Unassociated Document


    
      
        

        

      

      EXHIBIT
10.19

      


      


      


      


      


      


      


      


      


      


      


      


      


      


      


      TAX
MATTERS AGREEMENT BETWEEN THE REGISTRANT

      AND
PHYHEALTH CORPORATION

      


       

       

       

       

       

       

      
 

      



      
        
           


        

        
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      TAX
MATTERS AGREEMENT

       

       

      by and
among

       

       

      PHYSICIANS
HEALTHCARE MANAGEMENT GROUP, INC.

       

       

      AND
ITS AFFILIATES,

       

      and

       

      PHYHEALTH
CORPORATION

       

      AND
ITS AFFILIATES,

       

       

       

       

       

       

       

       

       

       

       

      DATED
AS OF

       

      October
31, 2009


      
        
           


        

        
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      TAX
MATTERS AGREEMENT

       

      THIS TAX
MATTERS AGREEMENT (this “Agreement”) dated as of October 31, 2009, by and
between Physicians Healthcare Management Group, Inc., a Nevada corporation
(“PHYH”) and Phyhealth Corporation, a Delaware corporation (“Phyhealth”),
(collectively, the “Parties”) is entered into in connection with the Split-Off,
as per the Separation Agreement, between the same Parties, of the same date, to
which this Agreement is attached.

       

      W I T N E S S E T H:

       

      WHEREAS,
as of the date hereof, PHYH and its direct and indirect domestic subsidiaries
are members of an Affiliated Group, of which PHYH is the common
parent;

       

      WHEREAS,
PHYH, acting through its direct and indirect subsidiaries, currently conducts a
number of businesses, including (i) the PHYH Business, and (ii) the
Phyhealth Business;

       

      WHEREAS,
the Board of Directors of PHYH has determined that it is appropriate, desirable
and in the best interests of PHYH and its stockholders to separate PHYH into two
separate, independent and publicly traded companies, (i) one comprising the
Phyhealth Business, which shall be owned and conducted, directly or indirectly,
by Phyhealth, and (ii) one comprising the PHYH Business which shall
continue to be owned and conducted, directly or indirectly, by
PHYH;

       

      WHEREAS,
in order to effect such separation, (i) PHYH will contribute to the capital
of Phyhealth the assets of the Phyhealth Business, and (ii) stock of
Phyhealth will be issued as a dividend (the “Split-Off”).

       

      WHEREAS,
PHYH and Phyhealth have determined that it is necessary and desirable, as part
of the Split-Off, to allocate, transfer, retain or assign to Phyhealth, the
Phyhealth Group Assets; and

       

      WHEREAS,
in contemplation of the Split-Off, pursuant to which the Phyhealth Group will
cease to be members of the Affiliated Group of which PHYH is the parent, the
Parties have determined to enter into this Agreement, setting forth their
agreement with respect to certain tax matters.

       

      AGREEMENT

       

      NOW,
THEREFORE, in consideration of the mutual covenants and agreements contained
herein, the Parties hereby agree as follows:

       

      
        	
                Section 1.

              	
                Definitions.

              


      

       

      “Affiliated Group” means an
affiliated group of corporations within the meaning of section 1504(a)(1) of the
Code that files a consolidated return for United States federal Income Tax
purposes.

       

      “After Tax Amount” means any
additional amount necessary to reflect the hypothetical Tax consequences of the
receipt or accrual of any payment required to be made under this Agreement
(including payment of an additional amount or amounts hereunder and the effect
of the deductions available for interest paid or accrued and for Taxes such as
state and local Income Taxes), determined by using the highest applicable
statutory corporate Income Tax rate (or rates, in the case of an item that
affects more than one Tax) for the relevant taxable period (or portion
thereof).

       

      
        
          
          

        

        
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      “Agreement” shall have the
meaning set forth in the preamble hereto.

       

      “PHYH” shall have the meaning
set forth in the preamble hereto.

       

      “PHYH Affiliate” means any
corporation or other entity directly or indirectly “controlled” by PHYH where
“control” means the ownership of fifty percent (50%) of the ownership
interests of such corporation or other entity (by vote or value) or the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such corporation or other entity, but
at all times excluding Phyhealth and all Phyhealth Affiliates.

       

      “PHYH Business” means all of
the businesses and operations conducted by PHYH and the PHYH Affiliates,
excluding the Phyhealth Business at any time, whether prior to, or after the
Split-Off Date.

       

      “PHYH Group” means the
Affiliated Group, or similar group of entities as defined under corresponding
provisions of the laws of other jurisdictions, of which PHYH is the common
parent corporation, and any corporation or other entity which may be, may have
been or may become a member of such group from time to time, but excluding any
member of the Phyhealth Group.

       

       “Audit” means any audit,
assessment of Taxes, other examination by any Taxing Authority, proceeding, or
appeal of such a proceeding relating to Taxes, whether administrative or
judicial, including proceedings relating to competent authority
determinations.

       

       “Carryback Period” shall
have the meaning set forth in Section 3.05.

       

      “Phyhealth” shall have the
meaning set forth in the preamble hereto.

       

      “Phyhealth Affiliate” means
any corporation or other entity directly or indirectly “controlled” by Phyhealth
at the time in question, where “control” means the ownership of fifty percent
(50%) of the ownership interests of such corporation or other entity (by
vote or value) or the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such corporation or
other entity.

       

      “Phyhealth Group Assets” shall
mean the assets of Phyhealth after the Split-Off Date, as determined under the
Separation Agreement by and among the Parties.

       

      “Phyhealth Business” means the
business and operations conducted by Phyhealth and the Phyhealth Affiliates as
such business and operations will continue after the Split-Off
Date.

       

      “Phyhealth Business Records”
shall have the meaning set forth in Section 9.02(b).

       

      “Phyhealth Group” means the
Affiliated Group, or similar group of entities as defined under corresponding
provisions of the laws of other jurisdictions, of which Phyhealth will be the
common parent corporation immediately after the Split-Off and including any
corporation or other entity which may become a member of such group from time to
time.

       

      
        
          
          

        

        
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      “Phyhealth Group Liabilities”
shall mean the liabilities of Phyhealth after the Split-Off Date, if any, as
determined under the Separation Agreement by and among the Parties.

       

       “Phyhealth Separate Tax Amount”
shall mean with respect to any Tax Return, the amount of Taxes
attributable to a Post-Split-Off Period that Phyhealth and each Phyhealth
Affiliate would have incurred if they had filed a consolidated return, combined
return or a separate return, as the case may be, separate from the members of
the PHYH Group, for the relevant Tax period, and such amount shall be computed
by PHYH in a manner consistent with (i) general Tax accounting principles,
(ii) the Code and the Treasury regulations promulgated thereunder, and
(iii) past practice.

       

      “Phyhealth Sharing Percentage”
means as of the close of business on the first trading day after the Split-Off
Date, the percentage of Phyhealth’s market capitalization as compared to the
combined market capitalization of PHYH and Phyhealth.

       

      “Code” means the Internal
Revenue Code of 1986, as amended.

       

      “Combined Return” means any
Tax Return, other than with respect to United States federal Income Taxes, filed
on a consolidated, combined (including nexus combination, worldwide combination,
domestic combination, line of business combination or any other form of
combination) or unitary basis wherein Phyhealth or one or more Phyhealth
Affiliates join in the filing of such Tax Return (for any taxable period or
portion thereof) with PHYH or one or more PHYH Affiliates.

       

      “Consolidated Return” means
any Tax Return with respect to United States federal Income Taxes filed on a
consolidated basis wherein Phyhealth or one or more Phyhealth Affiliates join in
the filing of such Tax Return (for any taxable period or portion thereof) with
PHYH or one or more PHYH Affiliates.

       

      “Contribution” shall have the
meaning set forth in the recitals hereto.

       

       “Estimated Tax Installment
Date” means, with respect to United States federal Income Taxes, the
estimated Tax installment due dates prescribed in section 6655(c) of the Code
and, in the case of any other Tax, means any other date on which an installment
payment of an estimated amount of such Tax is required to be made.

       

       “Filing Party” shall
have the meaning set forth in Section 8.01.

       

      “Final Determination” means
the final resolution of liability for any Tax for any taxable period, by or as a
result of (i) a final and unappealable decision, judgment, decree or other
order by any court of competent jurisdiction; (ii) a final settlement with
the IRS, a closing agreement or accepted offer in compromise under section 7121
or section 7122 of the Code, or a comparable agreement under the laws of other
jurisdictions, which resolves the entire Tax liability for any taxable period;
(iii) any allowance of a refund or credit in respect of an overpayment of
Tax, but only after the expiration of all periods during which such refund may
be recovered by the jurisdiction imposing the Tax; or (iv) any other final
disposition, including by reason of the expiration of the applicable statute of
limitations.

       

      “Income Tax” means any
federal, state, local or foreign Tax determined (in whole or in part) by
reference to net income, net worth, gross receipts or capital, or any such Taxes
imposed in lieu of such a Tax. For the avoidance of doubt, the term “Income Tax”
includes any franchise Tax, net worth, gross receipts, capital or any such Taxes
imposed in lieu of such a Tax.

       

      
        
          
          

        

        
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      “Income Tax Return” means any
Tax Return relating to any Income Tax.

       

       “IRS” means the United
States Internal Revenue Service or any successor thereto, including its agents,
representatives, and attorneys.

       

       “Non-Income Tax Return”
means any Tax Return relating to any Tax other than an Income Tax.

       

      “Officer’s Certificate” means
a letter executed by an officer of PHYH or Phyhealth and provided to Tax Counsel
as a condition for the completion of a Tax Opinion or Supplemental Tax
Opinion.

       

      “Owed Party” shall have the
meaning set forth in Section 7.05.

       

      “Owing Party” shall have the
meaning set forth in Section 7.05.

       

       “Parties” shall have the
meaning set forth in the preamble hereto.

       

       “Ruling” means any
private letter ruling issued by the IRS in connection with the Split-Off in
response to a request for such a private letter ruling filed by PHYH (or any
PHYH Affiliate).

       

      “Ruling Documents” means
(i) the request for a Ruling filed with the IRS, together with any
supplemental filings or other materials subsequently submitted on behalf of
PHYH, the PHYH Affiliates and PHYH’s shareholders to the IRS, the appendices and
exhibits thereto, and any Ruling issued by the IRS to PHYH (or any PHYH
Affiliate) in connection with the Split-Off and (ii) any similar filings
submitted to, or rulings issued by, any other Taxing Authority in connection
with the Split-Off.

       

      “Separation Agreement” means
the separation agreement by and between PHYH and Phyhealth.

       

      “Sole Responsibility Item”
means any Tax Item for which the non-Filing Party has the entire economic
liability under this Agreement.

       

      “Split-Off” shall have the
meaning set forth in the recitals hereto.

       

      “Split-Off Date” means the
close of business on the date which the Split-Off is effected.

       

       “Supplemental Tax Opinion”
shall have the meaning set forth in Section 4.02(d).

       

      “Tax Asset” means any Tax Item
that has accrued for Tax purposes, but has not been realized during the taxable
period in which it has accrued, and that could reduce a Tax in another taxable
period, including a net operating loss, net capital loss, research and
development tax credit, investment tax credit, foreign tax credit, charitable
deduction or credit related to alternative minimum tax or any other Tax
credit.

       

      
        
          
          

        

        
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       “Tax Benefit” means a
reduction in the Tax liability (or increase in refund or credit or any item of
deduction or expense) of a taxpayer (or of the Affiliated Group, or similar
group of entities as defined under corresponding provisions of the laws of any
other jurisdiction, of which it is a member) for any taxable period. Except as
otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been
realized or received from a Tax Item in a taxable period only if and to the
extent that the Tax liability of the taxpayer (or of the Affiliated Group, or
similar group of entities as defined under corresponding provisions of the laws
of any other jurisdiction, of which it is a member) for such period, after
taking into account the effect of the Tax Item on the Tax liability of such
taxpayer (or of the Affiliated Group, or similar group of entities as defined
under corresponding provisions of the laws of any other jurisdiction, of which
it is a member) in the current period and all prior periods, is less than it
would have been had such Tax liability been determined without regard to such
Tax Item.

       

      “Tax Counsel” means a
nationally recognized law firm selected by PHYH to provide a Tax
Opinion.

       

      “Tax Detriment” means an
increase in the Tax liability (or reduction in refund or credit or any item of
deduction or expense) of a taxpayer (or of the Affiliated Group, or similar
group of entities as defined under corresponding provisions of the laws of any
other jurisdiction, of which it is a member) for any taxable period. Except as
otherwise provided in this Agreement, a Tax Detriment shall be deemed to have
been realized or incurred from a Tax Item in a taxable period only if and to the
extent that the Tax liability of the taxpayer (or of the Affiliated Group, or
similar group of entities as defined under corresponding provisions of the laws
of any other jurisdiction, of which it is a member) for such period, after
taking into account the effect of the Tax Item on the Tax liability of such
taxpayer (or of the Affiliated Group, or similar group of entities as defined
under corresponding provisions of the laws of any other jurisdiction, of which
it is a member) in the current period and all prior periods, is more than it
would have been had such Tax liability been determined without regard to such
Tax Item.

       

      “Tax Item” means any item of
income, gain, loss, deduction, expense or credit, or other attribute that may
have the effect of increasing or decreasing any Tax.

       

      “Tax Opinion” means an opinion
issued by Tax Counsel as one of the conditions to completing the Split-Off
addressing certain United States federal Income Tax consequences of the
Split-Off under section 355 of the Code.

       

      “Tax Return” means any return,
report, certificate, form or similar statement or document (including any
related or supporting information or schedule attached thereto and any
information return, amended tax return, claim for refund or declaration of
estimated Tax) required to be supplied to, or filed with, a Taxing Authority in
connection with the determination, assessment or collection of any Tax or the
administration of any laws, regulations or administrative requirements relating
to any Tax.

       

      “Taxes” means all federal,
state, local or foreign taxes, charges, fees, duties, levies, imposts, rates or
other assessments, including income, gross receipts, excise, property, sales,
use, license, capital stock, transfer, franchise, payroll, withholding, social
security, value added or other taxes, (including any interest, penalties or
additions attributable thereto) and a “Tax” shall mean any one of such
Taxes.

       

      
        
          
          

        

        
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      “Taxing Authority” means any
governmental authority or any subdivision, agency, commission or authority
thereof or any quasi-governmental or private body having jurisdiction over the
assessment, determination, collection or imposition of any Tax (including the
IRS).

       

      
        	
                Section 2.

              	
                Preparation
      and Filing of Tax Returns.

              


      

       

      2.01.
PHYH’s
Responsibility. Subject to the other applicable provisions of this
Agreement, PHYH shall have sole and exclusive responsibility for the preparation
and filing of:

       

      (a) all
Consolidated Returns and all Combined Returns for any taxable period up to and
including the Dividend Date;

       

      (b) all
Income Tax Returns (other than Consolidated Returns and Combined Returns) with
respect to PHYH and/or any PHYH Affiliate for any taxable period;

       

      (c) all
Non-Income Tax Returns with respect to PHYH, any PHYH Affiliate, or the PHYH
Business or any part thereof for any taxable period; and

       

      (d) all
Non-Income Tax Returns with respect to Phyhealth, any Phyhealth Affiliate, or
the Phyhealth Business or any part thereof, that are required to be filed
(taking into account any extension of time which has been requested or received)
on or prior to the Split-Off Date.

       

      2.02.
Phyhealth’s
Responsibility. Phyhealth shall have sole and exclusive responsibility
for the preparation and filing of:

       

      (a) all
Income Tax Returns (other than Consolidated Returns and Combined Returns) with
respect to Phyhealth and/or any Phyhealth Affiliate for any taxable period that
are required to be filed after the Split-Off Date; and

       

      (b) all
Non-Income Tax Returns with respect to Phyhealth, any Phyhealth Affiliate, or
the Phyhealth Business or any part thereof, that are required to be filed
(taking into account any extension of time which has been requested or received)
after the Split-Off Date.

       

      2.03.
Agent. Subject
to the other applicable provisions of this Agreement, Phyhealth hereby
irrevocably designates, and agrees to cause each Phyhealth Affiliate to so
designate, PHYH as its sole and exclusive agent and attorney-in-fact to take
such action (including execution of documents) as PHYH, in its sole discretion,
may deem appropriate in any and all matters (including Audits) relating to any
Tax Return described in Section 2.01, subject, however, to the joint
control provisions and control by a non-Filing Party provisions in
Section 8.

       

      2.04.
Manner of Tax Return
Preparation.

       

      (a)
Unless otherwise required by a Taxing Authority, the Parties hereby agree to
prepare and file all Tax Returns, and to take all other actions, in a manner
consistent with (1) this Agreement, (2) any Tax Opinion, (3) any
Supplemental Tax Opinion, and (4) any Ruling. All Tax Returns shall be
filed on a timely basis (taking into account applicable extensions) by the Party
responsible for filing such returns under this Agreement.

       

      
        
          
          

        

        
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      (b)
Subject to the other applicable provisions of this Agreement, PHYH shall have
the exclusive right, in its sole discretion, with respect to any Tax Return
described in Section 2.01, to determine (1) the manner in which such
Tax Return shall be prepared and filed, including the elections, method of
accounting, positions, conventions and principles of taxation to be used and the
manner in which any Tax Item shall be reported, (2) whether any extensions
shall be requested, (3) the elections that will be made by PHYH, any PHYH
Affiliate, Phyhealth, and/or any Phyhealth Affiliate on such Tax Return,
(4) whether any amended Tax Returns shall be filed, (5) whether any
claims for refund shall be made, (6) whether any refunds shall be paid by
way of refund or credited against any liability for the related Tax, and
(7) whether to retain outside firms to prepare and/or review such Tax
Returns.

       

      
        	
                Section 3.

              	
                Liability
      for Ordinary Course Taxes.

              


      

       

      3.01.
PHYH’s Liability for
Ordinary Course Taxes. Except as provided in Sections 4.01 and 4.03, PHYH
shall be liable for the following Taxes, and shall be entitled to receive and
retain all refunds of:

       

      (a) all
Taxes attributable to the PHYH Group or the PHYH Business, in each case for any
and all periods,

       

      (b) all
Taxes attributable to Phyhealth, Phyhealth Assets or the Phyhealth Business, in
each case for any and all Pre-Split-Off Periods,

       

      (c) all
Taxes for which Phyhealth may be liable by virtue of any agreement or
arrangement with respect to Taxes (other than pursuant to this Agreement or any
other agreements entered into in connection with the Split-Off) entered into on
or prior to the Split-Off Date.

       

      3.02.
Phyhealth’s Liability
for Ordinary Course Taxes. Except as provided in Sections 4.01 and 4.03,
Phyhealth and each Phyhealth Affiliate shall be jointly and severally liable for
(i) all Taxes attributable to any and all members of Phyhealth or Phyhealth
Assets or the Phyhealth Business, in each case for any and all Post-Split-Off
Periods.

       

      3.03.
Straddle
Periods. For purposes of Sections 3.01 and 3.02, in the case of any
Straddle Period, (i) property taxes and exemptions, allowances or
deductions that are calculated on an annualized basis shall be apportioned
between the Pre-Split-Off Period and the Post-Split-Off Period on a daily
pro-rata basis and (ii) all other Taxes shall be apportioned between the
Pre-Split-Off Period and the Post-Split-Off Period on a closing of the books
basis as of the close of business on the Split-Off Date.

      


      3.04.
Refunds. The
amount or economic benefit of any refunds, credits or offsets of Taxes relating
to (i) Phyhealth, Phyhealth Assets or the Phyhealth Business for a
Pre-Split-Off Period shall be for the account of PHYH, (ii) Phyhealth,
Phyhealth Assets or the Phyhealth Business for a Post-Split-Off Period shall be
for the account of Phyhealth, and (iii) the PHYH Group, the Phyhealth Group
Assets or the PHYH Business shall for the account of PHYH.

       

      
        
          
          

        

        
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      3.05.
Carryback.
Notwithstanding Section 3.04, to the extent permitted by law, Phyhealth
shall elect to forego a carryback of any net operating losses, capital losses,
credits or other Tax benefits to a taxable period, or portion thereof, ending on
or before the Split-Off Date unless PHYH otherwise elects, in its sole
discretion, to allow such carryback. To the extent that Phyhealth is required
under law to carry back Tax Assets described in this section, PHYH agrees to pay
to Phyhealth the United States federal Income Tax Benefit from the use in any
Pre-Split-Off Period (the “Carryback Period”) of a carryback of any such Tax
Asset of Phyhealth from a Post-Split-Off Period (other than a carryback of any
Tax Asset attributable to Exchange Taxes for which the liability is borne by
PHYH or any PHYH Affiliate). If subsequent to the payment by PHYH to Phyhealth
of the United States federal Income Tax Benefit of a carryback of a Tax Asset of
Phyhealth, there shall be a Final Determination which results in a
(1) change to the amount of the Tax Asset so carried back or
(2) change to the amount of such United States federal Income Tax Benefit,
Phyhealth shall repay to PHYH, or PHYH shall repay to Phyhealth, as the case may
be, any amount which would not have been payable to such other Party pursuant to
this Section 3.05 had the amount of the benefit been determined in light of
these events. Nothing in this Section 3.05 shall require PHYH to file an
amended Tax Return or claim for refund of United States federal Income Taxes;
provided, however, that PHYH
shall use its commercially reasonable efforts to use any carryback of a Tax
Asset of Phyhealth that is carried back under this
Section 3.05.

       

      3.06.
Phyhealth Tax Assets
on PHYH Post-Split-Off Period Returns. With respect to any Post-Split-Off
Period, to the extent that any Tax Assets relating to the Phyhealth Business
attributable to Pre-Split-Off Periods remain with the PHYH Group after the
Split-Off: (i) to the extent that Phyhealth generates sufficient income or
recognizes sufficient gains in a given Tax period that Phyhealth would have been
able to utilize such Tax Assets (that were not already utilized by PHYH pursuant
to clause (ii)) on a pro-forma basis, PHYH shall compensate Phyhealth for such
utilizable amount on a pro-forma basis, and (ii) to the extent that
(A) Phyhealth Group does not generate sufficient income or recognize
sufficient gains in such Tax period and (B) PHYH utilizes such Tax Assets
on its Tax Returns for such Tax Period, then PHYH shall not be required to
compensate Phyhealth for PHYH’s utilization of such Tax Assets. For the
avoidance of doubt, this section is intended to provide that Phyhealth is
compensated for a Phyhealth-related Tax Asset that remains with the PHYH Group
after the Split-Off Date only if and to the extent that Phyhealth would have
been able to utilize such Tax Asset on or before the time that the PHYH Group
actually utilizes such Tax Asset. For the avoidance of doubt, this section shall
apply to any gain related to Exchange Taxes in the same manner as it applies to
any other income or gains.

       

      3.07.
Payment of Tax
Liability. If one Party is liable or responsible for Taxes, under
Sections 3.01 through 3.06, with respect to Tax Returns for which another party
is responsible for preparing and/or filing, or with respect to Taxes that are
paid by another Party, then the liable or responsible Party shall pay the Taxes
(or a reimbursement of such Taxes) to the other Party pursuant to
Section 7.05.

       

      


      3.08.
Computation.
With respect to any Tax Return filed by PHYH for which Phyhealth is liable for
Taxes under this Section 3, PHYH shall provide Phyhealth with a written
calculation in reasonable detail (including copies of work sheets and other
materials used in preparation thereof) setting forth the amount of any Phyhealth
Separate Tax Amount or estimated Phyhealth Separate Tax Amount (for purposes of
Section 7.01). Phyhealth shall have the right to review and comment on such
calculation. Any dispute with respect to such calculation shall be resolved
pursuant to Section 9.03; provided, however, that,
notwithstanding any dispute with respect to any such calculation, in no event
shall any payment attributable to the amount of any Phyhealth Separate Tax
Amount or estimated Phyhealth Separate Tax Amount be paid later than the date
provided in Section 7.

      


      
        
          
          

        

        
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                Section 4.

              	
                Exchange
      Taxes, Contribution Taxes and
Deconsolidation.

              


      

       

      4.01.
Exchange
Taxes.

       

      (a) PHYH’s Liability for
Exchange Taxes. Notwithstanding Sections 3.01 through 3.03, PHYH and each
PHYH Affiliate shall be jointly and severally liable for any Exchange Taxes
attributable to, caused by, or resulting from, one or more of the
following:

       

      (i) any
action or omission by PHYH (or any PHYH Affiliate) inconsistent with any
material, information, covenant or representation related to PHYH, any PHYH
Affiliate, or the PHYH Business in an Officer’s Certificate, Tax Opinion,
Supplemental Tax Opinion, Ruling Documents or Ruling (for the avoidance of
doubt, disclosure of any action or fact that is inconsistent with any material,
information, covenant or representation submitted to Tax Counsel, the IRS, or
other Taxing Authority, as applicable, in connection with an Officer’s
Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents or Ruling
shall not relieve PHYH (or any PHYH Affiliate) of liability under this
Agreement);

       

      (ii) any
acquisition of any stock or assets of PHYH (or any PHYH Affiliate) by one or
more other persons (other than Phyhealth or a Phyhealth Affiliate) prior to or
following the Split-Off; or

       

      (iii) any
issuance of stock by PHYH (or any PHYH Affiliate), including any issuance
pursuant to the exercise of employee stock options or other employment related
arrangements or the exercise of warrants, or change in ownership of stock in
Phyhealth (or any Phyhealth Affiliate).

      


      (b) Phyhealth’s Liability for
Exchange Taxes. Notwithstanding Sections 3.01 through 3.03, Phyhealth and
each Phyhealth Affiliate shall be jointly and severally liable for any Exchange
Taxes attributable to, caused by, or result from, one or more of the
following:

       

      (i) any
action or omission by Phyhealth (or any Phyhealth Affiliate) after the Split-Off
at any time, that is inconsistent with any material, information, covenant or
representation related to Phyhealth, any Phyhealth Affiliate, or the Phyhealth
Business in an Officer’s Certificate, Tax Opinion, Supplemental Tax Opinion,
Ruling Documents or Ruling (for the avoidance of doubt, disclosure by Phyhealth
(or any Phyhealth Affiliate) to PHYH (or any PHYH Affiliate) of any action or
fact that is inconsistent with any material, information, covenant or
representation submitted to Tax Counsel, the IRS, or other Taxing Authority, as
applicable, in connection with an Officer’s Certificate, Tax Opinion,
Supplemental Tax Opinion, Ruling Documents or Ruling shall not relieve Phyhealth
(or any Phyhealth Affiliate) of liability under this Agreement);

       

      (ii) any
acquisition of any stock or assets of Phyhealth (or any Phyhealth Affiliate) by
one or more other persons (other than PHYH or any PHYH Affiliate) following the
Split-Off; or

       

      (iii) any
issuance of stock by Phyhealth (or any Phyhealth Affiliate) after the Split-Off,
including any issuance pursuant to the exercise of employee stock options or
other employment related arrangements or the exercise of warrants, or change in
ownership of stock in Phyhealth (or any Phyhealth Affiliate) after the
Split-Off.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      (c) Joint Liability for
Remaining Exchange Taxes. PHYH and each PHYH Affiliate shall be liable
for the PHYH Sharing Percentage and Phyhealth and each Phyhealth Affiliate shall
be jointly and severally liable for the Phyhealth Sharing Percentage of any
Exchange Taxes (including costs related or attributable to such Exchange Taxes)
not otherwise allocated by Sections 4.01(a) or (b) (e.g., because of a
retroactive change in law).

       

      (d) Representation. Each
of PHYH and Phyhealth represents that, as of the date of this Agreement, neither
it nor its Affiliates know of any fact (other than the Proposed Merger) that may
cause the Exchange to fail to qualify under section 355 or section 368(a)(1)(D)
of the Code.

       

      4.02.
Continuing
Covenants.

      


      (a) In General. Each of
PHYH (for itself and each PHYH Affiliate) and Phyhealth (for itself and each
Phyhealth Affiliate) agrees (1) not to take any action reasonably expected
to result in an increased Tax liability to the other, a reduction in a Tax Asset
of the other or an increased liability to the other under this Agreement, and
(2) to take any action reasonably requested by the other that would
reasonably be expected to result in a Tax Benefit or avoid a Tax Detriment to
the other, provided, in either such case, that the taking or refraining to take
such action does not result in any additional cost not fully compensated for by
the other Party or any other adverse effect to such Party. The Parties hereby
acknowledge that the preceding sentence is not intended to limit, and therefore
shall not apply to, the rights of the Parties with respect to matters otherwise
covered by this Agreement.

       

      (b) Phyhealth
Restrictions. Phyhealth agrees that it will not knowingly take or fail to
take, or permit any Phyhealth Affiliate to knowingly take or fail to take, any
action where such action or failure to act would be inconsistent with any
material, information, covenant or representation that relates to facts or
matters related to Phyhealth (or any Phyhealth Affiliate) or within the control
of Phyhealth and is contained in an Officer’s Certificate, Tax Opinion,
Supplemental Tax Opinion, Ruling Documents or Ruling (except where such
material, information, covenant or representation was not previously disclosed
to Phyhealth) other than as permitted by this Section 4.02. For this
purpose an action is considered inconsistent with a representation if the
representation states that there is no plan or intention to take such
action.

       

      (c) PHYH Restrictions.
PHYH agrees that it will not knowingly take or fail to take, or permit any PHYH
Affiliate to knowingly take or fail to take, any action where such action or
failure to act would be inconsistent with any material, information, covenant or
representation that relates to facts or matters related to PHYH (or any PHYH
Affiliate) or within the control of PHYH and is contained in an Officer’s
Certificate, Tax Opinion, Supplemental Tax Opinion, Ruling Documents or Ruling
other than as permitted by this Section 4.02. For this purpose an action is
considered inconsistent with a representation if the representation states that
there is no plan or intention to take such action.

       

      
        
          
          

        

        
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      4.04.
Allocation of Tax
Items. All Tax computations for (1) any Pre-Split-Off Periods ending
on the Split-Off Date and (2) the immediately following taxable period of
Phyhealth or any Phyhealth Affiliate, shall be made pursuant to the principles
of section 1.1502-76(b) of the Treasury Regulations or of a corresponding
provision under the laws of other jurisdictions, as reasonably determined by
PHYH, taking into account all reasonable suggestions made by Phyhealth with
respect thereto.

       

      4.05.
Allocation of Tax
Assets. In connection with the Split-Off, each of PHYH and Phyhealth
agrees that each shall prepare all Tax Returns in a manner consistent with the
allocations as set forth herein, unless otherwise required by law.

      


      
        	
                Section 6.

              	
                Indemnification.

              


      

       

      6.01.
In General.
PHYH and each member of the PHYH Group shall jointly and severally indemnify
Phyhealth, each Phyhealth Affiliate, and their respective directors, officers
and employees, and hold them harmless from and against any and all Taxes for
which PHYH or any PHYH Affiliate is liable under this Agreement and any loss,
cost, damage or expense, including reasonable attorneys’ fees and costs, that is
attributable to, or results from, the failure of PHYH, any PHYH Affiliate or any
director, officer or employee to make any payment required to be made under this
Agreement. Phyhealth and each member of Phyhealth shall jointly and severally
indemnify PHYH, each PHYH Affiliate, and their respective directors, officers
and employees, and hold them harmless from and against any and all Taxes for
which Phyhealth or any Phyhealth Affiliate is liable under this Agreement and
any loss, cost, damage or expense, including reasonable attorneys’ fees and
costs, that is attributable to, or results from, the failure of Phyhealth, any
Phyhealth Affiliate or any director, officer or employee to make any payment
required to be made under this Agreement.

       

      6.02.
Inaccurate or
Incomplete Information. PHYH and each member of the PHYH Group shall
jointly and severally indemnify Phyhealth, each Phyhealth Affiliate, and their
respective directors, officers and employees, and hold them harmless from and
against any cost, fine, penalty, or other expense of any kind attributable to
the failure of PHYH or any PHYH Affiliate in supplying Phyhealth or any
Phyhealth Affiliate with inaccurate or incomplete information, in connection
with the preparation of any Tax Return. Phyhealth and each member of Phyhealth
shall jointly and severally indemnify PHYH, each PHYH Affiliate, and their
respective directors, officers and employees, and hold them harmless from and
against any cost, fine, penalty, or other expenses of any kind attributable to
the failure of Phyhealth or any Phyhealth Affiliate in supplying PHYH or any
PHYH Affiliate with inaccurate or incomplete information, in connection with the
preparation of any Tax Return.

       

      6.03.
No Indemnification for
Tax Items. Nothing in this Agreement shall be construed as a guarantee of
the existence or amount of any loss, credit, carryforward, basis or other Tax
Item, whether past, present or future, of PHYH, any PHYH Affiliate, Phyhealth or
any Phyhealth Affiliate. In addition, for the avoidance of doubt, for purposes
of determining any amount owed between the Parties hereto, all such
determinations shall be made without regard to any financial accounting tax
asset or liability or other financial accounting items.

       

      
        	
                Section 7.

              	
                Payments.

              


      

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      7.01.
Estimated Tax
Payments. Not later than ten (10) business days after any Estimated
Tax Installment Date with respect to a taxable period for which a Consolidated
Return or a Combined Return that includes a Phyhealth Separate Tax Amount may be
filed, Phyhealth shall pay to PHYH on behalf of Phyhealth an amount equal to the
amount of any estimated Phyhealth Separate Tax Amount.

       

      7.02.
True-Up
Payments. Not later than ten (10) business days after filing a Tax
Return, Phyhealth shall pay to PHYH, or PHYH shall pay to Phyhealth, as
appropriate, an amount equal to the difference, if any, between the Phyhealth
Separate Tax Amount and the aggregate amount paid by Phyhealth with respect to
such period under Section 7.01.

       

      7.03.
Redetermination
Amounts. In the event of a redetermination of any Tax Item reflected on
any Consolidated Return or Combined Return (other than Tax Items relating to
Exchange Taxes), as a result of a refund of Taxes paid, a Final Determination or
any settlement or compromise with any Taxing Authority which in any such case
would affect the Phyhealth Separate Tax Amount, PHYH shall prepare a revised pro
forma Tax Return in accordance with Section 2.04(b) for the relevant
taxable period reflecting the redetermination of such Tax Item as a result of
such refund, Final Determination, settlement or compromise. Phyhealth shall pay
to PHYH, or PHYH shall pay to Phyhealth, as appropriate, an amount equal to the
difference, if any, between the Phyhealth Separate Tax Amount reflected on such
revised pro forma Tax Return and the Phyhealth Separate Tax Amount for such
period as originally computed pursuant to this Agreement.

       

      7.04.
Payments of Refunds
and Credits. If one Party receives a refund or credit of any Tax to which
the other Party is entitled pursuant to Section 3.04, the Party receiving
such refund or credit shall pay to the other Party the amount of such refund or
credit pursuant to Section 7.05.

       

      7.05.
Payments Under This
Agreement. In the event that one Party (the “Owing Party”) is required to
make a payment to another Party (the “Owed Party”) pursuant to this Agreement,
then such payments shall be made according to this
Section 7.05.

       

      (a) In General. All
payments shall be made to the Owed Party or to the appropriate Taxing Authority
as specified by the Owed Party within the time prescribed for payment in this
Agreement, or if no period is prescribed, within ten (10) days after
delivery of written notice of payment owing together with a computation of the
amounts due.

       

      (b) Treatment of
Payments. Unless otherwise required by any Final Determination, the
Parties agree that any payments made by one Party to another Party pursuant to
this Agreement (other than (i) payments for the Phyhealth Separate Tax
Amount for the Post-Split-Off Period, (ii) payments of After Tax Amounts
pursuant to Section 7.05(d), and (iii) payments of interest pursuant
to Section 7.05(e)) shall be treated for all Tax purposes as nontaxable
payments (dividend distributions or capital contributions, as the case may be)
made immediately prior to the Split-Off and, accordingly, as not includible in
the taxable income of the recipient or as deductible by the payor.

       

      (c) Prompt Performance.
All actions required to be taken (including payments) by any Party under this
Agreement shall be performed within the time prescribed for performance in this
Agreement, or if no period is prescribed, such actions shall be performed
promptly.

       

      (d) After Tax Amounts. If
pursuant to a Final Determination it is determined that the receipt or accrual
of any payment made under this Agreement (other than payments of interest
pursuant to Section 7.05(e)) is subject to any Tax, the Party making such
payment shall be liable for (a) the After Tax Amount with respect to such
payment and (b) interest at the rate described in Section 7.05(e) on
the amount of such Tax from the date such Tax accrues through the date of
payment of such After Tax Amount. A Party making a demand for a payment pursuant
to this Agreement and for a payment of an After Tax Amount with respect to such
payment shall separately specify and compute such After Tax Amount. However, a
Party may choose not to specify an After Tax Amount in a demand for payment
pursuant to this Agreement without thereby being deemed to have waived its right
subsequently to demand an After Tax Amount with respect to such
payment.

       

      (e) Interest. Payments
pursuant to this Agreement that are not made within the period prescribed in
this Agreement (the “Payment Period”) shall bear interest for the period from
and including the date immediately following the last date of the Payment Period
through and including the date of payment at a per annum rate equal to the
applicable rate under Section 6621 of the Code. Such interest will be
payable at the same time as the payment to which it relates and shall be
calculated on the basis of a year of three hundred sixty-five (365) days
and the actual number of days for which due.

       

      7.06.
Cooperation and
Exchange of Information.

       

      (a) Cooperation.
Phyhealth and PHYH shall each cooperate fully (and each shall cause its
respective affiliates to cooperate fully) with all reasonable requests from
another party for information and materials not otherwise available to the
requesting party in connection with the preparation and filing of Tax Returns,
claims for refund, and Audits concerning issues or other matters covered by this
Agreement or in connection with the determination of a liability for Taxes or a
right to a refund of Taxes. Such cooperation shall include:

       

      (i) the
retention until the expiration of the applicable statute of limitations, and the
provision upon request, of copies of all Tax Returns, books, records (including
information regarding ownership and Tax basis of property), documentation and
other information relating to the Tax Returns, including accompanying schedules,
related work papers, and documents relating to rulings or other determinations
by Taxing Authorities;

       

      (ii) the
execution of any document that may be necessary or reasonably helpful in
connection with any Tax Proceeding, or the filing of a Tax Return or refund
claim by a member of the PHYH Group or Phyhealth, including certification, to
the best of a Party’s knowledge, of the accuracy and completeness of the
information it has supplied; and

       

      (iii) the
use of the Party’s commercially reasonable efforts to obtain any documentation
that may be necessary or reasonably helpful in connection with any of the
foregoing. Each Party shall make its employees and facilities available on a
reasonable and mutually convenient basis in connection with the foregoing
matters.

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

      
         

        (b) Retention of Records.
Any Party that is in possession of documentation of PHYH (or any PHYH Affiliate)
or Phyhealth (or any Phyhealth Affiliate) relating to the Phyhealth Business,
including books, records, Tax Returns and all supporting schedules and
information relating thereto (the “Phyhealth Business Records”) shall retain
such Phyhealth Business Records for a period of seven (7) years
following the Exchange Date. Thereafter, any Party wishing to dispose of
Phyhealth Business Records in its possession (after the expiration of the
applicable statute of limitations), shall provide written notice to the other
Party describing the documentation proposed to be destroyed or disposed of sixty
(60) business days prior to taking such action. The other Party may arrange
to take delivery of any or all of the documentation described in the notice at
its expense during the succeeding sixty (60) day period.

      

       

      ARTICLE
VIII

       

      GENERAL
PROVISIONS

       

      Section 8.1    
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 8.2
    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 8.3    
Entire
Agreement. This Agreement and the Separation Agreement, together with 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 8.4    
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 8.5    
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 8.6    
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 8.7    
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 8.8    
Force Majeure.
No party shall be deemed in default of this Agreement to the extent that any
delay or failure in the performance of its obligations under this Agreement
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.

      


      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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