Exhibit 10.77


 


PARTNERSHIP AGREEMENT


 


THIS PARTNERSHIP AGREEMENT is executed by and among AMVI/IMC Health
Network, Inc., a Medical Corporation (“AIH”)
and Santa Ana/Tustin Physicians Group, Inc. (“SATPG”),
(sometimes referred to collectively as the “Partners”).


 


WHEREAS, AIH is a California professional medical corporation which employs or
otherwise contracts with physicians who are licensed to practice medicine in
the State of California; and


 


WHEREAS, SATPG is a California professional medical corporation which employs or
otherwise contracts with physicians who are licensed to practice medicine in
the State of California; and


 


WHEREAS, AIH has affiliated with Coastal Communities Hospital to operate as a
physician-hospital consortium (known as PHC-27) for the purpose of providing or
arranging for the provision of healthcare services to enrollees of CalOPTIMA;
and


 


WHEREAS, SATPG has affiliated with Western Medical Center to operate as a
physician-hospital consortium (known as PHC-44) for the purpose of providing or
arranging for the provision of healthcare services to enrollees of CalOPTIMA;
and


 


WHEREAS, SATPG desires to affiliate with AIH to form a partnership of
professional medical corporations for the purpose of providing or arranging for
the provision of healthcare services to enrollees of CalOPTIMA through PHC-27;
and


 


WHEREAS, CalOPTIMA has approved the affiliation of AIH and SATPG, and the
formation of a partnership between them, to provide or arrange for the
provision of healthcare services to enrollees of CalOPTIMA, and has designated
AIH as the “Surviving Health Network” and SATPG as the “Affiliated Health
Network” in connection with such affiliation; and


 


WHEREAS, AIH and SATPG have agreed that each Partner shall constitute a separate
division of the Partnership for financial purposes and that the Partnership
shall be operated on a divisional basis with each Partner constituting a
separate profit and loss center based on such Partner’s operations and that for
such purposes the division comprised of AIH and its network of physician
providers and the CalOPTIMA enrollees attributable thereto is sometimes
referred to hereafter as the “AIH Division” and the division of the Partnership
comprised of SATPG and its network of physician providers and the CalOPTIMA
enrollees attributable thereto is sometimes referred to hereafter as the “SATPG Division”; and


 


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WHEREAS, AIH sand SATPG desire to enter into a written partnership agreement
setting forth their respective rights and obligations as Partners in the
Partnership.


 


NOW, THEREFORE, the parties hereto agree as follows:


 


1.             Name.


 


The
Partnership name shall be AMVI/Prospect Medical Group, or such other name as
may be agreed upon by the Partners and approved by the Medical Board of
California.


 


2.             Purpose.


 


a.             The exclusive purpose of the Partnership
shall be to act as the physician component of PHC-27 and to provide or arrange
for the provision of healthcare services to enrollees of CalOPTIMA in
connection therewith pursuant to contract between the Partnership and
CalOPTIMA.  The Partnership shall not
engage in any other business or practice without the unanimous consent of the
Partners.


 


b.             Each Partner shall be entitled to engage in
such other healthcare or other businesses as it shall desire, so long as such
other business is not competitive with the business of the Partnership within
Orange County.  Notwithstanding the
foregoing, each Partner may participate in those contracts disclosed on
Schedule 2.6 attached hereto.


 


3.             Location.


 


The
principal executive office of the Partnership shall be located at 10362 Bolsa
Avenue, Westminster, California 92683 (the “Partnership Executive Office”). The principal administrative and operations office shall be
located at 1920 East 17th Street, Suite 200, Santa Ana, California
92705 (the “Partnership Administrative Office”). All correspondence and other
documents, except medical records, shall be sent to the Partnership
Administrative Office.  The Partnership
Administrative Office shall copy and forward any and all such correspondence to
Co D.L. Pham, M.D. (“Dr. Pham”) or such other designee of AHI as
Dr. Pham shall designate within one (1) business date after receipt thereof by
the Partnership Administrative Office.


 


4.             Term.


 


The
Partnership shall continue for forty (40) years from the effective date or
until dissolved as otherwise herein provided.


 


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5.             Financial
Solvency Deposits.


 


a.             The Partners acknowledge that AIH has previously
submitted the amount of Fifty Thousand Dollars ($50,000) in financial solvency
deposits to CalOPTIMA pursuant to applicable CalOPTIMA requests and guidelines.


 


b.             Upon or prior to commencement of the
Partnership, SATPG shall submit to CalOPTIMA, or cause to be submitted via
letter of credit, the amount of Forty-Five Thousand Dollars ($45,000) in
financial solvency deposits or such other additional amounts as CalOPTIMA may
require from the Partnership for such purpose; provided, however, that to the
extent, if any, that CalOPTIMA may require deposits which exceed the Fifty
Thousand Dollar ($50,000) amount previously provided by AIH, any such excess
shall be borne by the Partners proportionately based on the number of CalOPTIMA
enrollees attributable to each Partner.


 


6.             Contributions
on Commencement; No Assumption of Liabilities.


 


a.             Upon commencement of the Partnership, each
Partner shall contribute to the Partnership the sum of One Thousand Dollars
($1,000) in cash.


 


b.             Each Partner shall remain liable for all
debts, obligations and liabilities of such Partner (known or unknown,
liquidated or unliquidated, absolute or contingent) accruing prior to the
effective date of this Partnership or on account of any actions or omissions of
such Partner prior to such date, and it is expressly understood and agreed that
the Partnership has not assumed and shall not be liable for any such debts,
obligations or liabilities of the Partners. 
Each Partner hereby expressly covenants and agrees to timely pay in full
when due any and all of its debts, obligations and liabilities.


 


7.             Additional
Contributions.


 


Subject
to the provisions of subparagraph 13.d. below regarding a Partner’s obligation
to fund any and all losses or deficiencies attributable to the operations of
such Partner’s division, whenever it is determined by a majority vote of the
Partners that the Partnership capital is or is presently likely to become
insufficient for the conduct of its business, the Partners shall call for
additional contributions in cash within thirty (30) days after such
determination or within such shorter time, if any, as may be required to
satisfy any applicable requirements of CalOPTIMA.  Each Partner shall be liable to the Partnership for its
proportionate share of the aggregate contributions determined to be
necessary.  Unless such additional
contribution may reasonably be determined to be due from a Partner on account
of such Partner’s actions or omissions, the Partner’s proportionate share of
any additional contributions shall be measured by the relative number of
CalOPTIMA enrollees attributable to each Partner as of the date the additional
contribution is determined to be required as compared to the total number of
the Partnership’s CalOPTIMA enrollees. (For


 


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example, if an additional contribution of $10,000 is needed and if AIH
has 6,000 CalOPTIMA enrollees and SATPG has 4,000 CalOPTIMA enrollees, then,
AIH shall be required to contribute $6,000 and SATPG shall be required to
contribute $4,000, absent a determination that either Partner is responsible
for a different share of such $10,000 contribution.) In the event the
additional contributions are determined to be due because of a Partner’s
actions or omissions (such as, for example, if additional contributions are
necessary because the Partnership’s stop loss insurance premiums have increased
due to one Partner’s utilization history), such Partner shall be required to
bear the entire cost and make such entire contribution.


 


8.             Entitlement
to Premises.


 


The
Partnership shall not be required to enter into any written lease for the use
of the Partnership Executive Office or the Partnership Administrative
Office.  Upon any dissolution or
termination of the Partnership or the withdrawal of any Partner, AIH shall
retain full use, occupancy and entitlement to the Partnership Executive Office
and SATPG shall retain full use, occupancy and entitlement to the Partnership
Administrative Office.


 


9.             Qualifications
of Partners; Admission of New Partners.


 


a.             To be admitted and remain as a Partner, each
physician-shareholder of the Partner must satisfy each of the following
requirements:


 


(1)           be a physician duly licensed to practice
medicine in the State of California and have a current, valid unrestricted
license to practice medicine from the Medical Board of California;


 


(2)           have no restrictions on his or her
participation in the MediCare and Medi-Cal reimbursement programs;


 


(3)           maintain a Federal DEA license without
restrictions, to the extent necessary to render professional medical services
in his or her speciality;


 


(4)           not be the subject of (i) any pending
disciplinary action by the Medical Board of California, or the equivalent
medical licensing authority of any other State in the United States of America,
or (ii) any current peer review inquiry;


 


(5)           never had his or her privileges suspended,
for cause, at any hospital or other healthcare facility;


 


(6)           be insurable for professional liability
insurance with minimum limits of One Million Dollars ($1,000,000) per claim and
Three Million Dollars ($3,000,000) aggregate per year; and


 


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(7)           be on the active medical staff and maintain
all necessary clinical privileges to render medical services in furtherance of
the Partnership’s business as required by the Partnership and CalOPTIMA.


 


(8)           Satisfy any and all other requirements as may
be imposed by CalOPTIMA.


 


b.             The admission of a new Partner shall require
the unanimous consent of all existing Partners.  In connection with the admission of a new Partner to the
Partnership, each incoming Partner shall be required, as a condition of
becoming a Partner, to agree to such terms and conditions, make such representations
and warranties about such Partner and such Partner’s medical practice and
physicians and execute such documents (including, without limitation, an
appropriate addendum to this Partnership Agreement or any subsequent Agreement)
as the Partners shall agree and deem necessary or appropriate.  The admission of a new Partner shall not
cause a dissolution of the Partnership.


 


10.           No
Priorities; Provisions Governing Loans.


 


a.             Except as otherwise provided in this
Agreement, a Partner shall not have: (i) the right to withdraw such Partner’s
capital contributions from the Partnership; (ii) the right to demand or to
receive property other than cash in return for the Partner’s capital
contributions to the Partnership; or (iii) priority over the other Partners as
to the return of capital contributions, the allocation of Profits or Losses, or
distributions from the Partnership to its Partners.


 


b.             A Partner shall not lend or advance money to
or for the benefit of the Partnership without the approval of the
Partners.  The amount of any loan or
advance shall be a debt due from the Partnership to such Partner at the
interest rate and repayment terms approved by the Partners.  No loan to the Partnership nor any advance
on the Partnership’s behalf shall increase the lending Partner’s capital
account or interest in the Partnership, entitle such Partner to any increase in
the share of the distributions made by the Partnership to the Partners, or
subject such Partner to any greater share of the losses or liabilities of the
Partnership.


 


c.             The Partnership shall not loan or advance
money to or for the benefit of any Partner without the prior approval of the
Partners.  If approved, the amount of
the loan or advance shall be a debt due to the Partnership at the interest rate
and repayment terms approved by the Partners.


 


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11.           Capital
Accounts.


 


A
separate capital account shall be maintained for each Partner, which shall be
determined from the inception of the Partnership and maintained thereafter in
accordance with the rules set forth in Section 1.704-l(b)(2)(iv) of the
Treasury Regulations under the Internal Revenue Code of 1986, as amended.  The Partners expressly acknowledge,
understand and agree that there is no goodwill value, going concern value,
value for the physician provider network or for the CalOPTIMA enrollees of the
Partnership or attributable to a Partner or such Partner’s division of the
Partnership, or value for any other intangible asset of the Partnership or any
Partner.


 


12.           Drawing
Accounts; Cash Reserves.


 


a.             Each Partner shall be entitled to draw
against profits such amounts as shall be consistent with the provisions of this
Agreement regarding participation in profits. 
These amounts shall be charged to the Partner’s drawing account as they
are drawn.  The aggregate amounts
distributed to the Partners shall not exceed the amount of cash available for
distribution, taking into account the Partnership’s reasonable working capital
needs and reserves as determined by the Partners or as may otherwise be
required by CalOPTIMA.


 


b.             The Partners intend that no Partner shall
make withdrawals from the Partnership which exceeds its share of Partnership
profits and, unless otherwise agreed in writing or otherwise required or
permitted by this Agreement, no Partner shall be entitled to draws in excess of
such Partner’s share of profits (as provided in or pursuant to Paragraph 13
below). To the extent any Partner’s withdrawals during any fiscal year of the
Partnership exceeds such Partner’s distributable share of the Partnership’s
profits, the excess shall be regarded as a loan from the Partnership to the
Partner.  The Partner shall be obligated
to repay such loan within thirty (30) days after the end of that fiscal year or,
if later, within fourteen (14) days after the amount is calculated and
communicated to the Partners by the Partnership’s accountants; provided,
however, that notwithstanding the foregoing, in the event the
Partnership is dissolved, such amount shall be paid in full upon dissolution of
the Partnership.


 


c.             It is understood and agreed by the Partners
that the Partnership may establish a cash reserve fund to be maintained for the
Partnership’s present and anticipated future working capital needs, short-term
and long-term liabilities and contingencies, and such other purposes as may be
approved by the Partners or required by CalOPTIMA.  The Partners shall determine the amount, if any, held from
time-to-time in the cash reserve fund.


 


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13.           Profits and Losses; Obligation of Partners to
Fund Divisional Losses and Deficiencies.


 


a.             The AIH Division and the SATPG Division shall
each constitute a separate division and profit center of the Partnership.  All capitation payments received by the
Partnership shall be allocated among the foregoing divisions proportionately
based upon the number of CalOPTIMA enrollees attributable to each such division
for the period for which the capitation payment applies.  All other income of the Partnership shall be
allocated among the foregoing divisions based upon the performance of such
divisions as measured by appropriate criteria established by the Partners and
applicable to the Partnership’s business.


 


b.             The Partners shall participate in profits,
losses, distributions and expenses of the Partnership based on the performance
of their respective divisions calculated as if each division were a separate
and independent business.  The
determination of the allocation of profits and losses under this Agreement as
between the AIH Division and the SATPG Division shall be made in accordance
with generally accepted accounting principles (including appropriate allocation
of overhead expenses both direct and indirect) applicable to a business of the
nature and type of the Partnership and consistent with the Partnership’s
budgetary guidelines as approved by the Partners.  Unless otherwise agreed by the Partners, such determination shall
be made by the accounting firm of Ahlstrom & Baker.


 


c.             The calculation of the profits and/or losses
of each division of the Partnership shall be set forth in a statement (the “Profit Statement”) prepared by the accountants which will be delivered to the
Partners monthly by the 15th day following the end of each
month.  Within ten (10) days after
delivery of such Profit Statement, each Partner and its representatives shall
have the right to review the Profit Statement and the work papers and other
records utilized in calculating such profits and/or losses of each division for
the purpose of confirming the accuracy and reasonableness of the
calculations.  If within ten (10) days
after commencement of such review of the Profit Statement a Partner notifies
the other Partner that it disagrees with the calculation of profits and/or
losses of its division, then the Partners shall each appoint a designated
representative to meet and attempt to discuss and resolve the difference by
negotiation.  If within ten (10) days
after such appointments the Partners are unable to agree and resolve the
matter, the matter shall be referred to the healthcare department of KPMG Peat
Marwick to make a determination in accordance with this Agreement.  KPMG Peat Marwick shall review the disputed
matters and as promptly as practicable deliver to the Partners a statement in
writing setting forth its conclusion as to the appropriate calculation of
profits and/or losses of each division, provided that such determination must
be made in accordance with generally accepted accounting principles and
otherwise in accordance with this Agreement. 
Any determination by KPMG Peat Marwick shall be final and binding upon
the Partners without any further right of appeal.  The Partners shall have the reasonable right to meet with and
present such


 


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evidence
to KPMG Peat Marwick as they each deem appropriate and KPMG Peat Marwick shall
be directed to schedule a time and place for any such meeting(s) and
presentation(s). In the event that KPMG Peat Marwick has previously provided
any services to any of the parties hereto, then the determination shall be made
by the healthcare department of Ernst &
Young unless it has provided services to any of the parties, in which
case the determination shall be made by a different accounting firm mutually
agreed upon by the parties which has not at any time provided accounting
services to any of the parties hereto.


 


d.             Each Partner shall be responsible for
funding, and shall fund, all losses and deficiencies of its division and the
funds and entitlements of the other Partner and such other Partner’s division
shall not be used to pay or offset any losses or deficiencies of the other
Partner and such other Partner’s division. 
Each Partner hereby covenants and agrees that it shall make whole any
and all losses of its division immediately and in no event later than fourteen
(14) days after the amount of the loss or deficiency is determined and
communicated to such Partner. (For example, if in a month the AIH Division has
a profit of $10,000 and the SATPG Division has a loss of $15,000, the SATPG
Division shall be responsible for funding and shall immediately pay the full
$15,000 of losses attributable to its operations.) Each Partner hereby further
covenants and agrees that it shall indemnify, defend and hold harmless the
Partnership and the remaining Partner in full for any losses or deficiencies
suffered or incurred by the Partnership and the remaining Partner arising out
of or resulting from the operations of such indemnifying Partner’s division.


 


14.           Distributions.


 


Distributions
of profits shall be made semi-annually, or at such other times as may be agreed
upon by the Partners.


 


15.           Determination
of Profit or Loss.


 


Profits
and losses (and distributions) shall be determined on the accrual cash basis of
accounting used for income tax reporting purposes.


 


16.           Partnership
Income and Contracts; Maintenance of Privileges.


 


a.             All capitation and other distributions from
CalOPTIMA and all sums received by the Partnership for services provided to
CalOPTIMA enrollees in connection with the Partnership’s business shall
constitute Partnership income.  All
contracts for medical services to be provided by the Partnership in connection
with CalOPTIMA shall be entered into by, and inure to the benefit of, the
Partnership.


 


b.             Each Partner’s shareholder-employee(s) shall
maintain privileges and medical staff membership at such hospitals as is
required by CalOPTIMA for the performance of services by such Partner.


 


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17.           Partnership
Year.


 


The
Partnership year shall be a fiscal year ending on the last day of December.


 


18.           Management
Limitation on Partnership and Partners’ Action.


 


a.             Each Partner shall have one (1) vote.  Unless otherwise provided in this Agreement,
all determinations affecting the conduct of the affairs of the Partnership
shall be made by majority vote of the Partners.


 


b.             The Partners have elected AIH to serve as
Managing Partner of the Partnership, and Dr. Pham to serve as President of the
Partnership.  Notwithstanding anything in
this Agreement to the contrary, the Managing Partner shall have the exclusive
power and authority, without approval of any other Partner or Partners, to take
the following actions for and on behalf of the Partnership:


 


(1)           interface with Prospect Medical Systems, Inc.
(“PMSI”) regarding its management
of the Partnership’s business and take such action under the Management
Services Agreement with PMSI as is authorized thereunder to be taken by the
Partnership’s Managing Partner; and


 


(2)           negotiate any changes in the Management
Services Agreement with PMSI; and


 


(3)           terminate the Management Services Agreement
with PMSI pursuant to the terms thereof; and


 


(4)           interface with CalOPTIMA (provided that the
Managing Partner will attempt to coordinate all material communications with
PMSI’s designated CalOPTIMA plan manager for purposes of coordinating any
communication made to or with CalOPTIMA for or on behalf of the Partnership,
unless such coordination is impracticable under the circumstances or CalOPTIMA
directs otherwise).


 


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c.             AIH may be removed as Managing Partner and
Dr. Pham may be removed as President of the Partnership only if it or he, as
the case may be, engages in gross negligence or fraud in the performance of its
or his duties or by reason of its or his prolonged dereliction in the
performance of its or his duties, as the case may be.  In addition, Dr. Pham may be removed as President if he is
disabled and thereby unable to perform his duties in furtherance of the
Partnership’s business for a period of six (6) consecutive months.  Except as provided in the foregoing
sentence, AIH shall be and remain Managing Partner so long as it is a Partner
in this Partnership and Dr. Pham shall be and remain President of the
Partnership so long as he is a shareholder of AIH.


 


d.             In connection with a Partner’s services as
Managing Partner, the Managing Partner shall not be liable, responsible or
accountable in damages or otherwise to the Partnership or the other Partners
for any act or omission performed or omitted by such Managing Partner in good
faith on behalf of the Partnership or the Partners, as the case may be, and in
a manner reasonably believed by such Managing Partner to be within the scope of
the authority granted to such Managing Partner by this Agreement and in the
best interests of the Partnership, except when such action or failure to act
constitutes gross negligence or willful misconduct.  As to any claims against such Managing Partner arising from the performance
of its functions as Managing Partner, such Managing Partner shall be
indemnified by the Partnership for any act performed by such Managing Partner
within the scope of the authority conferred upon such Managing Partner by this
Agreement; provided, however, that no indemnification may be made
in respect of any claim, issue or matter as to which such Partner shall have
been adjudged to be liable for gross negligence or willful misconduct in the
performance of such Partner’s duty to the Partnership unless, and only to the
extent that, the court in which such action or suit was brought determines that
in view of all the circumstances of the case, despite the adjudication of
liability for gross negligence or willful misconduct, such Managing Partner is
fairly and reasonably entitled to indemnity for those expenses which the court
deems proper.  Any indemnity under this
Paragraph shall be paid from and only to the extent of the Partnership’s
property and assets.


 


e.             Except as otherwise provided in subparagraph
b. above, without the prior consent of a majority of the Partners as a whole no
Partner shall:


 


(1)           enter into a new management agreement other
than the existing Management Services Agreement with PMSI, provided that
neither Partner may unreasonably withhold its consent from any such new
management agreement so long as it is a commercially reasonable agreement under
the circumstances.


 


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(2)           borrow money or incur any debt on behalf of
the Partnership, except in the ordinary course of business, or sell, lease,
mortgage or encumber in any way any Partnership property;


 


(3)           make, execute or deliver for or on behalf of
the Partnership any bond, mortgage, deed of trust, guarantee, indemnity bond,
surety bond, accommodation paper or endorsement;


 


(4)           release or discharge any debt due or owing to
the Partnership, except in the ordinary course of business;


 


(5)           confess a judgment against the Partnership;


 


(6)           approve and/or cause the Partnership to enter
into or terminate any material contract, lease, agreement or other instrument
binding upon the Partnership;


 


(7)           knowingly cause or suffer to be done anything
whereby the Partnership property may be attached or taken in execution; or


 


(8)           make, execute or deliver a general assignment
for the benefit of the Partnership’s creditors.


 


Notwithstanding the foregoing, each Partner shall have the right,
without the approval of the other Partner, to terminate any Physician Provider
Agreement for any physician associated solely with such Partner’s division of
the Partnership.


 


f.              The Partners shall endeavor to have monthly
meetings to discuss the day-to-day business of the Partnership.  In addition, a year-end meeting of the
Partners shall be held on a date and at a time agreed upon by the Partners for
the purpose of transacting year-end Partnership business matters.  Meetings of the Partners shall be held at
the Partnership Executive Office unless otherwise agreed by the Partners.  Any Partner may call for a special meeting
provided that adequate advance notice is given to the other Partners.  In regard to all meetings, the Partners
shall respect their mutual scheduling problems and shall use best reasonable
commercial efforts to ensure that substantially all Partners have an
opportunity to be in attendance.  The
presence in person at any scheduled meeting or specially noticed meeting of a
majority of the Partners entitled to vote shall constitute a quorum for the
transaction of business.  For purposes
of this provision, any Partner calling a special meeting shall be deemed to
have given adequate advance notice if such Partner gives at least ten (10)
days’ advance notice.


 


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19.           Bank
Accounts.


 


The
Partnership will maintain one or more bank checking accounts, money market
accounts and/or savings accounts.  All
Partnership receipts shall be deposited to such accounts and all disbursements
(except petty cash items) will be made from such accounts.  All expenditures and withdrawals will be on
such signatures as may be agreed upon by the Partners from time-to-time.  In addition to the Partnership’s accounts,
each Partner may maintain a separate account or accounts for deposit from the
Partnership’s account(s) of all receipts attributable to the operations of such
Partner’s division.  The Partners agree
that the Management Services Agreement with PMSI, or any other management
agreement with any management company managing the Partnership’s affairs in
lieu of PMSI (if any) shall contain provisions consistent with the foregoing.


 


20.           Accounting
Records and Financial Statements.


 


a.             The Partnership shall maintain adequate
accounting records which shall be kept on the accrual basis of accounting.  All books, records, and accounts of the Partnership
shall be open at all reasonable times to inspection by any Partner.


 


b.             Each month the Partnership’s accountants
shall prepare and distribute separate monthly financial statements regarding
the performance of each of the Partnership’s divisions (i.e., the
AIH Division and the SATPG Division), and a combined financial statement for
the Partnership’s operations as a whole. 
Said statements shall be distributed by the 15th day of the
month following the month for which the statements apply (e.g.,
the February statements shall be distributed by March 15th).
In addition to the foregoing, said accountants shall also prepare a separate
annual financial statement for each division and a combined annual statement
for the Partnership as a whole, which statements shall be completed and
distributed within thirty (30) days after the end of the Partnership’s fiscal
year.


 


21.           Malpractice (Including “Tail”) Insurance;
Duty to Disclose Malpractice Claims; Other Insurance.


 


a.             The Partners shall carry medical malpractice
insurance in such amounts and with such company or companies as are determined
to be satisfactory by the Partners or, if different, as may be required by
CalOPTIMA; provided, however, that such insurance shall have
minimum coverage limits of not less than One Million Dollars ($1,000,000) per
claim, Three Million Dollars ($3,000,000) aggregate per year for each
shareholder thereof.  Each Partner shall
be responsible for paying for such Partner’s malpractice insurance provided
that if the Partnership pays such expense directly such expenditure shall be
for convenience only and the amount shall be charged to the Partner’s share of
profits.  Upon request by any Partner,
the Partner requested shall provide such proof as the requesting


 


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Partner
shall reasonably require (such as a certificate of insurance and proof that the
premiums have been paid) showing that such insurance is in effect.


 


b.             Each Partner shall be responsible to procure
and maintain, at such Partner’s sole cost and expense, malpractice insurance
“tail” coverage covering such Partner and such Partner’s shareholder-employees,
for all acts or failures to act of such Partner and its shareholder-employees
occurring prior to the date of the withdrawal of such Partner from the
Partnership.


 


c.             The Partnership shall procure and maintain
comprehensive general liability insurance coverage for the Partnership, its
Partners and its employees in a form and with coverage that are customary for
persons and entities participating in the provision of comparable professional
medical and ancillary medical services and related activities.  The minimum coverage limits shall be
approved from time-to-time by the Partners. 
The Partnership also shall procure and maintain “all risk” property and
casualty insurance to provide replacement cost coverage for loss or damage to
Partnership property.


 


d.             During the term of the Partnership, if there
shall be a substantial change in the availability, cost, or form(s) of professional
liability or general liability insurance coverage generally prevailing in the
service area of the Partnership, the Partners shall promptly meet to negotiate
appropriate changes in the provisions of this Agreement regarding such items.  Such negotiations shall be directed toward
agreement on obtaining continuing or replacement coverage or other protection
against the risks associated with the services and activities of the Partners
which will adequately protect the Partners and the Partnership at a reasonable
cost and with an appropriate allocation of such costs in light of the then
prevailing insurance market and the manner in which such insurance/risk
coverage is then being arranged by similarly situated medical groups and
professionals.


 


e.             Each Partner shall inform the remaining
Partners of any actual or threatened malpractice claims against such Partner or
the Partnership arising out of such Partner’s services for and on behalf of the
Partnership which are known to such Partner. 
Such Partner shall inform the other Partners of such claim or claims
forthwith after obtaining knowledge of the existence of such actual or
threatened claim(s) and, thereafter, shall supply such additional information
relating thereto as shall reasonably be requested by the remaining Partner(s)
and the Partnership’s insurance carrier(s).


 


f.              The Partnership shall obtain and at all times
maintain directors and officers insurance protecting the Partnership’s
President and other Partnership officers and any Partnership governing board
members, with an A rated insurance company and with appropriate limits as
determined by the Managing Partner.


 


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22.           Safekeeping
and Use of Funds; Payment of Debts.


 


a.             Each Partner shall have a fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, and the Partners shall neither employ nor knowingly permit another
to employ such funds or assets in any manner except for the exclusive benefit
of the Partnership.


 


b.             Each Partner shall pay and be solely
responsible for all of the Partner’s separate debts, obligations, liabilities
and guarantees.


 


23.           Withdrawal
of Partner.


 


A
Partner shall withdraw from the Partnership as follows:


 


a.             Effective upon the expiration of one hundred
twenty (120) days from the date that written notice of withdrawal is given by
such Partner to the remaining Partner, which withdrawal may be for any reason
or for no reason; or


 


b.             Effective immediately upon the date the
Partner delivers written notice to the other Partner (or upon such other date
as may be specified in such notice), if such termination is based upon a
material uncured breach (see Paragraph 32 below regarding the right of a
Partner to cure a breach) of this Partnership Agreement by the other Partner;
or


 


c.             If withdrawal is required by CalOPTIMA; or


 


d.             If withdrawal is required by applicable law.


 


24.           Dissolution
of the Partnership; Effect of Dissolution.


 


a.             The Partnership shall be dissolved, wound up,
and terminated on the earlier of:


 


(1)           the withdrawal of a Partner in accordance
with Paragraph 23 above;


 


(2)           the termination of the Partnership’s
healthcare services contract with CalOPTIMA;


 


(3)           the sale of all or substantially all of the
assets of the Partnership;


 


(4)           the written agreement of all of the Partners;


 


(5)           the expiration of the term of the
Partnership;


 


14

















 


(6)           If either Partner shall apply for or consent
to the appointment of a receiver, trustee or liquidator in bankruptcy, make a
general assignment for the benefit of creditors, file a petition or answer
seeking reorganization or arrangement with creditors, or take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other law for the benefit
of creditors, or if any order, judgment, or decree shall be entered by any
court of competent jurisdiction on the application of a creditor or otherwise
adjudicating either Partner bankrupt or approving a petition seeking
reorganization of either Partner or appointment of a receiver, trustee or
liquidator of either Partner of all or a substantial part of its assets, and
such order, judgment or decree shall continue stayed and in effector for thirty
(30) calendar days after its entry, dissolution shall be effective
automatically and immediately upon the occurrence of the foregoing; or


 


(7)           except as otherwise set forth herein, the
occurrence of any other event which, under the law of the State of California,
would cause the termination or dissolution of a general partnership.


 


b.             Upon a dissolution by withdrawal or agreement
of the Partners, or otherwise, as set forth herein, an accounting shall be
undertaken and completed as quickly as possible of the results of the
Partnership’s operations to the date of dissolution.  Such accounting shall be prepared by the Partnership’s
accountants using generally accepted accounting principles consistently
applied.  In connection with such dissolution,
the affairs of the Partnership shall be liquidated forthwith.  The assets of the Partnership shall first be
used to pay or provide for all debts of the Partnership (whether liquidated or
contingent). The remaining assets shall be divided and distributed to the
Partners in the manner as set forth in Paragraph 25 below.


 


25.           Disposition
of Partnership Assets on Dissolution.


 


Upon
dissolution of the Partnership the Partners shall be entitled to the
Partnership assets, to the extent available (after payment of, or adequate
provision for, all Partnership debts as provided under Paragraph 24 above) and
in the following order as set forth below, subject to the adjustments set forth
in subparagraph c. below.


 


a.             First, to each Partner, such Partner’s share
of profits for the current fiscal year not yet reflected in such Partner’s capital
account, but decreased by the balance, if any, in the Partner’s drawing account
for the current fiscal year.


 


b.             Second, to each Partner, an amount equal to
the remaining balance in such Partner’s capital account.


 


c.             Notwithstanding anything in the foregoing to
the contrary, the above payments shall be subject to the following adjustments
and provisions:


 


15

















 


(1)           A Partner’s entitlement shall be reduced by
such Partner’s share of any losses for the current fiscal year not yet
reflected in such Partner’s capital account and by such Partner’s share of all
items of accrued expenses and prepaid expenses.


 


(2)           In the event a Partner’s drawing account
exceeds the Partner’s share of profits for the current fiscal year, then an
amount equal to such excess shall be deducted from any other amounts determined
to be owing to such Partner hereunder.


 


(3)           In the event a Partner has a deficit balance
in such Partner’s capital account at the time of the liquidation of the
Partnership (after crediting allocations of income and debiting allocations of
loss to such Partner’s capital account), the Partner must pay to the
Partnership the amount of the deficit balance. 
This amount, upon the liquidation of the Partnership, shall be paid to
the creditors of the Partnership or distributed to the other Partners in
accordance with their positive capital account balances in accordance with
Section 1.704-l(b)(2)(ii)(b)(3) of the Treasury Regulations.


 


This payment must be made in full in cash or cash equivalents.  This payment must be made no later than the
end of the taxable year of the liquidation of the Partner’s interest in the
Partnership (or, if later, within ninety (90) days after the date of the
liquidation).


 


For purposes of this provision: (a) the term “liquidation” is used in
the sense of Section 1.704-l(b)(2)(ii)(g) of the Treasury Regulations; and (b)
the liquidated Partner’s capital account shall be determined after taking into
account all capital account adjustments for the Partnership’s taxable year
during which the liquidation occurs.


 


The Partners intend that the obligations set forth in this provision
will constitute an unconditional obligation to restore deficit capital
accounts.


 


d.             The Partners expressly
acknowledge, understand and agree that there shall be no value attributable to
goodwill, going concern value, or any intangible assets of the Partnership, or
to the value of the physician provider network or CalOPTIMA enrollees
attributable to any Partner and its division, and no Partner shall be entitled
to any amounts from the other Partner with respect to any of the foregoing.


 


e.             Any disputes regarding the accounting
described in subparagraph 24.b. above and the determination of the disposition
and distribution of assets on dissolution pursuant to this Paragraph 25 shall
be resolved in the same manner as set forth in subparagraph


 


16

















 


13.c. with regard to any disagreement regarding the calculation of the
profits and/or losses of each Partnership division.


 


26.           Right
to Negotiate With CalOPTIMA, Etc.


 


Upon
the withdrawal of a Partner from the Partnership or any other dissolution or
termination of the Partnership, each Partner shall have the right to negotiate
with CalOPTIMA to remain as the physician component of PHC-27 or to form a new
relationship with CalOPTIMA or become aligned with (whether directly or
indirectly) any other physician hospital consortium associated with CalOPTIMA
or associate or contract with any health maintenance organization or other
organization.


 


27.           Notification
of Patients and Providers.


 


Upon
the withdrawal of a Partner from the Partnership or other dissolution of the
Partnership, each Partner shall have the right to notify the physician providers
and CalOPTIMA enrollees attributable to such Partner’s division of its
withdrawal from the Partnership or of the dissolution of the Partnership, and
of any new affiliation or association of such Partner with any other physician
hospital consortium or health maintenance organization or otherwise.


 


28.           Confidentiality.


 


Each
Partner acknowledges that such Partner and, if incorporated, its
shareholder-employees may have access to and become acquainted with various
records, documents, financial data and other proprietary information and trade
secrets (collectively referred to in this paragraph as “Trade Secrets”) relating
to the other Partner including, without limitation, information regarding the
financial affairs of the other Partner in connection with the Partnership.  Each Partner hereby expressly acknowledges
and agrees that each Partner’s Trade Secrets are confidential, material and
important and that their disclosure to unauthorized persons or entities could
have a serious and adverse effect on the Partner to whom such Trade Secrets
relate.  Each Partner hereby expressly
agrees that it will not at any time divulge, disclose, use or communicate to
any persons, firm or entity, whether directly or indirectly, any of the Trade
Secrets relating to any other Partner without the prior express written consent
of such other Partner, unless such disclosure is made pursuant to valid court
order or legitimate relevant demand in the course of litigation, or is
otherwise required by law or applicable canons of medical ethics.  Notwithstanding anything in the foregoing to
the contrary, it is understood and agreed that a Partner may use information
obtained while a Partner or obtained prior to becoming a Partner to the extent the
use of such information is necessary for such Partner to reestablish such
Partner’s medical practice following


 


17

















 


withdrawal from the Partnership and provide services to such Partner’s
patients consistent with the canons of medical ethics and applicable community
standards for patient care.


 


29.           Restrictions
on Transfers; Transferability of Partnership Interest.


 


a.             Except as provided in subparagraph b. below,
no Partner may voluntarily or involuntarily sell, assign, hypothecate, pledge,
encumber or transfer (collectively, a “transfer”) in any way such Partner’s
Partnership Interest or any portion thereof without the prior express written
consent of all of the remaining Partners, and any such purported transfer
without such written consent shall be null and void and of no force or effect.


 


b.             A Partner may sell or dispose of all (but not
less than all) of its Partner ship Interest in the Partnership to any person or
entity approved by CalOPTIMA and qualified to be a Partner in the Partnership
under applicable law pursuant to a bona fide offer from such person or entity,
but only as follows:


 


(1)           Such Partner shall first give written notice
to the other Partner (the “Option
Partner”) by
registered mail stating that the offer to the Selling Partner is bona fide, the
name and address of the person or entity offering to purchase such Partnership
Interest, the purchase price and the proposed terms of sale.  Upon receipt of such notice by the Option
Partner, it shall have the first right, privilege and option to purchase from
the Selling Partner all [or any part] of the Partnership Interest so designated
for sale or disposition, payment therefor to be made at the purchase price and
upon the terms set forth in the offer to the Selling Partner.  Such option shall be exercised by notice in
writing to the Selling Partner within sixty (60) days after the Option
Partner’s receipt of such notice from said Selling Partner.


 


(2)           If the Option Partner fails to purchase all
of such Partnership Interest under the option given and granted it in this
Paragraph 29, the Selling Partner may sell or dispose of the same, or so much
thereof as shall not have been so purchased by the Option Partner to the person
or entity named in the aforementioned notice; provided, however, that such
Selling Partner may not sell or dispose of its Partnership Interest at a lower
price or on more favorable terms to the purchaser than the price and upon the
terms set forth in such bona fide offer to purchase and communicated to the
Option Partner.  If the Selling Partner
does not, within sixty (60) days after termination of the option hereinabove
given and granted to the Option Partner sell its Partnership Interest, then
such proceedings for sale or attempted sale shall thereupon terminate and the
foregoing right of the Selling Partner to sell or dispose of its Partnership
Interest to others shall thereupon terminate; thereafter, such offering party,
in order to sell or dispose of its Partnership Interest, shall again give


 


18

















 


the
same notice and the Option Partner shall again have the same rights, privileges
and options, all as hereinabove specified in this Paragraph 29.


 


(3)           Any person acquiring a Partnership Interest
pursuant to the terms of this paragraph shall acquire such Partnership Interest
subject to all the terms, conditions and restrictions contained in this
Agreement as it may be in effect from time-to-time.


 


c.             No creditor of any Partner shall be entitled:
(i) to levy against or otherwise acquire the Partnership Interest of such
Partner; or (ii) to become a substituted Partner; or (iii) to petition for or
effect any dissolution of the Partnership or partition of the Partnership
property, and such creditor shall be limited to obtaining a charging order
against the Partnership Interest of the debtor Partner.


 


30.           No
Liability for Post-Withdrawal Partnership Debts; Indemnity.


 


Except
as may otherwise be provided in this Agreement, a withdrawing Partner shall not
be liable for any debts or obligations of the Partnership incurred after the
effective date of such Partner’s withdrawal (unless such debts or obligations
were incurred by reason of such Partner’s acts or omissions) and the
Partnership and each of the remaining Partners hereby agrees to indemnify and
hold harmless the withdrawing Partner with respect to any such debts or
obligations for which such Partner is not liable under the provisions of this
paragraph.


 


31.           Indemnification.


 


Each
Partner shall indemnify, protect and hold the Partnership and the other
Partners harmless from and against all losses, deficiencies, debts,
obligations, claims, damages, liabilities, costs and other expenses which in
any manner arise out of or relate to (i) such indemnifying Partner’s breach of
this Agreement; or (ii) any material inaccuracy in the Partner’s
representations and warranties set forth in this Partnership Agreement; or
(iii) the breach of any fiduciary duties or obligations owed by the Partner to
the Partnership and/or the other Partners.


 


32.           Right
to Cure Breach.


 


In
the event of a breach of this Agreement, the breaching party shall have ten
(10) business days from notice thereof to cure the breach; provided, however,
that if the nature of such breach is such that more than ten (10) business days
reasonably are required for its cure, then the breaching party shall not be
considered to be in breach if such party commenced such cure efforts
immediately within said ten (10) business day period and


 


19

















 


thereafter diligently and in good faith prosecutes such cure to
completion not later than thirty (30) calendar days after the breach; and
provided  further, that for a breach by a Partner of any obligation
to pay or contribute money to the Partnership, the other Partner or others
(including, without limitation, the obligation to fund any losses or
deficiencies attributable to the operations of such Partner’s division or to
make its proportionate share of any capital contribution), only a five (5)
business day cure period shall apply.


 


Furthermore,
notwithstanding anything in the foregoing to the contrary: (i) the breaching
party shall commence to cure immediately and shall attempt to complete a cure
as quickly as possible; (ii) should a party cease such party’s efforts to cure,
the cure period shall terminate one (1) business day after such cessation;
(iii) no party shall have the right to cure or undertake to cure a breach if
the breach is of such a materially adverse nature as to cause substantial harm
to the nonbreaching party which may not be fully and completely cured within
the time periods provided; (iv) the breaching party shall be liable in damages
to the nonbreaching party for any damages caused by the breach which damages
are not fully and completely cured within the applicable time period;(v) no
party shall have the right to avail itself of the cure provisions hereunder
more than two (2) times for any and all breaches of any obligation to pay or
contribute money to the Partnership, the other Partner or others (including,
without limitation the delegation to fund any losses or differences
attributable to the operations of such Partner’s decision or make its
proportionate share of any capital contribution), and (vi) except as provided
in the immediately preceding subsection (v) regarding breaches of obligations
to pay or contribute money, no Partner shall have the right to avail itself of
the cure provisions hereunder more than one (1) time for a material breach of
this Agreement, it being the express understanding and agreement of the
Partners that no Partner shall have the right, either intentionally or
unintentionally, to engage in recurring material breaches of this Agreement
regardless of such Partner’s ability or success in curing each such breach.


 


33.           Amendment
for Compliance with Law.


 


a.             It is the intention of all parties to this
Agreement that this Agreement and the conduct of the Partnership’s business and
practice shall comply with the CalOPTIMA contract and all applicable state and
federal statutes, laws, rules and regulations including, without limitation,
those promulgated by or relating to CalOPTIMA.


 


b.             If this Agreement or performance hereunder by
any Partner would be in violation of the CalOPTIMA contractor any statute, law,
rule or regulation which violation would have a material adverse effect on the
Partnership’s business and practice, or for any reason be or become illegal,
the Partners shall engage in good faith efforts and discussions to amend this
Agreement to correct such condition.  If
the Partners cannot agree


 


20

















 


on such an amendment within thirty (30) days after such discussions are
initiated, the Partnership shall be dissolved.


 


34.           Waiver
of Court Dissolution.


 


The
Partners agree that irreparable damage would be done to the reputation of the
Partnership and its Partners if any Partner should bring an action in court to
dissolve this Partnership.  Care has
been taken in this Partnership Agreement to provide what the parties feel are
fair and just payments to be made to a Partner whose relation with the
Partnership is terminated for any reason. 
Accordingly, each of the Partners accepts the provisions under this
Partnership Agreement as its sole entitlement on dissolution and waives any
right to bring an action in court for dissolution of the Partnership.


 


35.          Notices.


 


All notices, requests and demands hereunder shall be in writing and
delivered by hand, by mail, or by telegram, and shall be deemed given if by
hand delivery, upon such delivery, and if by mail, forty-eight (48) hours after
deposit in the United States mail, in Orange or Los Angeles Counties,
California, first class, registered or certified mail, postage prepaid and
properly addressed to the party at the address set forth at the end of this
agreement.  Any party may change its
address for purposes of this paragraph by giving the other party written notice
of the new address in the manner set forth above.


 


36.           Headings.


 


The
paragraph headings in this Partnership Agreement are for convenience only, and
are not a substantive part of this Partnership Agreement.


 


37.           Amendments.


 


This
Partnership Agreement may be amended only by written agreement signed by all of
the Partners.


 


38.           Applicable
Law.


 


This
Partnership Agreement shall be interpreted in accordance with the laws of the
State of California.


 


21

















 


39.           Entire
Agreement.


 


This
Agreement contains the entire understanding among the parties and supersedes
any prior written or oral agreements between them respecting the subject matter
hereof.


 


40.           Third
Parties.


 


Nothing
contained in this Agreement, whether expressed or implied, is intended to
confer upon any person other than the parties hereto and their respective successors
and assigns any rights or remedies under or by reason of this Agreement, nor is
anything in this Agreement intended to relieve or discharge the liability of
any other entity to any party hereto.


 


41.           Mediation
of Disputes.


 


a.             Prior to initiating litigation the party
intending to commence litigation shall give notice of its intention to do so
(the “Litigation Notice”) to the other party and the other
party shall have the right to submit the issue to mediation before a recognized
independent mediation service in Los Angeles or Orange County, California.  Each party hereby agrees to actively
participate in such mediation and cooperate in good faith to resolve the
dispute by mediation as quickly as possible. 
To this end the mediator shall be directed to meet and confer with the
parties and attempt to resolve the dispute forthwith after his or her
appointment and, if possible, within five (5) business days.  In the event the dispute is not resolved by
mediation within thirty (30) days from the Litigation Notice, the party which
gave the Litigation Notice shall have the right to commence legal action in a
court of competent jurisdiction.


 


b.             Notwithstanding anything in the foregoing to
the contrary, it is expressly understood and agreed that neither Partner shall
be required to participate in mediation if the nature of the breach by the
other Partner would cause irreparable harm to the nonbreaching Partner or if
mediation is impracticable under the circumstances.


 


c.             Subject to Paragraph 42 below regarding legal
fees, etc., the cost of the mediator (and any related costs incident thereto
required by the mediator or mediation service) shall be shared equally by the
Partners.


 


42.           Payment
of Legal and Professional Fees, Costs and Expenses.


 


In
the event of any dispute or disagreement arising under or in any way relating
to this Agreement (including, without limitation, any lawsuit, arbitration,
mediation


 


22

















 


or any other proceeding or action), each party thereto shall bear his
or its attorneys’ fees and other professional fees, costs and/or expenses and
no party shall be entitled to recover any such fees, costs and/or expenses from
any other party for any reason including, without limitation, regardless of
whether a party is the prevailing party in any legal action.


 


43.           Shareholders,
Directors and Officers of the Partners.


 


Each
Partner hereby expressly represents and warrants that all of the Partner’s
shareholders (including the number and class of shares owned by each
shareholder), officers and directors are all accurately identified and set
forth on Exhibit
A hereto.


 


44.           Waiver
of Default or Breach


 


Waiver
of any default or breach of this Agreement shall not be construed as a waiver
of any other default or breach of this Agreement.


 


EFFECTIVE
DATE OF THIS AGREEMENT:   July 1, 1999


 


 


	
  AMVI/IMC HEALTH NETWORK,

  INC., A MEDICAL CORPORATION

  	
   

  	
  SANTA ANA/TUSTIN PHYSICIANS

  GROUP, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Co D. L. Pham, M.D.,
  President

  and Chief Executive Officer

  	
   

  	
   

  	
  Jacob Terner, M.D.,
  President and

  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Address:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  



 


23

















 


Schedule 2.b


 


Exceptions to the Non-Compete


 


That certain provider agreement between
Prospect Medical Group, Inc. and UHP Healthcare, effective
                     ,
which agreement shall be terminated effective on or before August 31, 1999.


 


24