealth will be conveyed, licensed, assigned or otherwise transferred to Phyhealth or one or more of the wholly owned Phyhealth Subsidiaries, (ii) all liabilities of Phyhealth will be assumed by, or will otherwise become the obligation or responsibility of, or the subject of any indemnity by, Phyhealth or one or more of the wholly owned Phyhealth Subsidiaries, and (iii) PHYH will issue to all its shareholders on the Spinoff Date a pro rata distribution of the following (based on the number of shares outstanding as of September 30,  2009),  as follows: (i) 3,121,475 shares of Phyhealth common stock on the 156,073,725 outstanding common shares of  PHYH; (ii) 3,240,000 Phyhealth Series A Preferred Convertible shares on the 162,000,000 Series A Preferred Convertible shares of PHYH; (iii) 622,324 Phyhealth Series B Preferred Convertible shares on the 31,116,175 Series B Preferred Convertible shares of PHYH currently outstanding; and  (iv) 3,472,713 common shares (10% of Phyhealth’s new capitalization, fully diluted) to be retained by PHYH (the “Dividend”);

 

WHEREAS, PHYH maintains its Executive Offices at 700 South Royal Poinciana Boulevard, Suite 506, Miami, Florida 33166;

 

WHEREAS, Phyhealth maintains its Executive Offices at 700 South Royal Poinciana Boulevard, Suite 506, Miami, Florida 33166, with its website at www.phyhealth.com;

 

WHEREAS, Phyhealth is a development stage company that has not yet generated revenue from operations;

 

WHEREAS, in addition to prior funding, in 2008, Phyhealth has secured $4 million in funding to develop its Pilot HMO which will operate in four counties in west central Florida;

 

 

WHEREAS, Plancorp has filed its required applications with the Florida Department of Financial Services, Office of Insurance Regulation (“OIR”) and Florida’s Agency for Health Care Administration (“AHCA”) for a Certificate of Authority to operate a Health Maintenance Organization;

 

WHEREAS, in February 2010, Plancorp intends to file its application for certification by the federal government’s Centers for Medicare and Medicaid Services to operate a Medicare Advantage Part C and Prescription Drug Part D plan;

 

WHEREAS, Phyhealth is a managed care organization that develops fully-integrated, community healthcare systems in partnership with participating physicians;

 

WHEREAS, Phyhealth Plans are designed to deliver high-quality, affordable healthcare by enabling physicians to assume end-to-end management of healthcare for their patients;

 

WHEREAS, the Phyhealth model empowers physicians to provide preventive healthcare and to proactively manage their patient's general health by aligning the incentives of the HMO, the physician and the patient;

 

WHEREAS, highly effective medical management will increase Phyhealth’s physician partners’ practice revenues, reduce expenses, and improve the economic value (equity) of their medical practices;

 

WHEREAS, Phyhealth will operate a centralized, scalable administrative operation at a Miami-Dade County headquarters to optimize operational efficiencies;

 

WHEREAS, Phyhealth is committed to locate key functions in its local service areas to better understand and respond to customer needs while better controlling medical expenses;

 

WHEREAS, Phyhealth believes this approach will also provide an important advantage over competitors that do not have local operations;

 

WHEREAS, in addition to its health plans, Phyhealth intends to offer additional value-added products and services in cooperation with physicians, including medical malpractice insurance through its exclusive affiliate, Physhield Insurance Exchange, a Risk Retention Group; local care facilities and wellness programs; as well as information technologies such as secure electronic medical records;

 

WHEREAS, Phyhealth focuses on serving consumers who choose their primary care doctor and control their own healthcare financing and insurance purchasing decisions;

 

WHEREAS, Phyhealth targets primarily small businesses with between two and 50 employees that insure their own employees, individuals, Medicare beneficiaries and recipients of government-sponsored programs such as Medicaid and State Children’s Health Insurance Program (SCHIP);

 

 

WHEREAS, Phyhealth believes each of these groups represent a significant growth opportunity, particularly in Florida, where attractive, under-penetrated service areas that are not dominated by a single competitor still exist;

 

 WHEREAS, Phyhealth will launch its Pilot community HMO in 2009 in four contiguous counties in west central Florida: Hillsborough, whose largest city is Tampa, and neighboring Pinellas County, whose largest city is St. Petersburg, Pasco and Polk;

 

WHEREAS, no competitors dominate this area, in terms of government or commercial individual and small group programs;

 

WHEREAS, this service area is still under-penetrated in regard to Medicare Advantage plans, as compared to other parts of the state, which will allow us to grow our membership more quickly while maintaining discipline in pricing and risk management;

 

WHEREAS, the Phyhealth structure is unique in that the attending physician-owners maintain control of the physician-patient relationship and are responsible for and manage 100% of patient healthcare costs;

 

WHEREAS, Phyhealth manages the business side of the health plans and offers incentives to deliver the highest quality, patient-centered care while efficiently managing medical expenses;

 

WHEREAS,  Phyhealth Plan members benefit by receiving higher quality healthcare through the Plan’s focus on keeping members healthy and fully coordinating care for members with acute and chronic disorders;

 

WHEREAS, Phyhealth Plans integrate all aspects of the delivery and financing of care in the community, including providing the network physicians with medical liability insurance protection through Physhield Insurance Exchange, a Risk Retention Group (“Physhield”), a Phyhealth affiliated insurer;

 

WHEREAS, Phyhealth intends to layer on additional products and services that will provide physicians the opportunity to develop local care facilities and wellness programs, as well as implement cutting edge information technologies including secure electronic medical records;

 

WHEREAS, PHYH and Phyhealth have no significant Liabilities.

 

NOW, THEREFORE, in furtherance of the foregoing and in consideration of the mutual promises and undertakings contained herein and in any other document executed in connection with this Agreement, the parties agree as follows:

 

ARTICLE I

 

 

Section 1.1     General. For the purposes of this Agreement, the following terms shall have the meanings set forth below:

 

(a)     “Action” shall mean any claim (whether or not filed), cause of action, suit, arbitration, or legal inquiry, demand, proceeding or investigation.

 

 

(b)     “Affiliate” shall mean, with respect to any specified Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such specified Person.

 

(c)     “Applicable Law” shall mean, with respect to any Person, all statutes, laws, ordinances, rules, orders and regulations of any Governmental Authority applicable to such Person and its business, properties and assets.

 

(d)     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

 

(e)     “Governmental Authority” shall mean any foreign, federal, state or local government, court, agency or commission or other governmental or regulatory body or authority.

 

(f)      “Dividend Date” shall mean 12:01 a.m. on October 31, 2008; provided, however, that if the Registration Statement is not declared effective by the SEC on or prior to October 31, 2008, then the Dividend Date shall be at 12:01 a.m. on the first Business Day of next succeeding the Day in which the SEC has declared effective the Registration Statement.  This is also referred to as the “Spinoff Date” or “Split-Off Date”.

 

 

(g)      “Intellectual Property Rights” or “IPR” means all intangible property rights worldwide arising under statutory or common law, whether or not perfected, including, without limitation, all (1) patents, patent applications and patent rights; (2) divisions, continuations, continuations-in-part, renewals, reissues, re-examinations, continuing prosecutions, and extensions of the foregoing existing at a time in question, or thereafter filed, issued or acquired; (3) rights associated with works of authorship including copyrights, copyright applications, copyright registrations, and derivative works; and (4) Know-how.

 

(h)     “Know-how” means confidential and/or proprietary technical and other information, whether patentable or not, including, without limitation, concepts, discoveries, inventions, modifications, improvements, data, results, designs, formulae, ideas, analyses, methods, techniques, assays, research plans, procedures, tests, processes (including manufacturing processes, specifications and techniques), laboratory records, chemical, pharmacological, toxicological, clinical, analytical and quality control data, reports, and summaries.

 

(i)     “Registration Statement” shall mean the Registration Statement on Form S-1 to filed by PHYH and Phyhealth with the SEC, including any and all amendments thereto and supplements thereof, as contemplated by this Agreement, with respect to the shares of Phyhealth to be issued on the Dividend Date, thus separating Phyhealth from PHYH.

 

(j)     “SEC” shall mean the United States Securities and Exchange Commission.

 

(k)     “Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

 

(l)     “Spinoff Date” or “Split-Off Date” shall mean 12:01 a.m. on October 31, 2008; provided, however, that if the Registration Statement is not declared effective by the SEC on or prior to October 31, 2008, then the Dividend Date shall be at 12:01 a.m. on the first Business Day of next succeeding the Day in which the SEC has declared effective the Registration Statement.  This is also referred to as the “Dividend Date”.

 

ARTICLE II

 

 

Section 2.1     Business Separation.

 

(a) On or prior to the Dividend Date, PHYH and Phyhealth shall take or cause to be taken all actions necessary to cause the transfer, assignment, delivery, license or other transfer or conveyance to Phyhealth or one or more wholly owned Subsidiaries of Phyhealth designated by Phyhealth of all right, title and interest in and to Phyhealth Assets held by PHYH.

 

(b) Following the spinoff, all rights, title and obligations, of the Parties with regard to the following assets/benefits shall belong to Phyhealth:

 

The $250,000.00 Secured Promissory Note (BWM Note) issued July 29, 2009 by Bottled Water Media (BWM), due December 29, 2009.

The Cash balance held by held by PHYH and by Phyhealth at the date of separation, whether in PHYH’s operating account, a brokerage account or elsewhere, less $50,000.00, which shall belong to PHYH.

All Certificates of deposit held by PHYH at the date of separation.

All prepaid expenses including retainers and security deposits.

The Shares of Wound Management Technology common stock, currently 100,000 shares held.

The 312,500 shares of convertible preferred stock in ZST Digital Networks, Inc.

 

The 25,000 shares Bio-Matrix Scientific Group, Inc. (BMSN) non-convertible preferred stock ., the 1,150,000 BMSN common shares and 150,000 BMSN common shares in the name of Nutmeg/Mercury Fund, LLLP, all acquired January 12, 2009.

 

The July 31, 2009 Forbearance Agreement with AccessKey IP, Inc. and the Amended Convertible Note issued July 31, 2009 by AccessKey IP, Inc., all accrued interest, 15 million shares of Access key common stock and the 25,000,000 AccessKey IP, Inc. Class A Stock Purchase Warrants.

The Surplus Promissory Note owed by Physhield Insurance Exchange, a Risk Retention Group, and the Administrative Services Agreement with Phyhealth Plan Corporation.

The IPR pertaining to the establishment and operation of a Health Maintenance Organization (HMO) and IPR pertaining to the establishment and operation of a medical profession liability insurance company.

 

The Physhield/Phyhealth Underwriters Memorandum of Understanding as Amended June 1, 2006.

The Application/certification to form Physhield Insurance Exchange, a Risk Retention Group.

Interest earned by Physhield on the surplus contribution under the terms of the Surplus Note dated February 15, 2006, including the 10% guarantee from Phyhealth Underwriters.

The $100,000 start-up costs loan receivable from Phyhealth Underwriters and all accrued interest up to the date of issuance of the first policies by Physhield.

All furniture, fixtures, computers, trade show booth and equipment.

All intercompany receivables from, payables to and investments in Phyhealth Underwriters, Inc., Florida Physicians, LLP and Phyhealth Plan Corporation.

(c) Following the spinoff, all rights, title and obligations of the Parties with regard to the following assets/benefits shall belong to PHYH:

 

The IPR pertaining to the establishment and operation of a Third Party Administrator (“TPA”).

The 148,218 shares of PHYH treasury stock, acquired in December 2008 and January 2009 during the company’s stock buyback program. 

$50,000.00 Cash.

(d) Following the spinoff, all rights, title and obligations of the Parties with regard to the following shall belong to both Parties:

 

Each Party shall be entitled to a 15% discount off of the retail price of any product or service furnished by the other Party directly or indirectly. Such discount will further extend to each of the PhyHealth HMO subscribers. Such discount will extend to, and be available the other Party, relative to any product or service in which either Party is a reseller.

Each Party shall be entitled to any and all advertising benefits granted by BWM in the BWM Note, which is subject to the approval of the distributing or delivering industry participant, e.g., JetBlue.

Each Party shall be entitled to the rights to the PHYH website(s).

 

(e)     The separation of Phyhealth Assets from PHYH, as contemplated by this Agreement, shall be effected in a manner that does not unreasonably disrupt either the Phyhealth Business or the PHYH Business. Notwithstanding the foregoing, PHYH and Phyhealth agree, and agree to cause their respective Subsidiaries, to use commercially reasonable efforts to obtain, before the Dividend Date, any Consents.

 

(f)     Prior to the Dividend, PHYH and Phyhealth will use commercially reasonable efforts to amend, in form and substance reasonably satisfactory to Phyhealth, all contractual arrangements between or among PHYH, any of its Subsidiaries and any other Person that either (i) relate to the Phyhealth Business or (ii) relate solely to the Phyhealth Business, but, by their terms,

 

 

contain provisions applicable to PHYH or any Phyhealth Subsidiary, so that, after the Dividend Date, such contractual arrangements (x) will relate solely to the Phyhealth Business and (y) will eliminate any provisions applicable to PHYH or any Phyhealth Subsidiary and, in either event, will inure to the benefit of Phyhealth or a Phyhealth Subsidiary on substantially the same economic terms as such arrangements exist as of the date hereof, but retain any benefits or rights (and related obligations) relating to PHYH or the Phyhealth Subsidiaries.

 

(g)     Except as otherwise specifically set forth herein, the rights and obligations of the parties with respect to Taxes shall be governed exclusively by Article VIII of this Agreement and the Tax Matters Agreement. Accordingly, Taxes shall not be treated as Assets or Liabilities for purposes of, or otherwise be governed by, this Section 2.1.

 

Section 2.2     Conveyance and Assumption Agreements. In connection with the transfer of Phyhealth Assets contemplated by this Article II, PHYH and Phyhealth shall execute, or cause to be executed by the appropriate Phyhealth Subsidiary and Phyhealth Subsidiary, respectively; conveyance and assumption instruments in such forms as shall be reasonably acceptable to PHYH and Phyhealth.

 

Section 2.3     Other Agreements. If subsequent to the Dividend Date, PHYH shall either (i) receive written notice from Phyhealth or (ii) determine that certain specified Assets of PHYH that properly constitute Phyhealth Assets were not transferred to Phyhealth or a Phyhealth Subsidiary prior to the Dividend, then, as soon as reasonably practicable thereafter, PHYH shall transfer and deliver any and all of such Assets to Phyhealth or a Phyhealth Subsidiary designated by it without the payment by Phyhealth or such Phyhealth Subsidiary of any consideration therefore. If subsequent to the Dividend Date, Phyhealth shall either (i) receive written notice from PHYH or (ii) determine that certain specified Assets of Phyhealth or a Phyhealth Subsidiary that do not properly constitute Phyhealth Assets were transferred to or held by Phyhealth or a Phyhealth Subsidiary prior to the Dividend, then, as soon as reasonably practicable thereafter, Phyhealth shall transfer and deliver, or shall cause the applicable Phyhealth Subsidiary to transfer and deliver, any and all of such Assets to PHYH without the payment by PHYH or such Phyhealth Subsidiary of any consideration therefore. Any disagreement regarding whether or not any Asset or Liability was or should have been a Phyhealth Group Asset or Phyhealth Group Liability, on the one hand, or an Phyhealth Group Asset or Phyhealth Group Liability, on the other hand, shall be resolved in accordance with the provisions of Article XIII hereof.

Section 2.4     Securities Matters.

 

(a)     Prior to the Dividend Date, PHYH and Phyhealth shall use their respective reasonable best efforts to cause the Registration Statement and any amendments or supplements thereto to be declared effective under the Securities Act. PHYH and Phyhealth shall also cooperate in preparing and filing with the SEC.

 

(b)     Prior to the Dividend Date, PHYH and Phyhealth shall prepare and file with the SEC a registration statement registering under the Exchange Act the shares of Phyhealth Common Stock to be issued in the Dividend, and shall take all actions necessary to cause it to become effective prior to the Dividend Date.

 

 

(c)     Prior to the Dividend Date, Phyhealth shall use commercially reasonable efforts to take all such actions as may be necessary or appropriate under state securities and blue sky laws of the United States (and any comparable laws under any foreign jurisdictions) in connection with the transactions contemplated by this Agreement or the other Separation Documents.

 

Section 2.5     Phyhealth Organizational Documents. On or prior to the Dividend Date, Phyhealth shall take all actions reasonably necessary to amend and restate the certificate of incorporation and bylaws of Phyhealth substantially in the form attached hereto as Exhibits A.

 

Section 2.6     Intercompany Accounts. PHYH, on the one hand, and Phyhealth, on behalf of itself and each Phyhealth Subsidiary, on the other hand, shall, to the extent practicable, prior to the Dividend, settle, cancel or otherwise eliminate all Intercompany Accounts. To the extent that it is not practicable for PHYH and Phyhealth to settle, cancel or otherwise eliminate all Intercompany Accounts prior to the Dividend, then each of PHYH and Phyhealth shall, promptly following the Dividend, settle, cancel or otherwise eliminate all Intercompany Accounts. For the avoidance of doubt, the provisions of this Section 2.6 shall not apply to any intercompany receivables, payables or other balances arising under any of the Separation Documents.

 

ARTICLE III

 

 

Section 3.1     Actions Prior to Dividend.

 

(a)     Subject to the satisfaction, or to the extent permitted by Applicable Law, PHYH shall establish the Dividend Date and any necessary or appropriate procedures in connection with the Dividend.

 

(b)     PHYH shall prepare and mail, at least thirty-five (35) Trading Days, but not more than forty-five (45) Trading Days, prior to the Dividend Date, to all holders of its common and preferred stock, the Notice of Dividend. PHYH and Phyhealth will prepare, and Phyhealth will, to the extent required under Applicable Law, file with the SEC any such documentation which PHYH determines is necessary or desirable to effectuate the Dividend and PHYH and Phyhealth shall each use their respective reasonable best efforts to obtain all necessary approvals from the SEC with respect thereto as soon as practicable.

 

Section 3.2     Prior to the Dividend Date, PHYH shall send, or shall cause to be sent, to each holder of record of shares of PHYH instructions for use in securing each holder’s Phyhealth stock certificate, or book-entry shares in uncertificated form of Phyhealth stock, equal to 2% of the number of holder’s PHYH shares. To facilitate recordkeeping, withholding and other obligations, PHYH and Phyhealth agree to cooperate and share information following the Dividend in order to carry out the purposes of this Agreement.

 

Section 3.3     Closing. The closing of the Separation will take place on the Dividend Date and shall be effective at 12:01 a.m. local time on the Dividend Date, unless the parties hereto agree in writing to another time, date and place.

 

 

ARTICLE IV

 

 

Section 4.1     Conditions to the Separation. The respective obligations of PHYH and Phyhealth to consummate the Separation are subject to the satisfaction or waiver (to the extent permitted by Applicable Law) of each of the following conditions:

 

(a)     Business Separation. The transfer of Phyhealth Assets to Phyhealth or a wholly owned Phyhealth Subsidiary pursuant to Article II hereof, shall have been affected and all of the conditions to the Dividend set forth in Article IV;

 

(b)     Separation Documents. Each of PHYH and Phyhealth shall have executed and delivered each of the Separation Documents;

 

(c)     Registration. The Registration Statement shall have been declared effective under the Securities Act and the Exchange Act, respectively, and shall not be the subject of any stop order or proceeding to seek a stop order;

 

(d)     No Injunctions. No order, injunction or decree issued by any Governmental Authority or other legal restraint or prohibition preventing the consummation of the Separation, the Dividend or any of the other transactions contemplated by this Agreement or any other Separation Document shall be in effect.

 

ARTICLE V

 

INTERCOMPANY BUSINESS RELATIONSHIPS

 

Section 5.1     Transition Services. Prior to or on the Dividend Date, PHYH and Phyhealth shall (A) bear its proportionate share of any costs, expenses and Liabilities arising out of or relating to the operation of such party’s business.

 

ARTICLE VI

 

 

Section 6.1     Phyhealth and PHYH shall take all actions necessary so that Phyhealth has established at or prior to the Dividend Date entered into, assumed or amended any Employee Arrangements, in each case, as the parties deem necessary and appropriate.

 

Section 6.2     Assumption and Retention of Liabilities.

 

(a)     Except as otherwise expressly provided herein, Phyhealth shall assume and agree to pay, perform, fulfill and discharge, and PHYH shall have no responsibility for, (i) all Liabilities under any Employee Arrangements, (ii) all employment or service-related Liabilities with respect to (A) all Phyhealth Employees (and their dependents and beneficiaries), (B) former Phyhealth Employees (and their dependents and beneficiaries) whose last employment with PHYH related primarily to the Phyhealth Business and (C) any individual who is, or was, an independent contractor, temporary employee, consultant, leased employee, or non-payroll worker or in any other employment relationship primarily connected to the Phyhealth Business, in each case, for periods during which such individuals were employees of or primarily performed services for the Phyhealth Business.

 

 

Section 6.3     Payroll Taxes and Reporting. PHYH and Phyhealth shall, to the extent practicable, (i) treat Phyhealth as a “successor employer” and PHYH as a “predecessor,” within the meaning of Sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to Phyhealth Employees for purposes of taxes imposed under the United States Federal Unemployment Tax Act or the United States Federal Insurance Contributions Act, and (ii) cooperate with each other to avoid, to the extent possible, the filing of more than one IRS Form W-2 with respect to each Phyhealth Employee for the calendar year in which the Dividend occurs. PHYH and Phyhealth shall each bear its responsibility for payroll tax obligations and for the proper reporting to the appropriate Governmental Authorities of compensation earned by their respective employees after the Dividend Date, including compensation related to the exercise of options.

 

Section 6.4     No Third Party Beneficiaries. Nothing contained in this Article VI, express or implied: (i) shall be construed to establish, amend, or modify any benefit plan, program, agreement or arrangement; (ii) shall alter or limit the ability of PHYH or Phyhealth, or any of their respective Affiliates to amend, modify or terminate any benefit plan, program, agreement or arrangement at any time assumed, established, sponsored or maintained by any of them; (iii) is intended to confer upon any current or former employee any right to employment or continued employment for any period of time by reason of this Article VI, or any right to a particular term or condition of employment; or (iv) is intended to confer upon any Person (including employees, retirees, or dependents or beneficiaries of employees or retirees) any right as a third-party beneficiary of this Agreement.

 

Section 6.5     Non-Solicitation of Employees. Without the prior written consent of PHYH, Phyhealth shall not, and shall cause each Phyhealth Subsidiary not to, for a period of one (1) year from and after the Dividend Date, either directly or indirectly, solicit for employment any senior or key employee of PHYH. Without the prior written consent of Phyhealth, PHYH shall not, for a period of one (1) year from and after the Dividend Date, either directly or indirectly, solicit for employment any senior or key employee of Phyhealth or any Phyhealth Subsidiary. Nothing in this Section 6.13 shall prohibit PHYH, Phyhealth or any of their respective Subsidiaries from hiring any such senior or key employees if such employees unilaterally (i) approach PHYH or Phyhealth, as the case may be, on an unsolicited basis or (ii) respond to a widely-published recruitment advertisement directed at the public in general.

 

ARTICLE VII

 

 

Section 7.1     Policies to be Transferred. On or prior to the Dividend Date, Phyhealth and PHYH shall take all actions necessary to transfer to Phyhealth any Insurance Arrangements listed applicable to Phyhealth’s business.

 

Section 7.2     Administration; Other Matters. From and after the Dividend Date, PHYH, on the one hand, and Phyhealth and the Phyhealth Subsidiaries, on the other hand, shall become responsible for coverage, at its sole cost and expense.

 

 

Section 7.3     Cooperation; Disagreements. The parties shall use commercially reasonable efforts to cooperate with respect to the various insurance matters contemplated by this Agreement.

 

ARTICLE VIII

 

 

Section 8.1     Tax Matters Agreement.

 

(a)     On or before the Dividend Date, Phyhealth and PHYH shall enter into a Tax Matters Agreement, substantially in the form of Exhibit I (the “Tax Matters Agreement”) providing for the allocation and payment, following the Dividend Date, of any and all Liabilities relating to Taxes and other Tax matters.

 

 (b)     Except to the extent that this Section 8.1 or another provision of this Agreement expressly indicates, this Agreement shall not govern any Tax matters, and any and all Liabilities relating to Taxes shall be governed exclusively by the Tax Matters Agreement.

 

(c)     Notwithstanding any other provision of the Tax Matters Agreement, all employment Taxes (including, but not limited to federal and state withholding Taxes, FICA, FUTA and state disability payments) for periods prior to the Dividend Date, relating to the employment of Phyhealth Employees and PHYH Transferred Employees, shall be obligations of Phyhealth and, to the extent any payments with respect thereto are made by PHYH following the Redemption Date, Phyhealth shall reimburse PHYH for such payments.

 

ARTICLE IX

 

 

Section 9.1     Provision of Corporate Minute Books and Corporate Seals. Prior to or as promptly as practicable following the Dividend Date, PHYH shall deliver to Phyhealth each corporate minute book and corporate seal in their possession that relates to Phyhealth or any of the Phyhealth Subsidiaries. From and after the Dividend, each such corporate minute book and corporate seal shall be the property of Phyhealth.

 

Section 9.2     Access to Corporate Records. Subject to the provisions hereof, from and after the date hereof, PHYH shall afford to Phyhealth, Phyhealth Subsidiaries and its Representatives reasonable access and duplicating rights, during normal business hours and upon reasonable advance notice, to all books and records of the Phyhealth, including, without limitation, stock ledgers and certificates of each corporation and documentation relating to the capital stock and Phyhealth Assets and Phyhealth Liabilities, including, in each case, all active agreements, active litigation files and government filings, corporate minute books and corporate seals.

 

Section 9.3     Retention of Records. Except as otherwise agreed in writing, or as otherwise provided in the Separation Documents, each of Phyhealth and PHYH shall use commercially reasonable efforts to preserve and keep (at such party’s sole cost and expense) all Information in such party’s possession or under its control relating directly and primarily to the business, Assets or Liabilities of the other, until the seventh anniversary of the Dividend Date, and

 

 

until such time, shall not destroy any such Information without first using commercially reasonable efforts to notify the other party of the proposed destruction and giving the other party the opportunity to take possession of such Information prior to such destruction.

 

Section 9.4     Access to Information. From and after the Dividend Date, each of Phyhealth and PHYH shall afford to the other and to the other’s Representatives reasonable access and duplicating rights, during normal business hours and upon reasonable advance notice, to all Information within the possession or control of such party relating to the other party’s business, Assets or Liabilities or relating to or arising in connection with the relationship between the parties on or prior to the Dividend Date, insofar as such access is reasonably required for a reasonable purpose, subject to the provisions below regarding Privileged Information. Without limiting the foregoing and except as otherwise provided in the Separation Documents, Information may be requested for audit, accounting, claims, litigation and Tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations.

 

In furtherance of the foregoing:

 

(a)     Each party hereto acknowledges that:

 

(i)     Each of Phyhealth and PHYH has or may obtain Privileged Information;

 

(ii)     there are a number of common matters affecting each or both of Phyhealth and PHYH, and each have a common legal interest in the preservation of the confidential status of the Proprietary Information relating to business of Phyhealth or Information or relating to or arising in connection with the relationship between the parties on or prior to the Dividend Date; and

 

(iv)     both Phyhealth and PHYH intend that the Transactions contemplated hereby and by the other Separation Documents and any transfer of Privileged Information in connection therewith shall not operate as a waiver of any applicable privilege.

 

(b)     Each of Phyhealth and PHYH agrees not to disclose or otherwise waive any privilege attaching to any Privileged Information, or rights attaching to any Proprietary Information relating to the business of Phyhealth and PHYH, respectively, or relating to or arising in connection with the relationship between Phyhealth and PHYH on or prior to the Dividend Date, without providing prompt written notice to and obtaining the prior written consent of the other, which consent shall not be unreasonably withheld, delayed or conditioned; provided, however, that Phyhealth and PHYH may make such disclosure or waiver with respect to Privileged Information, or rights any Proprietary Information if such Information relates solely to the pre-Separation business of the other.

 

Section 9.5     Confidentiality. The parties agree that with respect to Confidential Information, from and after the Dividend Date, (i) each of Phyhealth and PHYH shall, and shall use commercially reasonable efforts to cause its employees, Affiliates and Representatives to, preserve the confidentiality of all such Confidential Information obtained by it prior to the Dividend Date or furnished to it pursuant to this Agreement or the other Separation Documents, (ii) neither Phyhealth nor PHYH shall, and each of Phyhealth and PHYH shall use commercially reasonable efforts to

 

 

cause its employees, Affiliates and Representatives not to, disclose or use such Confidential Information and (iii) Phyhealth shall not, and shall use commercially reasonable efforts to cause its employees, Affiliates and Representatives not to, disclose or use any such Confidential Information obtained by it prior to the Dividend Date in connection with any Contract or other arrangement subject to a confidentiality agreement or other non-disclosure arrangement, which Contract or arrangement will not be assigned to or assumed by Phyhealth pursuant to this Agreement, except, in each case, as is otherwise expressly permitted pursuant to this Agreement or the other Separation Documents. Notwithstanding anything in the foregoing to the contrary, both Phyhealth and PHYH may use, but not disclose without written mutual agreement, Corporate Information or Separation Information in carrying out the purposes of this Agreement and in the ordinary course of their respective businesses.

 

Section 9.6     Cooperation with Respect to Government Reports and Filings. PHYH on the one hand, and Phyhealth, on the other hand, agree to provide the other or their respective Affiliates, with such cooperation and Information as may be reasonably requested by the other in connection with the preparation or filing of any government report or other government filing contemplated by this Agreement or the other Separation Documents or in conducting any other government proceeding relating to the Transactions, or relating to or in connection with the relationship between the Groups on or prior to the Dividend Date. Such cooperation and Information shall include, without limitation, promptly forwarding copies of appropriate notices and forms or other communications received from or sent to any Governmental Authority which relate to the other. Each party shall make its employees and facilities available during normal business hours and on reasonable prior notice to provide an explanation of any documents or Information provided hereunder. The reasonable out-of-pocket expenses incurred in the provision of such cooperation and assistance, to the extent related to filings with Governmental Authorities to effect the Separation, shall be borne equally by Phyhealth and PHYH, and otherwise shall be paid by the party requesting such assistance.

 

Section 9.7     Certain Limitations with Respect to Information.

 

(a)     Any Information owned by PHYH, on the one hand, or Phyhealth or a Phyhealth Subsidiary, on the other hand, that is provided to a requesting party pursuant to this Agreement or any other Separation Document shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.

 

(b)     A party providing Information hereunder or under any other Separation Document shall be entitled to be reimbursed by the requesting party for the reasonable out-of-pocket expenses, if any, of creating, gathering and copying such Information, to the extent that such costs are incurred for the benefit of the requesting party. Except as may be otherwise specifically provided elsewhere in this Agreement or in any of the Separation Documents, such costs shall be computed by the providing party using methodologies and procedures that bear a reasonable relationship to the actual cost of providing such Information.

 

(c)     The rights and obligations granted under this Article IX are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any other Separation Document and in any applicable Contracts with third parties, as well as any restrictions and obligations imposed by Applicable Law (including with respect to medical and other information privacy rights of individuals).

 

 

Section 9.8     Protective Arrangements. Subject hereto, in the event that Phyhealth or PHYH receives any demand under lawful process or from any Governmental Authority to disclose or provide Confidential Information, or relating to or arising in connection with the relationship between the Groups on or prior to the Dividend Date, that is subject to the confidentiality provisions hereof or otherwise constitutes Privileged Information, such party shall notify the other party prior to disclosing or providing such Confidential Information in order to enable the other party to seek an appropriate protective order or other remedy, or to take steps to resist or narrow the scope of such request or legal process, and the Person that received such request shall cooperate at the expense of the requesting party in seeking any reasonable protective arrangements requested by such requesting party. If a protective order or other remedy is not obtained and disclosure of such Confidential Information is required, the Person that received such request may so disclose only that portion of such Confidential Information that such Person has been advised by counsel is legally required. In any such event the disclosing Person will use commercially reasonable efforts to ensure that all such Confidential Information and other information that is so disclosed will be afforded confidential treatment.

 

Section 9.9     Further Assurances. In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable under Applicable Laws, regulations and agreements to consummate and make effective the Transactions contemplated by this Agreement and the other Separation Documents. Without limiting the foregoing, each party hereto shall cooperate with the other party, and execute and deliver, or use reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to obtain all Consents under any permit, license, agreement, indenture or other instrument, and take all such other actions as such party may reasonably be requested to take by the other party hereto from time to time, consistent with the terms of this Agreement and the Separation Documents, in order to effectuate the provisions and purposes of this Agreement and the other Separation Documents and the transfers of Phyhealth Assets and the other Transactions contemplated hereby and thereby. Without limiting the foregoing, each party will, at the reasonable request of any other party, take such other actions as may be reasonably necessary to vest in such other party all of its right, title and interest in and to all Assets to be transferred to such other party pursuant to the terms of this Agreement, free and clear of any encumbrance, if and to the extent it is practicable to do so. Notwithstanding the foregoing or anything in this Agreement or any other Separation Document to the contrary, no Group shall be required to make any payment, incur or become subject to any Liability, agree to any restriction, occur any event that would be adverse to it in order to obtain any such Consent.

 

Section 9.10     Continuing Indemnification Obligation. Following the Dividend Date, PHYH shall honor the rights of any director, officer or employee of Phyhealth or a Phyhealth Subsidiary to seek indemnification under any certificate of incorporation or bylaws of PHYH or any of its predecessors or Subsidiaries, or under any indemnification agreements or arrangements, arising out of or relating to actions or inactions of such directors or officers prior to the Dividend Date.

 

 

ARTICLE X

 

 

Section 10.1     Mutual Release. From and after the Dividend Date and except as specifically set forth in this Agreement or any of the other Separation Documents, EACH OF PHYHEALTH, ON THE ONE HAND, AND PHYH, ON THE OTHER HAND (ON ITS OWN BEHALF AND ON BEHALF OF ITS RESPECTIVE SUBSIDIARIES, SUCCESSORS AND ASSIGNS), RELEASES AND FOREVER DISCHARGES THE OTHER AND ITS AFFILIATES AND ITS AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, RECORD AND BENEFICIAL SECURITY HOLDERS (INCLUDING, WITHOUT LIMITATION, TRUSTEES AND BENEFICIARIES OF TRUSTS HOLDING SUCH SECURITIES), ADVISORS AND REPRESENTATIVES (IN THEIR RESPECTIVE CAPACITIES AS SUCH) AND THEIR RESPECTIVE HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “RELEASED PARTIES”), OF AND FROM ALL DEBTS, DEMANDS, ACTIONS, CAUSES OF ACTION, SUITS, ACCOUNTS, COVENANTS, CONTRACTS, AGREEMENTS, DAMAGES, CLAIMS (INCLUDING, WITHOUT LIMITATION, CLAIMS FOR DIRECT, CONSEQUENTIAL, EXEMPLARY, TREBLE AND PUNITIVE DAMAGES) AND LIABILITIES WHATSOEVER OF EVERY NAME AND NATURE, BOTH IN LAW AND IN EQUITY, WHICH THE RELEASING PARTY HAS OR EVER HAD, WHICH ARISE OUT OF OR RELATE TO, IN WHOLE OR IN PART, (A) THE BUSINESS, ASSETS, LIABILITIES AND OPERATIONS OF THE OTHER PARTY AND ITS SUBSIDIARIES AND (B) EVENTS, CIRCUMSTANCES OR ACTIONS, WHETHER KNOWN OR UNKNOWN, TAKEN BY SUCH OTHER PARTY OCCURRING OR FAILING TO OCCUR, OR ANY CONDITIONS EXISTING, ON OR PRIOR TO THE DIVIDEND DATE; provided, however, that the foregoing general release shall not apply to (a) any party’s rights to enforce this Agreement or the other Separation Documents or any of the instruments delivered pursuant to this Agreement or the other Separation Documents; (b) any Liability the release of which would result in the release of any Person other than a Released Party (provided that the parties agree not to bring suit or permit any of their Affiliates to bring suit against any Released Party with respect to any Liability to the extent such Released Party would be released with respect to such Liability by this Section 10.1 but for this clause (b)); (c) any Liability for the unpaid purchase price for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by one Group from the other Group prior to the Dividend Date; (d) any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value-received basis for work done by one Group at the request or on behalf of the other Group; or (e) any Liability that the parties may have with respect to indemnification or contribution pursuant to this Agreement for claims brought against the parties by third Persons, which Liability shall be governed by the provisions of Article XI and, if applicable, the appropriate provisions of the other Separation Documents. The parties hereto acknowledge that the foregoing general release shall not apply to any Liabilities or obligations assigned by the parties to third parties prior to the Dividend Date. Nothing in this Agreement shall impair any of the rights of any directors, officers or employees of PHYH or Phyhealth, or any of their respective Subsidiaries, to seek indemnification under any certificate of incorporation or bylaws of PHYH or any of its predecessors or Subsidiaries, or under any indemnification agreements, arising out of or relating to actions or inactions of such directors, officers or employees prior to the Dividend Date.

 

 

Section 10.2     Waiver of Conflict. The parties acknowledge that each of Phyhealth and the Phyhealth Subsidiaries, on the one hand, and PHYH, on the other hand, are both currently represented by attorneys and patent agents employed by PHYH. Each of Phyhealth (on behalf of itself and the Phyhealth Subsidiaries), on the one hand, and PHYH (on behalf of itself and the Phyhealth Subsidiaries), on the other hand, waives any conflict with respect to such common representation that may arise before, at or after the Dividend Date.

 

Section 10.3     No Representations or Warranties. Phyhealth agrees and acknowledges that neither PHYH nor any of the Phyhealth Subsidiaries nor any of their respective Affiliates is, in this Agreement or in any other agreement or document, making any representation or warranty to Phyhealth or any of the Phyhealth Subsidiaries as to any aspect of Phyhealth, Phyhealth Assets or Phyhealth Liabilities or as to any Consents, it being understood and agreed that Phyhealth and the Phyhealth Subsidiaries shall take Phyhealth Assets, and shall assume, perform and discharge Phyhealth Liabilities, on an “AS IS, WHERE IS” basis. PHYH agrees and acknowledges that neither Phyhealth nor any of the Phyhealth Subsidiaries nor any of their respective Affiliates is, in this Agreement or in any other agreement or document, making any representation or warranty to PHYH or any of the Phyhealth Subsidiaries as to any Consents. Phyhealth and the Phyhealth Subsidiaries shall bear the economic and legal risk that any conveyance of Phyhealth Assets contemplated hereby shall be insufficient to convey anything more than all of PHYH’s or the applicable Phyhealth Subsidiary’s right, title and interest to the applicable Phyhealth Assets.

 

ARTICLE XI

 

 

Section 11.1     Phyhealth’s Agreement to Indemnify PHYH. Subject to the terms and conditions set forth in this Agreement, from and after the Dividend Date, Phyhealth shall indemnify, defend and hold harmless PHYH and the Phyhealth Subsidiaries and their respective successors and assigns (collectively, the “PHYH Corporate Indemnified Parties”) from, against and in respect of any and all Indemnifiable Losses of the PHYH Corporate Indemnified Parties arising out of, relating to or resulting from, directly or indirectly:

 

(a)     the failure of Phyhealth, any Phyhealth Subsidiary or any other Person to pay, perform, satisfy or otherwise promptly discharge any Phyhealth Group Liabilities in accordance with their respective terms, whether prior to or after the Dividend Date or the date hereof;

 

(b)     Phyhealth, any Phyhealth Group Liability, and any Phyhealth Group Asset;

 

(c)     Phyhealth’s failure to observe from and after the Dividend Date its obligations under this Agreement or any of the other Separation Documents;

 

(d)     Any and all Liabilities arising out of or relating to the Separation, the Dividend, and/or the Registration Statement including, without limitation, any amounts it is required to pay to the Indemnified Parties pursuant to Section 11.3 hereof (together, the “Transaction Liabilities”) and (ii) all amounts PHYH is required to pay to directors of Phyhealth pursuant to the Indemnification Agreements (in addition to any indemnification provided for in Section 11.1(c) above, but only to the extent not arising out of or relating to an PHYH Indemnified Party’s failure to perform its obligations arising out of or relating thereto);

 

 

(e)     Liabilities arising out of or relating to the oversight and/or management of the businesses and affairs of PHYH or one or both of the Groups (collectively, the “PHYH Management Activities”) prior to the Dividend Date; provided, that Phyhealth’s responsibility for any such Liabilities shall be based on an equitable allocation of such Liabilities between Phyhealth and PHYH, based on the extent to which, as applicable: (i) such Liabilities arose out of or relate to the Phyhealth Business, Phyhealth Assets, and/or Phyhealth Liabilities prior to the Dividend Date, on the one hand, and the PHYH Business, the PHYH Assets, and/or the PHYH Liabilities prior to the Dividend Date, on the other hand, and/or (ii) Phyhealth or PHYH, as the case may be, benefited from the relevant PHYH Management Activities prior to the Dividend Date.

 

Section 11.2     PHYH’s Agreement to Indemnify Phyhealth. Subject to the terms and conditions set forth in this Agreement, from and after the Dividend Date, PHYH shall indemnify, defend and hold harmless Phyhealth and the Phyhealth Subsidiaries and their respective successors and assigns (collectively, the “Phyhealth Corporate Indemnified Parties”) from, against and in respect of any and all Indemnifiable Losses of the Phyhealth Corporate Indemnified Parties arising out of, relating to or resulting from, directly or indirectly:

 

(a)     the failure of PHYH to pay, perform, satisfy or otherwise promptly discharge any Phyhealth Liabilities in accordance with their respective terms, whether prior to or after the Dividend Date or the date hereof;

 

(b)     the Phyhealth Group, and any Phyhealth Asset;

 

(c)     PHYH’s failure to observe from and after the Dividend Date its obligations under this Agreement or any of the other Separation Documents;

 

(d)     Liabilities arising out of or relating to the PHYH Management Activities prior to the Dividend Date; provided, that PHYH’s responsibility for any such Liabilities shall be based on an equitable allocation of such Liabilities between Phyhealth and PHYH, based on the extent to which, as applicable: (i) such Liabilities arose out of or relate to the Phyhealth Business, Phyhealth Assets, and/or Phyhealth Liabilities prior to the Dividend Date, on the one hand, and the PHYH Business, the PHYH Assets, and/or the PHYH Liabilities prior to the Dividend Date, on the other hand, and/or (ii) Phyhealth or PHYH as the case may be, benefited from the relevant PHYH Management Activities prior to the Dividend Date.

 

Section 11.3     Agreement to Indemnify Officers, Directors and Others. From and after the Dividend Date, each of PHYH and Phyhealth shall jointly and severally indemnify, defend and hold harmless each of the officers, directors, employees, agents and advisors of PHYH, Phyhealth, and the Phyhealth Subsidiaries, and their respective successors and assigns (such PHYH indemnified parties, collectively with the PHYH Corporate Indemnified Parties, the “PHYH Indemnified Parties”, and such Phyhealth indemnified parties, collectively with the Phyhealth Corporate Indemnified Parties, the “Phyhealth Indemnified Parties”) from, against and in respect of any and all Indemnifiable Losses arising out of, relating to or resulting from, directly or indirectly, the Transaction Liabilities.

 

Section 11.4     Other Liabilities. This Article XI shall not be applicable to: any Indemnifiable Losses relating to, arising out of or due to any breach of the provisions of any other Contract (other than this Agreement or the other Separation Documents) between or among PHYH, on the one hand, and Phyhealth and any of the Phyhealth Subsidiaries, on the other hand, which shall be governed by the terms of such other Contract.

 

 

ARTICLE XII

 

TERMINATION AND AMENDMENT

 

Section 12.1     Termination at any Time by Board Approval. This Agreement may be terminated and the Transactions, including, without limitation, the Separation and the Dividend, may be abandoned, in the sole discretion of the Board, at any time prior to the date of first mailing of the Notice of Dividend. Thereafter, this Agreement may be terminated upon the issuance by a Governmental Authority of an effective stop order with respect to the Registration Statement or an order, injunction or decree that shall prohibit or prevent the consummation of the Separation and the transactions contemplated hereunder. In the event of such termination, no party hereto or to any other Separation Document shall have any Liability to any Person by reason of this Agreement or any other Separation Document.

 

Section 12.2     Amendment. Prior to the Dividend, this Agreement may be amended, modified or supplemented at any time as determined by the Board, and shall be evidenced by a written agreement signed by all of the parties hereto. Following the Dividend, this Agreement may be amended, modified or supplemented at any time only by the parties hereto through a written agreement signed by all of the parties hereto.

 

ARTICLE XIII

 

 

Section 13.1     Dispute Resolution Procedures. If a controversy, claim or dispute of whatever nature arising out of or relating to this Agreement or any of the other Separation Documents or the breach, termination, enforceability or validity thereof which has not been resolved in the normal course of business arises between the parties (a “Dispute”), the parties agree to use and follow the dispute resolution procedures of this Article XIII, except where an injunction, specific performance or other equitable relief is sought. At such time as the Dispute is resolved under this Article XIII, interest (at a rate per annum, compounded daily, equal to the Prime Rate) shall be paid to the party receiving any disputed monies to compensate for the lapsed time between the date such disputed amount originally was paid or should have been paid through the date monies are paid in settlement of the Dispute.

 

Section 13.2     Mediation. If any Dispute has not been resolved by the parties, the parties agree that such Dispute shall be referred to mediation. Unless the parties agree otherwise, the mediation shall be conducted in accordance with the CPR Institute for Dispute Resolution Model Procedure for Mediation of Business Disputes in effect on the date of this Agreement by a mediator mutually selected by the parties. Within fifteen (15) Business Days after the mediator has been selected as provided above, both parties and their respective attorneys shall meet with the mediator for one mediation session of at least four (4) hours, it being agreed that each party representative attending such mediation session shall be a Senior Party Representative or member of the board of directors with authority to settle the Dispute. If the Dispute cannot be settled at such mediation session or at any mutually agreed continuation thereof, either party may give the other and the mediator a written notice declaring the mediation process at an end.

 

 

Section 13.3     Arbitration. If the Dispute has not been resolved by the dispute resolution procedures described in Section 13.2 above, the parties agree that any such Dispute shall be settled by binding arbitration before the American Arbitration Association (“AAA”) in San Francisco, California pursuant to the Commercial Rules of the AAA. Any Dispute subject to arbitration pursuant to this Section 13.7 shall be heard and determined by three (3) arbitrators. Each of PHYH and Phyhealth shall appoint one arbitrator within fifteen (15) Business Days of the referral of such Dispute to arbitration. The two party-appointed arbitrators shall have ten (10) Business Days from the appointment of the second arbitrator to agree on a third arbitrator who shall chair the arbitral tribunal. Any arbitrator not timely appointed by either PHYH or Phyhealth shall be appointed by the AAA. If any appointed arbitrator declines, resigns, becomes incapacitated, or otherwise refuses or fails to serve or to continue to serve as an arbitrator, the party or arbitrators entitled to appoint such arbitrator shall promptly appoint a successor. Any arbitrators selected to resolve the Dispute shall be bound exclusively by the laws of the State of Delaware without regard to its choice of law rules. Any decisions of award of the arbitrators shall be in writing and will be final and binding upon the parties and may be entered as a judgment by the parties hereto. Any rights to appeal or review such award by any court or tribunal are hereby waived to the extent permitted by law.

 

Section 13.3     Costs. The costs of any mediation or arbitration pursuant to this Article XIII shall be shared equally between PHYH and Phyhealth; provided, however, that each party shall be responsible for its own costs and expenses, including without limitation, legal fees incurred in connection therewith.

 

Section 13.4     Confidentiality.  All negotiations, conferences, discussions, mediation and arbitration shall be Confidential Information. All negotiations, conferences, discussions and mediation shall be treated as compromise and settlement negotiations. Nothing said or disclosed, nor any document produced, in the course of such negotiations, conferences, discussions and mediation that is not otherwise independently discoverable, shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future mediation, arbitration, litigation or any other judicial or administrative proceeding.

 

ARTICLE XIV

 

 

Section 14.1     Expenses. Except to the extent otherwise provided for in the Separation Documents, all out-of-pocket costs and expenses with respect to the Transactions contemplated hereby and by the other Separation Documents (i) incurred on or prior to the Dividend Date, shall be borne by Phyhealth, and (ii) incurred following the Dividend Date, shall be borne by the party incurring such expense.

 

Section 14.2     Late Payments. Except as expressly provided to the contrary in this Agreement or in any other Separation Document, any amount not paid when due pursuant to this Agreement or any other Separation Document (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within thirty (30) days of such bill, invoice or other demand) shall accrue interest at a rate per annum, compounded daily, equal to the Prime Rate.

 

 

Section 14.3     Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of Delaware, without reference to choice of law principles, including matters of construction, validity and performance.

 

Section 14.4     Notices. All notices, requests, demands, waivers and communications required or permitted to be given under this Agreement shall be in writing (which shall include notice by telecopy or like transmission) and shall be deemed given (i) on the day delivered (or if that day is not a Business Day, on the first following Business Day) when (x) delivered personally against receipt or (y) sent by overnight courier, (ii) on the day when transmittal confirmation is received if sent by telecopy (or if that day is not a Business Day, on the first following Business Day) and (iii) on the third Business Day after mailed by certified or registered first-class mail to the parties at the parties’ business addresses (or to such other addresses as a party may have specified by notice given to the other parties hereto pursuant to this provision).

 

Section 14.5     Third-Party Beneficiaries. Except as provided herein with respect to indemnification of Phyhealth Indemnified Parties and PHYH Indemnified Parties hereunder, nothing in this Agreement shall confer any rights upon any Person or entity other than the parties hereto and their respective heirs, successors and permitted assigns.

 

Section 14.6     Entire Agreement. This Agreement and the other Separation Documents, together with the Disclosure Letter and all schedules, appendices, certificates, instruments and agreements delivered pursuant hereto and thereto, contain the entire understanding of the parties hereto and thereto with respect to the subject matter contained herein and therein, and supersede and cancel all prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter.

 

Section 14.7     Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references herein to “Articles”, “Sections”, or “Appendices” shall be deemed to be references to Articles or Sections hereof or Appendices hereto unless otherwise indicated. All references herein to “Sections” of the Disclosure Letter shall be deemed to be references to the Disclosure Letter unless otherwise indicated.

 

Section 14.8     Schedules. The Disclosure Letter and all Exhibits referenced in this Agreement and attached hereto are incorporated into this Agreement by reference and made a part hereof. The parties hereto shall be entitled to supplement or amend the Disclosure Letter at any time prior to the Dividend Date.

 

Section 14.9     Counterparts. This Agreement may be executed in one or more counterparts, which may be delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

Section 14.10     Parties in Interest; Assignment; Successors. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties hereto without the prior written consent of the other party. Subject to the preceding sentence, this Agreement shall inure to the benefit of and be binding upon Phyhealth and PHYH and their respective Subsidiaries, successors and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer upon any other Person any rights or remedies under or by reason of this Agreement.

 

 

Section 14.11     Severability; Enforcement. The invalidity of any portion hereof shall not affect the validity, force or effect of the remaining portions hereof. If it is ever held that any restriction hereunder is too broad to permit enforcement of such restriction to its fullest extent, each party agrees that a court of competent jurisdiction may enforce such restriction to the maximum extent permitted by law, and each party hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction.

 

Section 14.12     Remedies. The parties agree that money damages or other remedy at law would not be a sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that in addition to all other remedies available to them, each of them shall be entitled to the fullest extent permitted by law to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including specific performance, without bond or other security being required.

 

Section 14.13     Force Majeure. No party shall be deemed in default of this Agreement or any other Separation Document to the extent that any delay or failure in the performance of its obligations under this Agreement or any other Separation Document results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, power failures, communication failures including internet disruptions, equipment failures, labor problems or unavailability of parts. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay.

 

Section 14.14     Waivers of Default. Waiver by any party of any default by any other party of any provision of this Agreement or any other Separation Document (a) shall be effective only if in writing; and (b) if given, shall not be deemed a waiver by the waiving party of any subsequent or other default, nor shall it prejudice the rights of the other party.

 

Section 14.15     Interpretation. In the event of a conflict between a provision of this Agreement and any provision of any other Separation Document, any specific provision of the applicable Separation Document shall control. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement taken as a whole (including all of the Schedules, Exhibits and Appendices hereto) and not to any particular provision of this Agreement. Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement unless otherwise specified. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless the context otherwise requires or unless otherwise specified. The word “or” shall not be exclusive. The term “dollars” and “$” shall mean United States dollar.

 

 

IN WITNESS WHEREOF, each of the parties has caused this Separation Agreement to be duly executed on its behalf by its officers thereunto duly authorized, all as of the day and year first above written.

 

PHYSICIANS HEALTHCARE MANAGEMENT GROUP, INC.
By:			/s/ Robert L. Trinka
Name:			Robert L. Trinka
Title:			President
PHYHEALTH CORPORATION
By:			/s/ Robert L. Trinka
Name:			Robert L. Trinka
Title:			President