Unassociated Document


    
      
        

        

      

      EXHIBIT
10.18

      


      


      


      


      


      


      


      


      


      


      


      


      


      SEPARATION
AGREEMENT BETWEEN THE REGISTRANT

      AND
PHYHEALTH CORPORATION

      


       

       

       

       

       

       

       

       

       

      
 

      
        
           


        

        
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      SEPARATION
AGREEMENT

       

       

      BY AND
BETWEEN

       

      PHYSICIANS
HEALTHCARE MANAGEMENT GROUP, INC.

       

      AND

       

      PHYHEALTH
CORPORATION

       

       

       

        
          

        

      

       

      
        DATED AS
OF

         

      

      October
31, 2009

      


      
        
          

        

      

       

      Exhibits

       

      


      


      Exhibit I -
Tax Matters Agreement

      
 

      
        
           


        

        
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      SEPARATION
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;

       

      
        
          
          

        

        
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        WHEREAS,
Florida Physicians, LLC, a Florida limited liability company, was formed as a
wholly owned subsidiary of Phyhealth, which in turn formed a wholly owned
subsidiary, Phyhealth Plan Corporation (“Plancorp”), a Florida domiciled,
for-profit corporation;

      

       

      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);

       

      
        
          
          

        

        
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      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

       

      DEFINITIONS

       

      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.

       

      
        
          
          

        

        
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      (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.

       

      
        
          
          

        

        
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      (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

       

      ACTIONS TO BE TAKEN PRIOR TO
THE DIVIDEND

       

      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.

      


      
        
          
          

        

        
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      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,


       

      
        
          
          

        

        
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      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.

       

      
        
          
          

        

        
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      (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

       

      THE
DIVIDEND

       

      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.

       

      
        
          
          

        

        
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      ARTICLE
IV

       

      CONDITIONS

       

      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

      FOLLOWING THE
SEPARATION

       

      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

       

      EMPLOYEE
MATTERS

       

      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.

       

      
        
          
          

        

        
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      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

       

      INSURANCE
MATTERS

       

      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.

       

      
        
          
          

        

        
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      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

       

      TAX
MATTERS

       

      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

       

      ADDITIONAL
COVENANTS

       

      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 

       

      
        
          
          

        

        
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      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 

       

      
        
          
          

        

        
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      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).

       

      
        
          
          

        

        
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      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.

       

      
        
          
          

        

        
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      ARTICLE
X

       

      MUTUAL RELEASE – NO
REPRESENTATIONS OR WARRANTIES

       

      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.

       

      
        
          
          

        

        
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      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

       

      INDEMNIFICATION

       

      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);

       

      
        
          
          

        

        
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      (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.

       

      
        
          
          

        

        
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      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

       

      DISPUTE
RESOLUTION

       

      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.

       

      
        
          
          

        

        
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      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

       

      GENERAL
PROVISIONS

       

      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.

       

      
        
          
          

        

        
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      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.

       

      
        
          
          

        

        
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      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.

       

      
        
          
          

        

        
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      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

              


      

      


      

        
          
             


          

          
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