Charles A. and Marian L. Derby, et al. - Page 21




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          physicians were deemed to be the patients of SMF's group practice           
          program, and all income from the rendering of professional                  
          services to these patients was to accrue to SMF.                            
               The PSA contained a noncompete provision, under which SWMG             
          and its physician shareholder/employees were prohibited from                
          participating in the ownership, management, operation, or control           
          of any business or person providing health care services within             
          the service area covered by the agreement.  However, specifically           
          exempted from this prohibition was any SWMG physician who left              
          the employment of SWMG.                                                     
               Pursuant to the PSA, SWMG would receive compensation for its           
          provision of professional services equal to a percentage of net14           
          revenues from patients, as follows:  57.75 percent15 of fee-for-            
          service revenue; 47 to 53 percent of capitation revenue,                    
          depending on average monthly levels; and a sliding scale from 90            



               14 For this purpose, "net" revenue consisted, in the case of           
          fee-for-service revenues, of gross revenues less an estimated               
          percentage to account for contractual discounts and bad debts               
          and, in the case of capitation revenue, of gross revenue less               
          amounts equal to the cost of third-party administration, cost of            
          ancillary services, and other miscellaneous costs.  "Net"                   
          revenues for this purpose were not offset by SMF's expenses of              
          providing clinic locations, nonphysician personnel, or                      
          administrative services such as billing or maintaining patient              
          records.                                                                    
               15 The parties amended the PSA, wherein the fee-for-service            
          percentage was initially set at 54.5 percent, to reflect the                
          percentage noted above on Dec. 1, 1994, retroactive to Nov. 1,              
          1994.                                                                       






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