ASSET EXCHANGE AGREEMENT

ASSET EXCHANGE AGREEMENT







By and Among







SPECIALTY CARE NETWORK, INC.,





GREATER CHESAPEAKE ORTHOPAEDIC ASSOCIATES, L.L.C.,





STUART D. MILLER, M.D.



LESLIE S. MATTHEWS, M.D.



PAUL L. ASDOURIAN, M.D.



FRANK R. EBERT, M.D.



MARK S. MYERSON, M.D.



JOHN B. O'DONNELL, M.D.





LEW C. SCHON, M.D.









Dated as of November 12, 1996





TABLE OF CONTENTS



(This Table of Contents is not a part of the Agreement and is only for convenience of reference.)



1. Definitions.................................................... - 1 -



2. Basic Transaction.............................................. - 4 -

(a) Transfer of Assets...................................... - 4 -

(b) Assumption of Liabilities............................... - 5 -

(c) SCN Shares to be Delivered in Exchange.................. - 5 -

(d) The Closing............................................. - 5 -

(e) Deliveries at Closing................................... - 5 -

(f) Proration............................................... - 5 -

(g) Taxes and Expenses...................................... - 5 -



3. Representations and Warranties of Exchanger and the Exchanger

Members...................................................... - 6 -

(a) Organization, Qualification, and Power.................. - 6 -

(b) Capitalization.......................................... - 6 -

(c) Authorization of Transaction............................ - 6 -

(d) Noncontravention........................................ - 6 -

(e) Subsidiaries and Investments............................ - 7 -

(f) Financial Statements.................................... - 7 -

(g) Undisclosed Liabilities................................. - 7 -

(h) Brokers' Fees........................................... - 7 -

(i) Material Contracts...................................... - 7 -

(j) Insurance; Malpractice.................................. - 8 -

(k) No Changes Prior to Closing Date........................ - 8 -

(l) Title; Condition........................................ - 9 -

(m) Litigation.............................................. - 9 -

(n) Permits and Licenses.................................... - 9 -

(o) Tax Matters............................................. - 9 -

(p) Employee Benefit Plans.................................. - 9 -

(q) Third-Party Relations................................... - 11 -

(r) Compliance with Applicable Laws......................... - 11 -

(s) Employee Compensation................................... - 11 -

(t) Environmental Matters................................... - 11 -

(u) Health care Compliance.................................. - 12 -

(v) Fraud and Abuse......................................... - 12 -

(w) Practice Compliance..................................... - 12 -

(x) Rates and Reimbursement Policies........................ - 13 -

(y) Accounts Receivable..................................... - 13 -

(z) Guaranties.............................................. - 13 -

(aa) Powers of Attorney...................................... - 13 -

(bb) Tangible Assets......................................... - 13 -

(cc) Full Disclosure......................................... - 13 -



4. Representations and Warranties of SCN........................... - 13 -

(a) Organization............................................. - 13 -





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(b) Capitalization........................................... - 13 -

(c) Authorization of Transaction............................. - 14 -

(d) Noncontravention......................................... - 14 -

(e) Brokers' Fees............................................ - 14 -

(f) Private Placement Memorandum............................. - 14 -

(g) Compliance with Code Section 351......................... - 14 -



5. Covenants....................................................... - 14 -

(a) General.................................................. - 14 -

(b) Notices and Consents..................................... - 14 -

(c) Regulatory Matters and Approvals......................... - 15 -

(d) Operation of Business.................................... - 15 -

(e) Full Access.............................................. - 16 -

(f) Notice of Developments................................... - 16 -

(g) Exclusivity.............................................. - 16 -

(h) Collection of Accounts Receivable........................ - 16 -

(i) Payment of Expenses...................................... - 16 -

(j) Loan Agreement........................................... - 16 -



6. Conditions to Obligation to Close............................... - 17 -

(a) Conditions to Obligation of SCN.......................... - 17 -

(b) Conditions to Obligation of Exchanger.................... - 18 -



7. Items to be Delivered at or Prior to Closing.................... - 19 -

(a) By the Exchanger Members or Exchanger.................... - 19 -

(b) By SCN................................................... - 19 -



8. Termination..................................................... - 20 -

(a) Termination of Agreement................................. - 20 -

(b) Effect of Termination.................................... - 20 -



9. Indemnification................................................. - 20 -

(a) Indemnification by the Exchanger Members................. - 20 -

(b) Notice to the Exchanger Members; Opportunity to Defend... - 21 -

(c) General Indemnification by SCN........................... - 21 -

(d) Notice to SCN; Opportunity to Defend..................... - 21 -

(e) Survival................................................. - 21 -

(f) Security for Indemnity................................... - 21 -



10. Miscellaneous.................................................. - 21 -

(a) No Third-Party Beneficiaries............................. - 21 -

(b) Entire Agreement......................................... - 22 -

(c) Succession and Assignment................................ - 22 -

(d) Counterparts............................................. - 22 -

(e) Headings................................................. - 22 -

(f) Notices.................................................. - 22 -

(g) Governing Law............................................ - 23 -





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(h) Amendments and Waivers................................... - 23 -

(i) Severability............................................. - 23 -

(j) Expenses................................................. - 23 -

(k) Construction............................................. - 23 -

(l) Submission to Arbitration................................ - 23 -

(m) Incorporation of Exhibits and Schedules.................. - 23 -



SCHEDULE 1(a) REAL PROPERTY.............................. Schedule 1(a)-1 SCHEDULE 1(b) FURNITURE, FIXTURES & EQUIPMENT............ Schedule 1(b)-1 SCHEDULE 1(d) LEASES OF PERSONAL PROPERTY................ Schedule 1(d)-1 EXHIBIT 6(a)(viii) EXCHANGER OPINION LETTER.............. Exhibit 6(a)(viii)-1 EXHIBIT 6(a)(ix) SUBSCRIPTION DOCUMENTS.................. Exhibit 6(a)(ix)-1 EXHIBIT 6(b)(vi) SCN Opinion Letter...................... Exhibit 6(b)(vi)-1 EXHIBIT 7(a)(ii) INSTRUMENT OF EXCHANGE.................. Exhibit 7(a)(ii)-1 EXHIBIT 7(a)(iii) SERVICE AGREEMENT...................... Exhibit 7(a)(iii)-1





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ASSET EXCHANGE AGREEMENT



THIS AGREEMENT ("Agreement") is entered into as of November 12, 1996, by and among GREATER CHESAPEAKE ORTHOPAEDIC ASSOCIATES, L.L.C., a Maryland limited liability company ("Exchanger"), and STUART D. MILLER, M.D., LESLIE S. MATTHEWS, M.D., PAUL L. ASDOURIAN, M.D., FRANK R. EBERT, M.D., MARK S. MYERSON, M.D., JOHN B. O'DONNELL, M.D., and LEW C. SCHON, M.D., all residents of the State of Maryland (collectively the "Exchanger Members") on the one hand and SPECIALTY CARE NETWORK, INC., a Delaware corporation ("SCN") on the other hand. SCN, Exchanger and the Exchanger Members are referred to collectively herein as the "Parties."



W I T N E S S E T H:



WHEREAS, Exchanger is a Maryland limited liability company which owns the assets which are used by and/or result from the Exchanger Members' practice of medicine;



WHEREAS, the Exchanger Members are medical doctors practicing medicine in the State of Maryland;



WHEREAS, the Parties anticipate that the transaction contemplated by this Agreement will further certain of their business objectives;



WHEREAS, the Parties desire to set forth in writing the terms and conditions under which said transaction will be consummated; and



WHEREAS, the Exchanger and the Exchanger Members desire to effect a contribution of certain of Exchanger's assets to SCN solely in exchange for common stock of SCN in a transaction qualifying for non-recognition of gain under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").



NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties, it is agreed as follows:



1. Definitions.



"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.



"Agreement" has the meaning set forth in the preface above.



"Applicable Laws" shall have the meaning set forth in Section 3(r).



"Assumed Liabilities" means (a) all obligations and liabilities of the Seller under any agreements, contracts, leases, licenses, and other arrangements referred to in the definition of Contributed Assets either (i) to furnish goods, services (other than medical services) or other benefits to another party after the Closing Date or (ii) to pay for goods, services or other benefits that another party will furnish to it after the Closing Date and (b) all other obligations and liabilities expressly assumed by Buyer pursuant to this Agreement.





"Closing Date" has the meaning set forth in Section 2(d) below.



"Closing" has the meaning set forth in Section 2(d) below.



"Code" shall mean the Internal Revenue Code of 1986, as amended.



"Contributed Assets" means all of Exchanger's right, title, and interest in and to the following assets of Exchanger owned as of the Closing Date:



(a) any and all leaseholds and subleaseholds in real property, improvements, fixtures, and fittings thereon, and easements, rights-of-way, and other appurtenances and hereditaments thereto (such as appurtenant rights in and to public streets), including the assets described on Schedule 1(a) attached hereto (the "Real Property"),



(b) any and all furniture, fixtures, equipment and other capital assets of Exchanger, including items described on Schedule 1(b) attached hereto,



(c) any and all inventory of supplies, janitorial and office supplies, and other disposables and consumables on hand at the Closing Date (excluding drugs),



(d) leases or subleases of equipment or other personal property, and rights thereunder as described on Schedule 1(d) attached hereto,



(e) any and all Intellectual Property, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, and rights to protection of interests therein under the laws of all jurisdictions,



(f) agreements, contracts, indentures, mortgages, instruments, Security Interests, guaranties, other similar arrangements, and rights thereunder,



(g) claims, deposits, prepayments, refunds, causes of action, choses in action, rights of recovery, rights of set off, and rights of recoupment (except any such item relating to the payment of Taxes),



(h) franchises, approvals, permits, licenses, orders, registrations, certificates, variances, and similar rights obtained from governments and governmental agencies,



(i) any and all books, records, ledgers, files, documents, correspondence, lists, plats, architectural plans, drawings, and specifications, creative materials, advertising and promotional materials, studies, reports, and other printed or written materials (excluding patient medical records),



(j) any and all accounts receivable (excluding governmental receivables) of Exchanger as the same exist on the Closing Date and all rights to receive payments on governmental receivables after payments on such governmental receivables are received by Exchanger, which accounts receivable shall include all uncollected patient accounts of Exchanger on the Closing Date.



The term "Contributed Assets" shall not include any specific item included within the definition of Excluded Assets below.





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"Delaware General Corporation Law" means the General Corporation Law of the State of Delaware, as amended.



"Disclosure Schedule" has the meaning set forth in Section 3 below.



"Employee Benefit Plans" has the meaning set forth in Section 3(p)(i).



"Environmental Laws" means all federal, state, and local laws, rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder and other governmental requirements relating to pollution, control of chemicals, storage and handling of petroleum products, management of waste (including biohazardous or biomedical waste), discharges of materials into the environment, health, safety, natural resources, and the environment, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes.



"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.



"Excluded Assets" means (a) the articles of organization, qualifications to conduct business as a foreign limited liability company, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, transfer books, and other documents relating to the organization, maintenance, and existence of Exchanger as a limited liability company, (b) employment or noncompete agreements between Exchanger and those licensed medical doctors under contract with Exchanger to provide medical services to Exchanger patients, (c) all patient records and patient lists, (d) all insurance policies of Exchanger and all claims arising thereunder and all prepaid expenses on malpractice insurance premiums, (e) the inventories, cash, and accounts receivable disposed of, cancelled, expanded or collected, as the case may be, by Exchanger after the date hereof and prior to the Closing in the Ordinary Course of Business and consistent with past practice, (f) personal property of individual Exchanger Members which is not included on the financial statements of Exchanger, (g) Exchanger's cash on hand as of the Closing Date, (h) the Exchanger's third party payor agreements, (i) all drugs owned by Exchanger, and (j) any rights of Exchanger under this Agreement or any related document or under any other agreement between Exchanger on the one hand and SCN on the other hand entered into on or after the date of this Agreement.



"Exchange" has the meaning set forth in Section 2(a) below.



"Exchanger" has the meaning set forth in the preface above.



"Exchanger Members" means all Persons who are members of Exchanger.



"GAAP" means United States generally accepted accounting principles as in effect from time to time.



"Hazardous Materials" has the meaning set forth in Section 3(t) below.



"IRS" means the Internal Revenue Service.



"Knowledge" means actual knowledge after reasonable investigation.





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"Maryland Limited Liability Company Act" means the Limited Liability Company Act of the State of Maryland, as amended.



"Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice.



"Person" means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof).



"PBGC" shall have the meaning set forth in Section 3(p)(ii).



"Private Placement Memorandum" means the private placement memorandum of SCN relating to the of the offering of the SCN Shares in connection with the transactions contemplated by this Agreement, including all supplements thereto.



"Requisite Exchanger Member Approval" means the affirmative vote of the holders of a majority of the membership interests of Exchanger in favor of this Agreement and the Exchange.



"Requisite SCN Stockholder Approval" means the affirmative vote of the holders of a majority of the SCN Shares in favor of this Agreement and the Exchange.



"SCN Share" means any share of the common stock, $.001 par value per share, of SCN.



"SCN" has the meaning set forth in the preface above.



"Securities Act" means the Securities Act of 1933, as amended.



"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.



"Security Interest" means any mortgage, pledge, lien, encumbrance, charge or other security interest other than (a) mechanic's, materialmen's or similar lien, (b) liens for taxes not yet due and payable or for taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money.



"Special Exchanger Meeting" has the meaning set forth in Section 5(c).



"Subsidiary" means any corporation with respect to which a specified Person (or a Subsidiary thereof) owns a majority of the common stock or has the power to vote or direct the voting of sufficient securities to elect a majority of the directors.



2. Basic Transaction.



(a) Transfer of Assets. At the Closing, on and subject to the terms and conditions of this Agreement, Exchanger agrees to transfer, exchange, convey, and deliver to SCN, and SCN agrees to receive in exchange for the SCN Shares set forth in Section 2(c), all of the Contributed Assets (the "Exchange").





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(b) Assumption of Liabilities. Except for the Assumed Liabilities, SCN will not assume or have any responsibility or liability, either expressly or impliedly, with respect to any obligation or liability of Exchanger of any kind or nature. SCN hereby assumes all of Exchanger's obligations and responsibilities resulting from the Assumed Liabilities.



(c) SCN Shares to be Delivered in Exchange. In exchange for the Contributed Assets, SCN shall issue and deliver to Exchanger One Million Five Hundred Sixty-Eight Thousand Nine Hundred Twenty-One (1,568,921) SCN Shares (for purposes of this Agreement, each SCN Share shall be deemed to have a value of Six Dollars ($6.00) per share.



(d) The Closing. The closing of the Exchange (the "Closing") shall take place at the offices of Exchanger, 3333 North Calvert Street, Baltimore, Maryland 21218, commencing at 9:00 a.m. local time on the business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby or such other date as the Parties may mutually determine (the "Closing Date"); provided, however, that the Closing Date shall be no later than December 31, 1996. Time is of the essence for this Agreement.



(e) Deliveries at Closing. At the Closing, (i) SCN will deliver to Exchanger the various certificates, instruments, and documents referred to in Section 7(b) below; (ii) Exchanger will deliver to SCN the various certificates, instruments, and documents referred to in Section 7(a) below.



(f) Proration. The following prorations among the Parties shall be made as of the Closing Date, with Exchanger remaining liable to the extent such items relate to any time period up to the Closing Date and the Buyer being liable to the extent such items relate to periods on and after the Closing Date. To the extent possible, the net amount of all such prorations will be settled in cash at the Closing.



(i) Any ad valorem taxes, including, without limitation, personal

property taxes and assessments, and other taxes, if any, on or with

respect to the Contributed Assets.



(ii) Rents, additional rents, taxes and other items payable by

Exchanger under any lease, license, permit, contract or any other

agreement or arrangement to be assigned to or assumed by SCN.



(iii) The amount of rents, taxes, and charges for sewer, water,

fuel, telephone, electricity, and other utilities; provided, that if

practicable, a meter reading shall be taken on the Closing Date and the

respective obligations of the parties determined in accordance with such



If the actual expense of any of the above items for the billing period in which the Closing Date falls is not known at the Closing, the proration shall be made based on the expense incurred in the previous billing cycle, for expenses billed less often than quarterly, and on the average expense incurred in the preceding three (3) billing periods, for expense bill quarterly or more often.



(g) Taxes and Expenses. Exchanger shall be responsible for any business, occupation, withholding or similar tax or taxes of any kind related to Exchanger's business for any period prior to the Closing Date. All





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applicable sales, use and tangible taxes, documentary stamp taxes, filing and recording costs and other transfer taxes, costs and fees relating to the transfer of title to the Contributed Assets, and the consummation of the transactions described herein, shall be paid by Exchanger.



3. Representations and Warranties of Exchanger and the Exchanger Members. Exchanger and the Exchanger Members represent and warrant to SCN that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3), except as set forth in the disclosure schedule (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Section 3. SCN acknowledges that on the Closing Date Exchanger shall have ceased the practice of medicine and shall have converted from a professional limited liability company to a business limited liability company. To the extent that any statements contained in this Section 3 refer to the practice of medicine, such statements shall refer to the period during which Exchanger operated as a professional limited liability company.



(a) Organization, Qualification, and Power. Exchanger is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Maryland. Exchanger is duly authorized to conduct business and is in good standing under the laws of each jurisdiction in which the character or location of the properties owned or the business conducted by Exchanger makes such qualification necessary. Exchanger has the power and authority to carry on the business in which it is engaged and to own and use the properties owned and used by it.



(b) Capitalization. All of the membership interests in Exchanger have been duly authorized and validly issued to the Exchanger Members. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts or commitments that could require Exchanger to issue, sell or otherwise cause to be created any membership interests of Exchanger.


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