<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-27276
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MEDPARTNERS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 63-1151076
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3000 GALLERIA TOWER, SUITE 1000
BIRMINGHAM, ALABAMA 35244
(Address of Principal Executive Offices)
(205) 733-8996
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_] .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at
August 6, 1999
199,439,465
Common Stock, par value
$.001 per Share
- --------
* Includes 8,466,659 shares held in trust to be utilized in employee benefit
plans.
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<PAGE>
FORWARD LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress encouraged
public companies to make "forward-looking statements" by creating a safe
harbor to protect companies from securities law liability in connection with
forward-looking statements. MedPartners, Inc. ("MedPartners" or the "Company")
intends to qualify both its written and oral forward-looking statements for
protection under the Reform Act and any other similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All forward-
looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of MedPartners.
MedPartners undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.
The "forward-looking statements" contained in this document are made under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations". Moreover, the Company, through its senior management,
may from time to time make "forward-looking statements" about matters
described herein or other matters concerning the Company.
There are several factors which could adversely affect the Company's
operations and financial results including, but not limited to, the following:
Risks relating to the Company's divestiture of its discontinued operations;
risks relating to the implementation of the Company's settlement agreement
with the State of California; risks relating to the Company's compliance
with or changes in government regulations, including pharmacy licensing
requirements and healthcare reform legislation; risks relating to adverse
resolution of lawsuits pending against the Company and its affiliates;
risks relating to declining reimbursement levels for products distributed;
risks relating to identification of growth opportunities; risks relating to
implementation of the Company's strategic plan; risks relating to
liabilities in excess of insurance risks; risks relating to the Company's
liquidity and capital requirements; and risks relating to the Company's
failure to ensure its information systems are Year 2000 compliant.
2
<PAGE>
MEDPARTNERS, INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1.Financial Statements
Condensed Consolidated Balance Sheets--June 30, 1999 (Unaudited) and
December 31, 1998..................................................... 4
Condensed Consolidated Statements of Operations (Unaudited)--Three
Months Ended June 30, 1999 and 1998................................... 5
Condensed Consolidated Statements of Operations (Unaudited)--Six Months
Ended June 30, 1999 and 1998.......................................... 6
Condensed Consolidated Statements of Cash Flows (Unaudited)--Six Months
Ended June 30, 1999 and 1998.......................................... 7
Notes to Condensed Consolidated Financial Statements (Unaudited)....... 8
Item 2.Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations...................................................... 12
Item 3.Quantitative and Qualitative Disclosures About Market Risk......... 17
PART II--OTHER INFORMATION
Item 1.Legal Proceedings.................................................. 19
Item 4.Submission of Matters to a Vote of Security Holders................ 19
Item 6.Exhibits and Reports on Form 8-K................................... 19
</TABLE>
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MEDPARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 8,639 $ 23,100
Accounts receivable, less allowances for bad debts
of $11,841 and $11,136............................ 189,205 185,719
Inventories........................................ 137,612 171,739
Prepaid expenses and other current assets.......... 11,281 11,513
Current assets of discontinued operations.......... 253,900 793,495
----------- -----------
Total current assets............................. 600,637 1,185,566
Property and equipment, net........................ 108,167 115,835
Intangible assets, net............................. 23,987 27,463
Other assets....................................... 80,284 51,272
Non-current assets of discontinued operations...... 93,584 481,970
----------- -----------
Total assets..................................... $ 906,659 $ 1,862,106
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................... $ 223,650 $ 215,861
Other accrued expenses and liabilities............. 212,968 297,265
Income tax payable................................. 10,775 9,480
Current portion of long-term debt.................. 37,016 207
Current liabilities of discontinued operations..... 322,281 577,642
----------- -----------
Total current liabilities........................ 806,690 1,100,455
Long-term debt, net of current portion............... 1,334,887 1,735,096
Other long-term liabilities.......................... 31,065 61,954
Long-term liabilities of discontinued operations..... 51,093 108,774
Stockholders' deficit:
Common stock, $.001 par value; 400,000 shares
authorized; issued--199,212 in 1999 and 199,032 in
1998.............................................. 199 199
Additional paid-in capital......................... 952,557 954,420
Shares held in trust, 8,521 in 1999 and 8,838 in
1998.............................................. (136,736) (142,477)
Accumulated deficit................................ (2,133,096) (1,956,315)
----------- -----------
Total stockholders' deficit...................... (1,317,076) (1,144,173)
----------- -----------
Total liabilities and stockholders' deficit...... $ 906,659 $ 1,862,106
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MEDPARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1999 1998
----------- ----------
(in Thousands, Except
Per Share Amounts)
<S> <C> <C>
Net revenue.......................................... $ 796,207 $ 639,457
Operating expenses:
Cost of revenues................................... 725,086 580,467
Selling, general and administrative................ 22,880 21,767
Depreciation and amortization...................... 5,104 4,683
Net interest expense............................... 30,502 21,723
Restructuring charge............................... -- 9,500
----------- ----------
Income from continuing operations before income tax-
es.................................................. 12,635 1,317
Income tax expense................................... 940 500
----------- ----------
Income from continuing operations.................... 11,695 817
Loss from discontinued operations.................... (199,310) (24,081)
----------- ----------
Net loss............................................. $ (187,615) $ (23,264)
=========== ==========
Basic earnings per common share:
Income from continuing operations.................. $ 0.06 $ 0.01
Loss from discontinued operations.................. (1.05) (0.13)
----------- ----------
Net loss........................................... $ (0.99) $ (0.12)
=========== ==========
Diluted earnings per common share:
Income from continuing operations.................. $ 0.06 $ 0.01
Loss from discontinued operations.................. (1.02) (0.13)
----------- ----------
Net loss........................................... $ (0.96) $ (0.12)
=========== ==========
Weighted average common shares outstanding........... 190,650 189,245
Dilutive effect of employee stock options............ 4,635 367
----------- ----------
Weighted average shares outstanding, assuming dilu-
tion................................................ 195,285 189,612
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MEDPARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1999 1998
---------- ----------
(in Thousands, Except
Per Share Amounts)
<S> <C> <C>
Net revenue........................................... $1,581,265 $1,259,683
Operating expenses:
Cost of revenues.................................... 1,440,952 1,145,395
Selling, general and administrative................. 47,653 42,998
Depreciation and amortization....................... 10,662 9,102
Net interest expense................................ 57,560 41,039
Restructuring charge................................ -- 9,500
---------- ----------
Income from continuing operations before income tax-
es................................................... 24,438 11,649
Income tax expense.................................... 1,908 4,426
---------- ----------
Income from continuing operations..................... 22,530 7,223
Loss from discontinued operations..................... (199,310) (55,567)
---------- ----------
Net loss.............................................. $ (176,780) $ (48,344)
========== ==========
Basic earnings per common share:
Income from continuing operations................... $ 0.12 $ 0.04
Loss from discontinued operations................... (1.05) (0.29)
---------- ----------
Net loss............................................ $ (0.93) $ (0.25)
========== ==========
Diluted earnings per common share:
Income from continuing operations................... $ 0.12 $ 0.04
Loss from discontinued operations................... (1.03) (0.29)
---------- ----------
Net loss............................................ $ (0.91) $ (0.25)
========== ==========
Weighted average common shares outstanding............ 190,490 188,928
Dilutive effect of employee stock options............. 3,498 595
---------- ----------
Weighted average shares outstanding, assuming dilu-
tion................................................. 193,988 189,523
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
MEDPARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1999 1998
--------- ---------
(in Thousands)
<S> <C> <C>
Operating activities:
Net loss................................................. $(176,780) $ (48,344)
Adjustments for non-cash items:
Non-cash interest expense.............................. 2,711 1,834
Depreciation and amortization.......................... 10,662 9,102
Provision for deferred tax expense..................... -- 1,250
Restructuring charges.................................. -- 9,500
Loss from discontinued operations...................... 199,310 55,567
Changes in operating assets and liabilities............ 12,655 7,382
--------- ---------
Net cash and cash equivalents provided by continuing
operations.......................................... 48,558 36,291
Investing activities:
Purchase of property and equipment..................... (6,952) (19,484)
Proceeds from sales of property and equipment.......... -- 7,245
--------- ---------
Net cash and cash equivalents provided by (used in)
investing activities................................ (6,952) (12,239)
Financing activities:
Capital contributions.................................. 1,273 2,832
Net borrowings (repayments) under credit facility...... (363,199) 212,000
Repayment of debt...................................... (201) (200)
Capitalized loan fees.................................. (269) (6,100)
Accounts receivable securitization..................... 14,690 --
--------- ---------
Net cash and cash equivalents provided by (used in)
financing activities................................ (347,706) 208,532
Cash paid for restructuring expenses..................... (2,807) (3,417)
Cash provided by (used in) discontinued operations....... 294,446 (292,804)
--------- ---------
Net decrease in cash and cash equivalents................ (14,461) (63,637)
Cash and cash equivalents at beginning of period......... 23,100 109,098
--------- ---------
Cash and cash equivalents at end of period............... $ 8,639 $ 45,461
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
MEDPARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Basis of presentation
The unaudited condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries and have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and in accordance with Rule 10-01 of Regulation S-
X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring items) necessary for a fair presentation of results for the
interim periods presented. The results of operations for any interim period
are not necessarily indicative of results for the full year. The condensed
consolidated balance sheet of the Company at December 31, 1998 has been
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. These
financial statements and footnote disclosures should be read in conjunction
with the December 31, 1998 audited consolidated financial statements and the
notes thereto.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the accompanying unaudited
condensed consolidated financial statements and notes thereto. Actual results,
including the Company's estimated costs to exit its Physician Practice
Management ("PPM") operations, as discussed in Notes 4 and 5, could differ
from those estimates.
Note 2. Income taxes
Significant variations exist in the customary relationship between income
tax expense and pretax income because the Company has utilized net operating
loss carryforwards to offset its taxable federal income and certain taxable
state income. Consequently, the Company has recognized a tax rate of
approximately 8%, its effective state income tax rate.
Note 3. Credit Facility
The Company entered into an amendment to its Credit Facility dated as of
April 15, 1999, to modify the terms of its credit agreement concerning the
Company's proposed settlement with the State of California on April 9, 1999.
The terms of the agreement were modified to among other things (a) permit the
Company to enter into a comprehensive settlement agreement and transition plan
with the State of California (the "Settlement Agreement"); (b) permit the sale
or other disposition of all of the property and assets of the Company's
California PPM operations, with proceeds remaining in the California PPM
operations to satisfy liabilities and obligations of the Company's California
PPM operations, including MPN's liabilities and obligations; (c) to increase
to $215 million (of which $15 million is available solely to pay amounts under
certain promissory notes), from $125 million, the amount of net asset sale
proceeds available to the Company for use in its business and operations in
the ordinary course; (d) modify certain financial ratios for periods ending on
or after March 31, 1999; and (e) increase to $100 million the amount of
accounts receivable permitted to be securitized.
Effective June 29, 1999, the Company entered into an amendment to its credit
facility to modify the terms of its credit agreement primarily concerning the
Company's settlement with the State of California dated June 16, 1999. The
terms of the credit agreement were modified to among other things (a) permit
the Company to dispose of the property and assets of the Company's California
PPM operations in accordance with the June 16, 1999 settlement; (b) increase
to $150 million the amount of accounts receivable permitted to be securitized;
and (c) modify certain financial covenants for periods ending on or after June
30, 1999.
The Company entered into amendments to its credit facility dated as of
August 2, 1999 and August 16, 1999, to modify the terms of its credit
agreement concerning among other things (a) the amount of cash and
8
<PAGE>
MEDPARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
non-cash charges that are permitted to be excluded from financial results for
covenant purposes and (b) the retention by the Company of certain net cash
proceeds of asset dispositions. Specifically, the Company is now allowed to
exclude up to $233.5 million in cash charges related to the reclassification
of the physician practice management businesses as discontinued operations
versus the previous maximum amount of $220 million. The amendments also allow
the Company to retain up to $50 million and, with the consent of the majority
lenders under the credit facility, up to an additional $43 million of net cash
proceeds from asset dispositions occurring on or after July 1, 1999 (in each
case in addition to $15 million in net cash proceeds previously designated for
the payment of certain promissory notes), for use in its business and
operations in the ordinary course rather than applying those proceeds to the
term loans as previously required. In connection with these amendments the
Company has agreed that upon receipt of requisite consent of its lenders under
the credit facility, it shall pledge all of the capital stock of its
subsidiary, Caremark, Inc., as security for the credit facility, with an equal
and ratable pledge in favor of the holders of the Company's 7 3/8% Senior
Notes due 2006.
Note 4. Sales of Discontinued Operations
On January 26, 1999, the Company closed the sale of its government services
operations, one of the two businesses that comprised the Company's contract
services business, to America Service Group, Inc. The Company received
approximately $67 million in cash, less certain working capital adjustments,
in this transaction.
On March 12, 1999, the Company closed the sale of its hospital services
operations, the other of the two businesses that comprised the Company's
contract services business, to an unaffiliated third party and the current
management team in a recapitalization transaction. The Company received
approximately $318.9 million in cash, before payment of transaction costs and
other expenses including insurance coverage for certain medical malpractice
liabilities, in this transaction. The Company retained 7.3% of the equity of
the recapitalized company.
During the six months ended June 30, 1999 the Company completed various
asset sales of its PPM business. Proceeds from these sales totaled $221.0
million. On April 23, 1999, the Company closed the sale of assets of the PPM
business that provides services to the multi-specialty physicians group,
Kelsey-Seybold Medical Group, P.A. to a joint venture. The joint venture
acquired the MedPartners and Kelsey-Seybold management services agreement,
related assets and certain real estate for $150 million, less certain working
capital and other adjustments.
During the fourth quarter of 1998 the Company recorded a $1.1 billion net
loss on the disposal of discontinued operations. This loss included
approximately $815.4 million for the impairment and write-offs of intangibles
and other PPM assets, estimated costs to exit the PPM operations of
approximately $340.9 million (including $153.9 million to fully reserve the
Company's deferred tax assets) and approximately $90.8 million, net of taxes
of $55.6 million, for the estimated net gain on the sale of the contract
services businesses. During the second quarter of 1999, the Company recorded
an additional charge for $199.3 million related to the net loss on the
disposal of discontinued operations. This charge is an adjustment to the $1.1
billion dollar net loss on the disposal of discontinued operations recorded in
the fourth quarter of 1998. The adjustment includes an additional $236.6
million for the impairment and write-offs of intangibles and other PPM assets
and a reduction in the estimated costs to exit the PPM operations of
approximately $37.3 million. During the first six months of 1999, the Company
realized a loss of $512.2 million on the sale of PPM assets, incurred costs to
exit the PPM business of $146.7 million and realized a gain on the sale of the
contract services business of $91.1 million, net of taxes of $55.9 million.
Note 5. California PPM Discontinued Operations
The Company's California PPM operations includes MedPartners Provider
Network ("MPN"), a wholly-owned subsidiary of the Company and a healthcare
service plan licensed under the Knox-Keene Health Care Service Plan Act of
1975. In March 1999, the California Department of Corporations (the "DOC")
appointed a conservator and assumed control of the business operations of MPN.
The conservator, purportedly on behalf of MPN, filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code, placing MPN into
bankruptcy. The Company judicially challenged the authority of both the DOC
and the conservator to take these actions.
9
<PAGE>
MEDPARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
On April 9, 1999, the Company and representatives of the State of California
(the "State") reached an agreement in principle to settle the disputes
relating to MPN. The proposed settlement provided for, among other things: a
transition plan for the orderly and timely disposition of the existing
operations of MPN and the Company's California PPM-related assets; the
continued funding of the Company's California PPM operations with all of the
proceeds from such disposition; restoration of MPN's assets, operations and
management responsibilities to the Company, which will operate MPN as a debtor
in possession under the Bankruptcy Code, subject to oversight of the a
successor to the originally appointed conservator; and the continuation in a
monitoring role by such successor and the DOC with oversight responsibilities
on the fulfillment of the proposed settlement and transition plan. The
proposed settlement also provided for the Company to provide a letter of
credit in the amount of $25 million as security for its funding obligations.
On May 10, 1999, pending execution of a definitive settlement agreement, the
Company and the State reached an interim agreement (the "Interim Agreement")
to begin implementation of the principal terms of the proposed settlement. As
part of the Interim Agreement, the DOC stayed its prior orders, and sought and
received an order from the Superior Court modifying the conservator's role and
appointing him as a special monitor for MPN (the "Monitor Order"). The Monitor
Order was intended to allow the Company to proceed with its transition plan
for the orderly and timely disposition of the existing operation of MPN and
the Company's California PPM-related assets. In particular, the Monitor Order
provided that: MPN property, business, and assets would be returned
immediately to MPN, which would be managed by the Company and operate as a
debtor in possession under the Bankruptcy Code; a special monitor appointed by
the state would provide oversight of MPN and maintain certain operational
controls over MPN pending approval by the Bankruptcy Court of the definitive
settlement agreement; and the Company would fund, as contemplated in its
transition plan, the working capital requirements of its subsidiaries to
enable the normal continuing operations of the managed physician practices,
including the payment of adjudicated provider claims.
On June 9, 1999, the Company, the State and the special monitor executed a
definitive settlement agreement. In addition to the matters set forth above,
the parties agreed to include in the settlement agreement certain covenants
establishing the foundation for a chapter 11 plan of reorganization for MPN.
The Company and the State subsequently dismissed the Superior Court litigation
and the United States Bankruptcy Court for the Central District of California
(the "Bankruptcy Court") presiding over MPN's chapter 11 bankruptcy case
appointed the former special monitor as an examiner (the "Examiner") with
limited expanded power upon the request of the official committee of unsecured
creditors appointed in MPN's chapter 11 bankruptcy case. On June 16, 1999, the
Company, the State and the Examiner executed an amended and restated
settlement agreement reflecting these developments (the "Settlement
Agreement").
At a hearing held on July 19, 1999, the Bankruptcy Court approved the
Settlement Agreement and authorized MPN to enter into and consummate the
transactions contemplated by the Settlement Agreement, with effectiveness and
implementation of the Settlement Agreement to occur according to its terms and
conditions. In addition, as contemplated by and provided for in the Settlement
Agreement, during the course of MPN's chapter 11 case, the Bankruptcy Court
has approved MPN's consent to and/or participation in a series of transactions
implementing the Company's disposition of the operations of MPN. The last such
transaction involving MPN was approved by the Bankruptcy Court at a hearing
held on August 10, 1999. Also as contemplated by the Settlement Agreement, it
is anticipated that MPN will file a plan of reorganization with the Bankruptcy
Court in September, 1999, which plan will set forth the terms and conditions
upon which MPN's remaining assets will be distributed to creditors of MPN
entitled to participate therein.
Note 6. Contingencies
The Company is party to certain legal actions arising in the ordinary course
of business. The Company is named as a defendant in various legal actions
arising primarily out of services rendered by physicians and others
10
<PAGE>
MEDPARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
employed by its affiliated medical groups, as well as personal injury and
employment disputes. In addition, certain of its affiliated medical groups are
named as defendants in numerous actions alleging medical negligence on the
part of their physicians. In certain of these actions, the Company and/or the
medical group's insurance carrier has either declined to provide coverage or
has provided a defense subject to a reservation of rights. Management does not
view any of these actions as likely to result in an uninsured award that would
have a material adverse effect on the operating results and financial
condition of the Company.
In June 1995, Caremark Inc. ("Caremark") and Caremark International, Inc.
("CII") agreed to settle an investigation with certain agencies of the United
States government (the "Settlement Agreement"). The Settlement Agreement
allows Caremark and CII to continue participating in Medicare, Medicaid, and
other government healthcare programs. In the Settlement Agreement, Caremark
and CII agreed to continue to maintain certain compliance-related oversight
procedures until June 15, 2000. Should these oversight procedures reveal
credible evidence of legal or regulatory violations, Caremark and CII are
required to report such violations to the OIG and DOJ. Caremark and CII are
therefore subject to increased regulatory scrutiny and, in the event that
either Caremark or CII commits legal or regulatory violations, it may be
subject to an increased risk of sanctions or penalties, including
disqualification as a provider of Medicare or Medicaid services, which would
have a material adverse effect on the operating results and financial
condition of the Company.
In connection with the matters described above relating to the Settlement
Agreement, Caremark and CII are the subject of various non-governmental claims
and may in the future become subject to additional OIG-related claims.
Caremark and CII are the subject of, and may in the future be subjected to,
various private suits and claims being asserted in connection with matters
relating to the OIG settlement by CII's former stockholders, patients who
received healthcare services from Caremark and such patients' insurers. The
Company cannot determine at this time what costs or liabilities may be
incurred in connection with future disposition of non-governmental claims or
litigation.
Beginning in September 1994, Caremark was named as a defendant in a series
of lawsuits added to a pending group of actions (including a class action)
brought in 1993 under the antitrust laws by local and chain retail pharmacies
against brand name pharmaceutical manufacturers, wholesalers and prescription
benefit managers other than Caremark. The lawsuits, filed in federal district
courts in at least 38 states (including the United States District Court for
the Northern District of Illinois), allege that at least 24 pharmaceutical
manufacturers provided unlawful price and service discounts to certain favored
buyers and conspired among themselves to deny similar discounts to the
complaining retail pharmacies (approximately 3,900 in number). The complaints
charge that certain defendant prescription benefit managers, including
Caremark, were favored buyers who knowingly induced or received discriminatory
prices from the manufacturers in violation of the Robinson-Patman Act. Each
complaint seeks unspecified treble damages, declaratory and equitable relief
and attorney's fees and expenses.
All of these actions have been transferred by the Judicial Panel for Multi-
District Litigation to the United States District Court for the Northern
District of Illinois for coordinated pretrial procedures. Caremark was not
named in the class action. In April 1995, the Court entered a stay of pretrial
proceedings as to certain Robinson-Patman Act claims in this litigation,
including the Robinson-Patman Act claims brought against Caremark, pending the
conclusion of a first trial of certain of such claims brought by a limited
number of plaintiffs against five defendants not including Caremark. On July
1, 1996, the district court directed entry of a partial final order in the
class action approving an amended settlement with certain of the
pharmaceutical manufacturers. The amended settlement provides for a cash
payment by the defendants in the class action (which does not include
Caremark) of approximately $351 million to class members in settlement of
conspiracy claims as well as a commitment from the settling manufacturers to
abide by certain injunctive provisions. All class action claims against non-
settling manufacturers as well as all opt out and other claims generally,
including all
11
<PAGE>
MEDPARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Robinson-Patman Act claims against Caremark, remain unaffected by this
settlement, although numerous additional settlements have been reached between
a number of parties to the class and individual manufacturers. The class
action conspiracy claims against the remaining defendants were tried in the
fall of 1998, and resulted in a judgment by the court at the close of the
plaintiffs' case in favor of the remaining defendants. That judgment was
appealed and was affirmed in part and remanded in part. It is expected that
trials of the remaining individual conspiracy claims will move forward in 1999
or early 2000, and will precede the trial of any Robinson-Patman Act claims.
In March 1998, a consortium of insurance companies and third-party private
payors sued Caremark alleging violations of the Racketeering Influenced and
Corrupt Organizations Act ("RICO"), the Employee Retirement Income Security
Act ("ERISA") and claims of state law fraud and unjust enrichment. The case
was filed in the United States District Court for the Northern District of
Illinois. The plaintiffs maintain that Caremark's home infusion division
implemented a scheme to submit fraudulent claims for payment to the payors
which the payors unwittingly paid. The complaint seeks unspecified damages,
treble damages and attorney's fees and expenses.
The Company is a defendant in two lawsuits filed in Supreme Court of the
State of New York, City of New York, in late May 1999, claiming that a
"Termination Event" has occurred with respect to the Threshold Appreciation
Price Securities ("TAPS") issued by the Company in September 1997. One of
those actions is brought by certain entities claiming to "own or control" 1.8
million TAPS and the other purports to be brought by a holder of an unknown
number of TAPS as a class action on behalf of a purported class of all holders
of TAPS. The complaints allege that a "Termination Event" has occurred because
of, among other things, the actions taken by the DOC described in Note 5
California PPM Discontinued Operations. The complaints seek an order requiring
the Company immediately to cause to be released to the TAPS holders
approximately $400 million of United States Treasury Notes currently held in
escrow. The escrowed funds otherwise would be released to the Company in
exchange for common stock of the Company at the final settlement date of the
TAPS on August 31, 2000. These cases are in their early stages. No discovery
has yet been conducted.
In June 1999, various insureds filed a class action complaint against
Caremark Inc., Caremark International Inc. and third party payors in the
United States District Court for the Northern District of Illinois. The action
alleges violations of the Racketeer Influenced Corrupt Organizations Act, the
Illinois Consumer Fraud Act, and the Employee Retirement Income Security Act
as the result of practices developed by Caremark's Home Infusion Division to
submit, and cause others to submit, fraudulent claims for payment to insurers
of health care benefits. The Home Infusion Division was divested in 1995. The
action alleges that the plaintiffs suffered damages stemming from increased
premiums charged by the third party payors, and increased co-payments and
deductibles charged by Caremark. Plaintiffs request unspecified damages,
declaratory relief, attorneys' fees and costs.
There can be no assurance that the lawsuits will not have a disruptive
effect upon the operations of the business, that the defense of the lawsuits
will not consume the time and attention of senior management of MedPartners
and its subsidiaries, or that the resolution of the lawsuits will not have a
material adverse effect on the operating results and financial condition of
the Company. The Company intends to vigorously defend each of these lawsuits.
The Company believes that these lawsuits will not have a material adverse
effect on the operating results and financial condition of the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
MedPartners operates one of the largest independent prescription benefit
management ("PBM") companies in the United States, with net revenue of
approximately $1,518.3 million for the six months ended June 30, 1999.
12
<PAGE>
MEDPARTNERS, INC.
The Company manages PBM programs for clients throughout the United States,
including corporations, insurance companies, unions, government employee
groups and managed care organizations. During the first six months of 1999,
the Company dispensed approximately 5.9 million prescriptions through 3 mail
service pharmacies and processed approximately 19.0 million prescriptions
through a network of more than 50,000 retail and other pharmacies.
The Company's therapeutic pharmaceutical services ("CT" services) are
designed to meet the healthcare needs of individuals with certain chronic
diseases or conditions. These services include the design, development and
management of comprehensive programs comprising drug therapy, physician
support and patient education. The Company currently provides therapies and
services for individuals with such conditions as hemophilia, growth disorders,
immune deficiencies, cystic fibrosis, multiple sclerosis and infants with
respiratory difficulties.
Results of Operations for the Three Months Ended June 30, 1999 and 1998
The Company's revenues continue to exhibit sustained growth. This growth is
entirely internal and has not been supplemented by acquisitions. Key factors
contributing to this growth include high customer retention, additional
service provided to existing customers, new customer contracts and
pharmaceutical price increases. The preponderance of the Company's revenue is
earned on a fee-for-service basis through contracts covering one to three-year
periods. Revenues for selected types of services are earned based on a
percentage of savings achieved or on a per-enrollee or per-member basis;
however, these revenues are not material to total revenues.
For the three months ended June 30, 1999 and 1998, net revenue was $796.2
million and $639.5 million, respectively, representing an increase of $156.7
million (24.5%) from 1998 to 1999, respectively. These increases are primarily
attributable to pharmaceutical price increases, the addition of new customers,
additional services provided to existing customers and the sale of new
products.
Operating income was $43.1 million for the three months ended June 30, 1999,
up from $32.5 million for the three months ended June 30, 1998, a 32.6%
increase. Margins were 5.4% in 1999 up from 5.1% in 1998. Operating income
increased from growth in net revenue, while operating margins improved due to
expense controls. However, the Company expects that overall margins will
decrease slightly for the full year as the PBM operations continue to increase
as a percentage of the combined business of the Company. (Operating income
represents earnings before interest, restructuring charges and income taxes
and excludes losses from discontinued operations.)
Net interest expense was $30.5 million and $21.7 million for the three
months ended June 30, 1999 and 1998, respectively. The period over period
increase in interest expense primarily resulted from increased debt levels.
During the last three quarters of 1998, the Company experienced increases in
debt levels which were a result of substantial uses of cash in the Company's
discontinued operations for acquisitions, capital expenditures and working
capital requirements. The Company's significant debt levels in 1998 and prior
years were primarily generated from its PPM operations. Based on the expected
net proceeds from the sale and exit of the discontinued operations no interest
expense has been allocated to these discontinued operations in the three
months ended June 30, 1999.
Results of Operations for the Six Months Ended June 30, 1999 and 1998
For the six months ended June 30, 1999 and 1998, net revenue was $1,581.3
million and $1,259.7 million, respectively, representing an increase of $321.6
million (25.5%) from 1998 to 1999, respectively. These increases are primarily
attributable to pharmaceutical price increases, the addition of new customers,
additional services provided to existing customers and the sale of new
products.
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<PAGE>
MEDPARTNERS, INC.
Operating income was $82.0 million for the six months ended June 30, 1999,
up from $62.2 million for the six months ended June 30, 1998, a 31.8%
increase. Margins were 5.2% in 1999 up from 4.9% in 1998 due to expense
controls. Operating income increased primarily from growth in net revenue,
while operating margins remained relatively stable. (Operating income
represents earnings before interest, restructuring charges and income taxes
and excludes losses from discontinued operations.)
Net interest expense was $57.6 million and $41.0 million for the six months
ended June 30, 1999 and 1998, respectively. The period over period increase in
interest expense primarily resulted from increased debt levels. During the
last three quarters of 1998, the Company experienced increases in debt levels
which were a result of substantial uses of cash in the Company's discontinued
operations for acquisitions, capital expenditures and working capital
requirements. The Company's significant debt levels in 1998 and prior years
were primarily generated from its PPM operations. Based on the expected net
proceeds from the sale and exit of the discontinued operations interest
expense has been allocated to these discontinued operations in the six months
ended June 30, 1999.
Discontinued Operations
The loss from discontinued operations in the second quarter of 1999 of
$199.3 million is an adjustment to the charge taken during the fourth quarter
of 1998. The adjustment includes an additional $236.6 million for the
impairment and write-offs of intangibles and other PPM assets and a reduction
in the estimated costs to exit the PPM operations of approximately $37.3
million.
Other Matters
Year 2000 Compliance. The year 2000 ("Y2K") presents a problem for computer
software and hardware that were not designed to handle dates beyond the year
1999. The Y2K Problem is pervasive and complex because virtually every
computer operation will be affected in some way by the rollover of the last
two digits of the year to "00". As a consequence, any such software and
hardware will need to be modified some time prior to December 31, 1999 in
order to remain functional. Computer systems and hardware that do not properly
handle this rollover could generate erroneous data or fail to function.
The Company has initiated a company-wide program to address to the Y2K
Problem with respect to the information systems (software and hardware) and
equipment and systems utilized in the Company's operations. The program
includes: (1) an inventory of the information systems, hardware, and equipment
(the "Systems, Hardware and Equipment") utilized in operations; (2) an
assessment of the Y2K issues associated with the Systems, Hardware and
Equipment; (3) the remediation of such Systems, Hardware and Equipment to
achieve Y2K readiness ("Y2K Readiness" or "Y2K Ready"); (4) the testing of
such Systems, Hardware and Equipment to confirm Y2K Readiness; and (5) the
development of contingency plans to address Y2K and the principal risks facing
the Company in its efforts to achieve Y2K Readiness. The Company's Y2K program
also includes its "Trading Partners Initiative," which is designed to provide
the Company with insights into the Y2K Readiness of certain of the Company's
customers, suppliers and vendors. In addition, the Company has sent letters to
certain manufacturers of the hardware and equipment utilized in operations
requesting that such manufacturers address the Y2K Readiness of such hardware
and equipment.
In terms of the status of the Company's Y2K program, including systems
related to discontinued operations, management believes that the Company's
inventory of information systems is approximately 99% complete, that its
assessment of Y2K issues associated with such information systems is
approximately 95% complete and that its remediation efforts with respect to
such information systems is approximately 75% complete. With respect to the
status of the Company's Y2K efforts with respect to equipment and systems that
include embedded logic or software which presents Y2K issues, management
believes that the inventory of such equipment and systems is approximately 80%
complete. The Company's assessment of Y2K issues associated with such
equipment and systems is approximately 80% complete. The Company expects to
complete its assessment of all these areas by
14
<PAGE>
MEDPARTNERS, INC.
September, 1999. The Company expects to commence testing efforts with respect
to the Systems, Hardware and Equipment following the completion of the
inventory and assessment stages of its Y2K program. The Company has not, to
date, received substantial responses to its requests of customers, suppliers
and vendors with respect to their Y2K Readiness. As a result, management is
currently unable to form an opinion as to the present level of risk associated
with the state of Y2K Readiness of the Company's customers, vendors and
suppliers, other than a belief that the Y2K issues generally associated with
the healthcare industry are very significant and complex and include issues
associated with the delivery of healthcare services and products as well as
the billing and collection of amounts due for such services and products.
According to a recent report (the "Report") by the Senate Special
Subcommittee on the Year 2000 Technology Problem, the healthcare industry lags
behind other industries in Y2K preparedness. While, according to the Report,
the pharmaceutical segment appears to be better Y2K prepared than other
segments of the healthcare industry, the progress of health claim billing
systems of third party payors is progressing slowly.
Management of the Company believes that the Company's Y2K program will be
substantially completed by the end of the third quarter of 1999. The Company
estimates that the total cost of the Y2K program, including $13.3 million in
costs associated with discontinued operations, will be approximately $19.4
million, of which approximately $15.4 million has been spent through June 30,
1999. Of such aggregate Y2K expenditures made to date, management currently
estimates that approximately $12.2 million consisted of capital expenditures
for new or replacement systems, hardware and equipment and approximately $3.2
million consisted of expenses of the Y2K program. The source of the funding
utilized to make such historical expenditures has been borrowings under the
Company's credit facility and cash flow from operations. Management of the
Company believes that a significant amount of the funds spent to date and
budgeted in the future for achieving Y2K Readiness would otherwise have been
spent and budgeted in connection with the Company's ongoing information
technology consolidation efforts to reduce the number of information systems
and hardware platforms utilized in its operations and acquired through the
Company's various acquisition transactions over the years.
The Company believes that the most reasonably likely worse case scenario
with respect to Y2K issues is the possibility that equipment and systems that
include embedded logic or software will fail to be Y2K Ready and that such
failure will cause such equipment to fail to operate or operate improperly.
The failure of such equipment may expose individual patients to potential
injury and may expose the Company to claims and liabilities. At this time the
Company cannot estimate the likelihood or magnitude of any such equipment or
systems failures. The Company has begun to establish a contingency plan for
the failure of such equipment or systems.
The Y2K problems experienced by the Company's vendors, suppliers and
distribution network could result in the Company experiencing difficulty in
obtaining and distributing prescription drugs or pharmaceutical therapies,
thereby disrupting the Company's PBM business as historically conducted. Y2K
problems experienced by HMOs, other third party payors and the government
agencies which administer Medicare, Medicaid and other government sponsored
healthcare programs, may result in delays in payments to the Company for
services or in erroneous payments for such services which could adversely
affect the Company's results of operations and liquidity.
The foregoing discussion involves the estimates and judgments of the senior
management of the Company. There can be no assurances that the Company will be
Y2K Ready or that the Company will not incur liability or suffer a material
adverse effect as a result of the Company's failure to be Y2K Ready. In
addition, there can be no assurances that the estimated expenses to make the
Company Y2K Ready will not be materially higher than estimated or that the
Company will not incur additional expenses associated with its efforts to get
Y2K Ready or its failure to do so.
15
<PAGE>
MEDPARTNERS, INC.
Factors That May Affect Future Results
The future operating results and financial condition of the Company are
dependent on the Company's ability to market its services profitably,
successfully increase market share and manage expense growth relative to
revenue growth. The future operating results and financial condition of the
Company may be affected by a number of additional factors, including: the
Company's divestiture strategy; competition for expansion opportunities;
efforts to control healthcare costs; exposure to professional liability; and
pharmacy licensing, healthcare reform; implementation of the Company's
settlement agreement with the State of California; adverse resolution of
lawsuits pending against the Company; implementation of the Company's
strategic plan; the Company's liquidity and capital requirements; the
Company's failure to ensure its information systems are Year 2000 compliant
and government regulation. Changes in one or more of these factors could have
a material adverse effect on the future operating results and financial
condition of the Company.
There are various legal matters which, if materially adversely determined,
could have a material adverse effect on the Company's operating results and
financial condition. See Item 3 of the Company's Annual Report filed on Form
10-K for the fiscal year ended December 31, 1998.
Liquidity and Capital Resources
The Company experienced positive cash flow from continuing operations for
the six months ended June 30, 1998 and 1999. The cash flow from continuing
operations for the six months ended June 30, 1999 was $48.6 million and net
capital expenditures were $7.0 million. Cash provided by discontinued
operations was $294.4 million for the six months ended June 30, 1999. The
primary source of funds provided by discontinued operations related to the
sale of the Company's Contract Services division and various PPM asset sales
(see Note 4 of the accompanying unaudited Condensed Consolidated Financial
Statements of the Company).
The Company has a credit facility with NationsBank, N.A. as administrative
agent The credit facility is unsecured, but is guaranteed by the Company's
material subsidiaries. The credit facility consists of the following:
i. an amortizing term loan ($102.4 million outstanding at June 30, 1999);
ii. a non-amortizing term loan ($102.4 million outstanding at June 30,
1999); and
iii. a revolving credit facility in an aggregate principal amount of up to
$400 million ($297.0 million in outstanding borrowings, $22.0 million
in letters of credit under the revolving credit facility and $25
million reserved for a letter of credit with regard to its funding
obligations under the Settlement Agreement, as defined below,
resulting in $56.0 million in available borrowing capacity at June 30,
1999).
Quarterly principal payments on the term loan described in (i) above are
scheduled to begin in November 1999. Accordingly, the Company has classified
the portion of this debt due within the next twelve months as short-term.
The Company's credit facility as amended permits up to $150 million in
accounts receivable securitization. The Company has securitized certain of its
accounts receivable pursuant to an accounts receivable securitization facility
with The Chase Manhattan Bank as funding agent. As of June 30, 1999, the
Company has securitized approximately $90 million in accounts receivable.
The Company entered into an amendment to its Credit Facility dated as of
April 15, 1999, to modify the terms of its credit agreement concerning the
Company's proposed settlement with the State of California on April 9, 1999.
The terms of the agreement were modified to among other things (a) permit the
Company to enter into a comprehensive settlement agreement and transition plan
with the State of California (the "Settlement Agreement"); (b) permit the sale
or other disposition of all of the property and assets of the Company's
California PPM operations, with proceeds remaining in the California PPM
operations to satisfy liabilities and obligations of the Company's California
PPM operations, including MPN's liabilities and obligations; (c) to
16
<PAGE>
increase to $215 million (of which $15 million is available solely to pay
amounts under certain promissory notes), from $125 million, the amount of net
asset sale proceeds available to the Company for use in its business and
operations in the ordinary course; (d) modify certain financial ratios for
periods ending on or after March 31, 1999; and (e) to increase to $100 million
the amount of accounts receivable permitted to be securitized.
Effective June 29, 1999, the Company entered into an amendment to its credit
facility to modify the terms of its credit agreement primarily concerning the
Company's settlement with the State of California dated June 16, 1999. The
terms of the credit agreement were modified to among other things (a) permit
the Company to dispose of the property and assets of the Company's California
PPM operations in accordance with the June 16, 1999 settlement; (b) increase
to $150 million the amount of accounts receivable permitted to be securitized;
and (c) modify certain financial covenants for periods ending on or after June
30, 1999.
The Company entered into amendments to its credit facility dated as of
August 2, 1999 and August 16, 1999, to modify the terms of its credit
agreement concerning among other things (a) the amount of cash and non-cash
charges that are permitted to be excluded from financial results for covenant
purposes and (b) the retention by the Company of certain net cash proceeds of
asset dispositions. Specifically, the Company is now allowed to exclude up to
$233.5 million in cash charges related to the reclassification of the
physician practice management businesses as discontinued operations versus the
previous maximum amount of $220 million. The amendments also allow the Company
to retain up to $50 million and, with the consent of the majority lenders
under the credit facility, up to an additional $43 million of net cash
proceeds from asset dispositions occurring on or after July 1, 1999 (in each
case in addition to $15 million in net cash proceeds previously designated for
the payment of certain promissory notes), for use in its business and
operations in the ordinary course rather than applying those proceeds to the
term loans as previously required. In connection with these amendments the
Company has agreed that upon receipt of requisite consent of its lenders under
the credit facility, it shall pledge all of the capital stock of its
subsidiary, Caremark, Inc., as security for the credit facility, with an equal
and ratable pledge in favor of the holders of the Company's 7 3/8% Senior
Notes due 2006.
The Company's discontinued operations will continue to use significant
amounts of cash until the Company divests such operations. Proceeds from the
sales of these operations will be used to reduce the term loans and the
revolver to the extent required under the amended credit agreement. Cash used
to fund exit costs, which are classified in current liabilities as other
accrued expenses and liabilities, will be funded by the revolving credit
facility and cash flow from continuing operations. The Company believes that
amounts available from the sales of discontinued operations, amounts available
under its revolving credit facility, as amended, and cash flow from continuing
operations will be sufficient to fund its cash requirements. However, if the
cash generated from such sources is insufficient to fund discontinued
operations until they are divested, or if the Company is unable to
successfully implement its divestiture strategy, including the Settlement
Agreement, in a timely manner, the Company's liquidity position could be
adversely affected. In such event, the Company would seek to enhance its
liquidity position through further modifications to its amended credit
agreement, incurrence of additional indebtedness and/or the sale of securities
of the Company. Although the Company currently believes that one or more of
such alternatives would be available to enhance liquidity, each such
alternative is dependent upon future events, conditions and other matters
outside the control of management of the Company.
On April 9, 1999, the Company and representatives of the State of California
(the "State") have signed a letter of intent to settle the disputes relating
to MPN. The proposed settlement provides for a loan of up to $25 million from
certain health care services plans to the Company or, as designated by the
Company, purchasers of MPN's and the Company's California PPM operations. The
Company also will be providing a letter of credit in the amount of $25 million
in respect of its funding obligations with respect to the proposed settlement.
For a detailed discussion, see Note 5 of the accompanying unaudited
Consolidated Financial Statements of the Company.
In September 1997, the Company issued 21.7 million 6.50% Threshold
Appreciation Price Securities ("TAPS") with a stated amount of $22.1875 per
security. Each TAPS consists of (i) a stock purchase contract which obligates
the holder to purchase common stock from the Company on the final settlement
date (August 31, 2000) and (ii) 6.25% U.S. Treasury Notes due August 31, 2000.
Under each stock purchase contract the Company is obligated to sell, and the
TAPS holder is obligated to purchase on August 31, 2000, between 0.8197 of a
share
17
<PAGE>
and one share of the Company's Common Stock. The exact number of common shares
to be sold is dependent on the market value of the Company's Common Stock in
August 2000. The number of shares issued by the Company in conjunction with
this security will not be more than approximately 21.7 million or less than
approximately 17.8 million (subject to certain anti-dilution adjustments). The
Treasury Notes forming a part of the TAPS have been pledged to secure the
obligations of the TAPS holders under the purchase contracts. Pursuant to the
TAPS, TAPS holders receive payments equal to 6.50% of the stated amount per
annum consisting of interest on the Treasury Notes at the rate of 6.25% per
annum and yield enhancement payments payable semi-annually by the Company at
the rate of 0.25% of the stated amount per annum. Additional paid-in capital
has been reduced by $20.4 million for issuance costs and the present value of
the annual 0.25% yield enhancement payments payable to the holders of the
TAPS. These securities are not included on the Company's balance sheet; an
increase in stockholders' equity would be reflected upon receipt by the
Company of cash proceeds of $481.4 million on August 31, 2000 from the
issuance of the Company's common stock pursuant to the TAPS.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates related
to its long-term debt. The impact on earnings and value of its current and
current and long-term debt is subject to change as a result of movements in
market rates and prices. As of June 30, 1999, the Company had $466 million in
long-term debt subject to variable interest rates. The remaining $870 million
in long-term debt is subject to fixed rates of interest. The Company had $37
million in current debt subject to variable interest rates. A hypothetical
increase in interest rates of 1% would result in potential reductions in
future pre-tax earnings of approximately $5.0 million per year. The impact of
such a change on the carrying value of the current and long-term debt would
not be significant. These amounts are determined based on the impact of the
hypothetical interest rates on the Company's current and long-term debt
balances and do not consider the effects, if any, of the potential changes in
the overall level of economic activity that could exist in such an
environment.
18
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company is a defendant in two lawsuits filed in Supreme Court of the
State of New York, City of New York, in late May 1999, claiming that a
"Termination Event" has occurred with respect to the Threshold Appreciation
Price Securities ("TAPS") issued by the Company in September 1997. One of
those actions is brought by certain entities claiming to "own or control" 1.8
million TAPS and the other purports to be brought by a holder of an unknown
number of TAPS as a class action on behalf of a purported class of all holders
of TAPS. The complaints allege that a "Termination Event" has occurred because
of, among other things, the actions taken by the DOC described in Note 5
California PPM Discontinued Operations. The complaints seek an order requiring
the Company immediately to cause to be released to the TAPS holders
approximately $400 million of United States Treasury Notes currently held in
escrow. The escrowed funds otherwise would be released to the Company in
exchange for common stock of the Company at the final settlement date of the
TAPS on August 31, 2000. These cases are in their early stages. No discovery
has yet been conducted.
In June 1999, various insureds filed a class action complaint against
Caremark Inc., Caremark International Inc. and third party payors in the
United States District Court for the Northern District of Illinois. The action
alleges violations of the Racketeer Influenced Corrupt Organizations Act, the
Illinois Consumer Fraud Act, and the Employee Retirement Income Security Act
as a result of practices developed by Caremark's Home Infusion Division to
submit, and cause others to submit, fraudulent claims for payment to insurers
of health care benefits. The Home Infusion Division was divested in 1995. The
action alleges that the plaintiffs suffered damages stemming from increased
premiums charged by the third party payors, and increased co-payments and
deductibles charged by Caremark. Plaintiffs request unspecified damages,
declaratory relief, attorneys' fees and costs.
There can be no assurance that these lawsuits will not have a disruptive
effect upon the operations of the business, that the defense of these lawsuits
will not consume the time and attention of senior management of MedPartners
and its subsidiaries, or that the resolution of these lawsuits will not have a
material adverse effect on the operating results and financial condition of
the Company. The Company intends to vigorously defend each these lawsuits. The
Company believes that these lawsuits will not have a material adverse effect
on the operating results and financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
(a)The Company's Annual Meeting of Stockholders was held on June 10,
1999.
(b)Not applicable.
(c)The following proposals were adopted by the stockholders of the
Company;
(i)The election of three Directors.
The vote on the above was:
<TABLE>
<CAPTION>
For Abstain
--------------- --------------
<S> <C> <C>
Edwin M. Crawford 161,976,135.190 17,136,920.200
James H. Dickerson, Jr. 161,996,157.500 17,116,897.890
Kristen E. Gibney 162,640,757.800 16,472,297.590
</TABLE>
(d)Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits required in Regulation S-K are set forth in the following list.
(2)-1 Amended and Restated Operations and Settlement Agreement, dated as
of June 16, 1999, among the Commissioner of the Department of
Corporations of the State of California acting for himself and for
the Department of Corporations of the State of California, J. Mark
Abernathy as Special Monitor, the Company and its successors and
assigns, and MedPartners Provider Network, Inc., a California
corporation.
19
<PAGE>
(2)-2 Amendment No. 1 to the Amended and Restated Operations and
Settlement Agreement, dated as of July 31, 1999, among the
Commissioner of the Department of Corporations of the State of
California acting for himself and for the Department of
Corporations of the State of California, J. Mark Abernathy as
Special Monitor, the Company and its successors and assigns, and
MedPartners Provider Network, Inc., a California corporation.
(10)-1 Amendment and Waiver No. 7, dated as of June 29, 1999 to the
Amended and Restated Credit Agreement dated as of June 9, 1998
among the Company, the Lenders party thereto, NationsBank, N.A.,
as the Initial Issuing Bank and the Swing Line Bank thereunder,
Credit Lyonnais New York Branch, The First National Bank of
Chicago and Morgan Guaranty Trust Company of New York, as the
Syndication Agents therefor, Banc of America Securities LLC
(formerly NationsBanc Montgomery Securities LLC), as the Arranger
therefor, and NationsBank, N.A., as the Administrative Agent for
the Lender Parties thereunder.
(10)-2 Amendment and Waiver No. 8, dated as of August 2, 1999 to the
Amended and Restated Credit Agreement dated as of June 9, 1998
among the Company, the Lenders party thereto, Bank of America,
N.A. (f/k/a NationsBank, N.A.), as the Initial Issuing Bank and
the Swing Line Bank thereunder, Credit Lyonnais New York Branch,
The First National Bank of Chicago and Morgan Guaranty Trust
Company of New York, as the Syndication Agents therefor, Banc of
America Securities LLC (formerly NationsBanc Montgomery Securities
LLC), as the Arranger therefor, and Bank of America, N.A. (f/k/a
NationsBank, N.A.), as the Administrative Agent for the Lender
Parties thereunder.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company's Current Report on Form 8-K filed April 9, 1999 (reporting the
second amendment to the Company's Amended and Restated Credit Agreement dated
as of June 9, 1998).
No other Items of Part II are applicable to the Company for the period
covered by this Quarterly Report on Form 10-Q.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MedPartners, Inc.
/s/ James H. Dickerson, Jr.
By: _________________________________
James H. Dickerson, Jr.,
Executive Vice President and Chief
Financial Officer
/s/ Howard A. McLure
By: _________________________________
Howard A. McLure,
Senior Vice President and Chief
Accounting Officer
Date: August 16, 1999
20
<PAGE>
EXHIBIT 2.1
================================================================================
AMENDED AND RESTATED
OPERATIONS AND SETTLEMENT AGREEMENT
Dated June 16, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
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Page
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1. DEFINITIONS AND CONSTRUCTION 3
1.1 Definitions 3
1.2 Accounting Terms 11
1.3 Construction 11
1.4 Schedules and Exhibits 11
2. SPECIAL MONITOR ROLE 12
2.1 Role of Special Monitor-Examiner on Amended Agreement
Date. 12
2.2 Role of Special Monitor-Examiner on Effective Date 13
2.3 Application of DOC Regulations Pertaining to Tangible
Net Equity Requirements 14
2.4 Payment of Expenses Incurred by or on Behalf of the
Conservator, the Special Monitor, the Special
Monitor-Examiner, the DOC or the Agency. 14
3. THE TRANSITION PLAN; FUNDING 15
3.1 The Transition Plan 15
3.2 Management Agreement 15
3.3 Payments to Managed Physician Practices 15
3.4 Disposition of the California Operations 16
3.5 Payment of Claims 16
3.6 Letter of Credit 20
3.7 Negative Assurances 20
3.8 Procedures for Provider Claims 21
3.9 Relinquishment of License of MPN 22
4. REPRESENTATIONS AND WARRANTIES OF MEDPARTNERS 22
4.1 Organization 22
4.2 Due Authorization; No Conflict 22
4.3 Letters from Experts 23
5. REPRESENTATIONS AND WARRANTIES OF MPN 23
5.1 Organization 23
5.2 Due Authorization; No Conflict 23
6. REPRESENTATIONS AND WARRANTIES OF THE STATE 24
6.1 Organization 24
6.2 Due Authorization 24
i
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
7. AFFIRMATIVE COVENANTS 24
7.1 Affirmative Covenants of MedPartners 24
7.2 Affirmative Covenants of the State/Special
Monitor-Examiner. 25
8. NEGATIVE COVENANTS 26
8.1 Negative Covenants of MedPartners 26
8.2 Negative Covenants of the State 26
9. MUTUAL COVENANTS 26
9.1 State Court Actions 26
9.2 Bankruptcy Court 27
9.3 Cooperation in Implementation of the Transition Plan 27
9.4 Agreement to Defend 27
10. DEFAULT BY MEDPARTNERS. 28
10.1 Default. 28
10.2 Notice of Default 28
10.3 Application to State Court 28
10.4 Remedies 29
11. DEFAULT BY THE STATE. 29
11.1 Default. 29
11.2 Notice of Default. 29
11.3 Application to State Court. 29
11.4 Remedies. 30
12. ALTERNATIVE DISPUTE RESOLUTION. 30
12.1 Disputes 30
12.2 Initiation of Arbitration 30
12.3 Arbitrator 30
12.4 Costs of Arbitration; Attorneys' Fees 31
12.5 Timing 31
12.6 Determination of Arbitrable Issues 31
12.7 Sanctions 31
12.8 Judgments 31
12.9 Failure to Appear 31
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
Page
----
13. EFFECTIVE DATE; CONDITIONS PRECEDENT AND TERMINATION 31
13.1 Effective Date 31
13.2 Failure of Conditions Precedent 32
13.3 Termination. 33
14. NOTICES 33
15. GENERAL PROVISIONS 35
15.1 Time of the Essence 35
15.2 Choice of Law 35
15.3 Successors and Assigns 35
15.4 Section Headings 35
15.5 Severability of Provisions 35
15.6 Amendments in Writing 35
15.7 Counterparts; Telefacsimile Execution 35
15.8 Integration 36
15.9 Confidentiality 36
15.10 Press Releases. 37
15.11 Actions by the State. 37
15.12 Consent to Jurisdiction 37
15.13 Plan and Provider Stipulation 37
15.14 Third Party Beneficiaries 38
15.15 Exhibits or Schedules 39
15.16 Attorneys' Fees 39
15.17 Related Agreements 39
15.18 Representation by Counsel; Drafts; Interpretation. 44
15.19 Waiver of Defenses 45
15.20 Further Assurances 45
16. RELEASE 45
16.1 Release 45
16.2 Waiver 45
iii
<PAGE>
AMENDED AND RESTATED
--------------------
OPERATIONS AND SETTLEMENT AGREEMENT
-----------------------------------
THIS OPERATIONS AND SETTLEMENT AGREEMENT entered into as of June 9, 1999 is
amended and restated as the Amended and Restated Operations and Settlement
Agreement entered into as of June 16, 1999 (this "Agreement"), among the
Commissioner of the Department of Corporations of the State of California (the
"Commissioner") and Department of Corporations of the State of California
(collectively, the "DOC" or the "State"), J. Mark Abernathy, as Special Monitor-
Examiner, MedPartners, Inc., a Delaware corporation, and its successors and
assigns ("MedPartners") and MedPartners Provider Network, Inc., a California
corporation ("MPN"), as a debtor and debtor in possession in the Bankruptcy
Case. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in Article I of this Agreement.
RECITALS
--------
WHEREAS on March 11, 1999, the Commissioner issued a Demand for and Order
Taking Possession of Property and Business Pursuant to Health & Safety Code
(S) 1393(b) and a Demand for and Order Appointing Conservator Pursuant to
Health & Safety Code (S) 1393(c) (as amended on April 19, 1999, the
"Conservatorship Order") regarding MPN;
WHEREAS on March 11, 1999, the Conservator appointed pursuant to the
Conservatorship Order filed a petition for and on behalf of MPN under chapter 11
of the United States Bankruptcy Code;
WHEREAS, on March 17, 1999, MedPartners commenced an action styled
MedPartners, Inc. v. William Kenefick, in his capacity as Acting Commissioner of
the Department of Corporations of the State of California; the Commissioner of
the Department of Corporations for the State of California; and Eugene Froelich
as an agent of the Commissioner of the Department of Corporations for the State
of California; case number BC207250, by filing with the Los Angeles Superior
Court a Complaint for Injunctive Relief (CCP (S) 526); Complaint for Declaratory
Relief (CCP (S) 1060) and Application for Order to Show Cause (HSC (S) 1393);
WHEREAS, on March 17, 1999, MedPartners filed in the Bankruptcy Case its
Emergency Motion To Dismiss Or For Turnover, Or Alternatively For Authority To
Use Cash Under (S) 363 And To Expedite Assumption/Rejection Of The Management
Agreement (the "Motion To Dismiss");
WHEREAS, on March 18, 1999, the Commissioner in the exercise of his
regulatory power commenced an action styled In the Matter of The Commissioner of
Corporations of the State of California v. MedPartners Provider Network, Inc.;
case number BS056226, by filing with the Los Angeles Superior Court a Petition
to Confirm the Commissioner's Order Appointing Conservator;
WHEREAS, on May 10, 1999, Commissioner in the exercise of his regulatory
power issued a Stay of the Conservatorship Order (the "Stay");
1
<PAGE>
WHEREAS, on May 10, 1999, at the request of the DOC, in the exercise of its
regulatory power, the Los Angeles Superior Court issued an order in the
MedPartners Action and the DOC Action appointing a special monitor of MPN
pursuant to Health & Safety Code section 1392(a)(3) empowered with special
rights, powers, privileges and instructions described in the order (the "Special
Monitor Order");
WHEREAS, on June 9, 1999 the parties determined that it was in their best
interests to amend the Operations and Settlement Agreement entered into as of
June 9, 1999;
WHEREAS, the parties have a mutual interest in the following objectives and
believe that this Agreement can:
1. Provide a mechanism for uninterrupted provision of patient care by
physicians in the MPN network and other providers during the
implementation of the Transition Plan;
2. Provide for the resolution and satisfaction of MedPartners' and MPN's
valid obligations relating to their California physician practice
management operations, including satisfaction of all valid liabilities
and valid claims for Health Care Services against California-based
entities operated or managed by MedPartners or MPN as part of their
California Operations, and allow MedPartners to complete its planned
exit from its California physician practice management operations on a
timely basis;
3. Provide for the orderly disposition of the existing operations of MPN
and the MedPartners California physician practices assets, including
transfer of such assets to viable purchasers thereof; and
4. Provide for a satisfactory resolution of the current situation
enlisting the full cooperation of many constituents including the
Special Monitor-Examiner, the State, MPN, MedPartners, key health care
service plans and hospitals and other providers including physicians
contracting with medical groups operated under management services
agreements with MedPartners.
WHEREAS, no party is admitting the validity of the positions of any other
party in the State Court Actions or the Motion to Dismiss; and
WHEREAS, the parties have determined to settle the State Court Actions as
provided herein.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
2
<PAGE>
AGREEMENT
---------
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Affiliate" has the meaning set forth in Section 101(2) of the Bankruptcy
---------
Code.
"Agency" means the Business, Transportation and Housing Agency of the State
------
of California.
"Agreement" means the Amended and Restated Agreement dated June 16, 1999.
---------
"Agreement Date" means June 9, 1999.
--------------
"Allowed MPN Claim" means a Claim against MPN:
-----------------
(a) To the extent that a proof of the Claim (1) is deemed filed under
applicable law and no objection to the Claim is filed within the time fixed by
the Bankruptcy Court for such objections; or (2) was timely filed and no
objection to the Claim is filed within the time fixed by the Bankruptcy Court
for such objections; or (3) is allowed pursuant to subparagraph (b) of this
paragraph;
(b) If MPN or another party in interest files an objection to a proof
of Claim within the time fixed by the Bankruptcy Court, the Claim shall be
deemed allowed to the extent of any amount (1) of such Claim to which MPN or the
other party did not object; or (2) otherwise authorized by Final Order or
pursuant to a confirmed and effective plan of reorganization for MPN.
"Amended Agreement Date" means June 16, 1999, the date on which the Amended
----------------------
and Restate Operations and Settlement Agreement is executed.
"Bankruptcy Case" means chapter 11 case number LA 99-19256-BR, pending in
---------------
the Bankruptcy Court or any successor case under another chapter of the
Bankruptcy Code.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
---------------
(S) 101 et seq.), as amended, and any successor statute.
-- ----
"Bankruptcy Court" means the United States Bankruptcy Court for the Central
----------------
District of California, Los Angeles Division.
"Beneficiary" has the meaning set forth in Section 15.14.
-----------
"Business Day" means any day that is not a Saturday, Sunday, or other day
------------
on which national banks are authorized or required to close.
"Calculation Date" means the first to occur of (i) the one hundred
----------------
eightieth day after a liquidated money judgment has been entered as a remedy
under Section 10.4 of this Agreement
3
<PAGE>
against MedPartners if MedPartners is not then funding the MedPartners Funding
Commitment in accordance with this Agreement; (ii) the earliest date after such
one hundred eightieth day that MedPartners is not funding the MedPartners
Funding Commitment in accordance with this Agreement; and (iii) a case under the
Bankruptcy Code has been filed by or against MedPartners.
"California Accounts" means: (i) as to MPN, the deposit account of MPN,
-------------------
which shall be a debtor-in-possession account, in conformity with the guidelines
of the United States Trustee's Office, located in the State of California into
which the Net Cash Proceeds of the sales of the California Operations allocable
to MPN will be deposited in accordance with the terms of this Agreement and into
which all payments of the MedPartners Funding Commitment allocable to MPN will
be deposited; and (ii) as to MedPartners, the deposit account of MedPartners, in
a bank which qualifies under the guidelines of the United States Trustee's
Office where the Bankruptcy Case is pending, located in the State of California
into which the balance of the Net Cash Proceeds of the sales of the California
Operations will be deposited in accordance with the terms of this Agreement and
into which all remaining payments of the MedPartners Funding Commitment will be
deposited in accordance with the terms of this Agreement.
"California Operations" means, collectively, the interests, assets and
---------------------
operations of MPN and the interests, assets and operations of MedPartners and
its direct or indirect subsidiaries (other than MPN) to the extent related to
Managed Physician Practices in California.
"Cap Deducts" means those amounts withheld from capitation payments owed by
-----------
the Plans to MPN or the Managed Physician Practices.
"Claim" means (i) right to payment, whether or not such right is reduced to
-----
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured, or (ii) right to
an equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured.
"Claims Monitor" means a nationally recognized accounting or financial
--------------
advisory firm acceptable to the parties, which shall be PricewaterhouseCoopers
LLP subject to the receipt of an engagement letter confirming their independence
satisfactory to the parties.
"Commissioner" has the meaning set forth in the preamble hereto.
------------
"Confidential Information" has the meaning set forth in Section 15.9(a).
------------------------
"Consenting MPP" means a Managed Physician Practice who accepts the
--------------
benefits of this Agreement by executing a Supplemental Plan Agreement.
"Consenting Plan" means a Plan who accepts the benefits of this Agreement
---------------
by executing a Supplemental Plan Agreement.
"Consenting Provider" means a Provider who accepts the benefits of this
-------------------
Agreement by executing an MPN Provider Release or an MPPP Release, as
applicable.
4
<PAGE>
"Conservator" means the Conservator appointed by the DOC pursuant to the
-----------
Conservatorship Order issued by the Commissioner, in his capacity as an agent of
the DOC.
"Conservatorship Order" has the meaning set forth in the Recitals.
---------------------
"Credit Agreement" shall mean the Amended and Restated Credit Agreement
----------------
dated as of June 9, 1998, as amended and otherwise modified, among MedPartners,
the Lenders party thereto, NationsBank, N.A., as the Initial Issuing Bank and
the Swing Line Bank thereunder, Credit Lyonnais New York Branch, The First
National Bank of Chicago and Morgan Guaranty Trust Company of New York, as the
Syndication Agents therefor, NationsBank Montgomery Securities LLC, as the
Arranger therefor, and NationsBank, N.A., as the Administrative Agent for the
Lender Parties thereunder.
"Creditors Committee" means the Official Committee of Creditors Holding
-------------------
Unsecured Claims in the Bankruptcy Case.
"Default" has the meaning set forth in Section 10.1 and Section 11.1.
-------
"DOC" has the meaning set forth in the preamble hereto.
---
"DOC Action" means the action commenced by the Commissioner on March 18,
----------
1999 styled In the Matter of The Commissioner of Corporations of the State of
California v. MedPartners Provider Network, Inc.; case number BS056226, by
filing with the Los Angeles Superior Court a Petition to Confirm the
Commissioner's Order Appointing Conservator.
"Effective Date" has the meaning set forth in Section 13.1.
--------------
"Examiner Order" means the Order of the Bankruptcy Court, in substantially
--------------
the form attached as Schedule 2.2, approving the Stipulation.
"Final Order" means an order or judgment of the Bankruptcy Court, or other
-----------
court of competent jurisdiction over the Bankruptcy Case, as entered on the
docket in the Bankruptcy Case, that has not been reversed, stayed, modified or
amended, and as to which the time to appeal or seek certiorari has expired and
no appeal or petition for certiorari has been timely taken, or as to which any
appeal that has been or may be taken or any petition for certiorari that has
been or may be filed has been resolved by the highest court to which the order
or judgment was appealed or from which certiorari was sought.
"GAAP" means generally accepted accounting principles as in effect from
----
time to time in the United States, consistently applied.
"Governing Documents" means the certificate or articles of incorporation,
-------------------
by-laws, or other organizational or governing documents of any Person.
"Governmental Authority" means any federal, state, local, or other
----------------------
governmental or administrative body, instrumentality, department, or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body.
5
<PAGE>
"Health Care Services" means any service rendered and medical devices,
--------------------
supplies or products provided to or for the benefit of an enrollee in a Plan
that is provided for, covered or arranged for under an agreement for which MPN
or a Managed Physician Practice is obligated to pay pursuant to an agreement or
course of dealing with the applicable provider.
"Health Care Services Agreement" means an agreement for the provision of
------------------------------
Health Care Services between a Plan and MPN or a Managed Physician Practice.
"Knox-Keene Act" means the Knox-Keene Health Care Service Plan Act of 1975
--------------
(California Health and Safety Code (S) 1340, et seq.), as amended.
-- ----
"Letter of Credit" means the irrevocable letter of credit delivered
----------------
pursuant to Section 3.6.
"Managed Physician Practices" means Southern California Medical
---------------------------
Corporation, a California professional corporation; Talbert Medical Group, a
California professional corporation; Mullikin Practice Group, A Medical
Corporation, a California professional corporation; Pacific Physician Services
Medical Group, Inc., a California professional corporation; and other capitated
providers in the MPN network in the State of California (excluding MPN) whose
non-medical operations are or were managed by MedPartners or an Affiliate of
MedPartners.
"Managed Physician Practice Preserved Claims" means Claims arising in favor
-------------------------------------------
of a Managed Physician Practice against a Plan (i) under a Health Care Services
Agreement in the ordinary course of business, (ii) in the ordinary custom and
practice between the Managed Physician Practice and the Plan, (iii) that the
Managed Physician Practice would customarily receive payment for or seek to
recover from an entity or person that contracts for the provision of Health Care
Services, or (iv) that a Managed Physician Practice would, in the custom of the
industry, be expected to receive payment for or to recover from an entity or
person that contracts for the provision of Health Care Services, with respect to
claims that infrequently arise and do not otherwise fall within (i), (ii) or
(iii) above.
"Managed Physician Practice Provider Claims" means Claims against the
------------------------------------------
Managed Physician Practices for Health Care Services rendered prior to the
closing of the asset sale pertaining to that Managed Physician Practice, whether
held by Providers or asserted by Plans as reimbursement for payments made by
Plans on account of such Claims.
"Management Agreement" means the Amended and Restated MedPartners Provider
--------------------
Network, Inc. Management Agreement, dated December 31, 1997, between MPN and
MedPartners.
"Material Adverse Change" means a material adverse change in the business,
-----------------------
operations, results of operations, assets, liabilities or financial condition of
MedPartners.
"MedPartners" has the meaning set forth in the preamble hereto.
-----------
"MedPartners Action" means the action commenced by MedPartners on March 17,
------------------
1999, styled MedPartners, Inc. v. William Kenefick, in his capacity as Acting
Commissioner of the Department of Corporations of the State of California; the
Commissioner of the Department of
6
<PAGE>
Corporations for the State of California; and Eugene Froelich as an agent of the
Commissioner of the Department of Corporations for the State of California; case
number BC207250, by filing with the Los Angeles Superior Court a Complaint for
Injunctive Relief (CCP (S) 526); Complaint for Declaratory Relief (CCP (S) 1060)
and Application for Order to Show Cause (HSC (S) 1393).
"MedPartners Funding Commitment" has the meaning set forth in Section
------------------------------
3.5(a).
"Motion To Dismiss" has the meaning set forth in the Recitals hereto.
-----------------
"MPN" has the meaning set forth in the preamble hereto.
---
"MPN Plan Subordinated Claims" means all Claims of a Plan against MPN other
----------------------------
than Plan Preserved Claims and Provider Claims.
"MPN Preserved Claims" means Claims arising in favor of MPN against a Plan
--------------------
(i) under a Health Care Services Agreement in the ordinary course of business,
(ii) in the ordinary custom and practice between MPN and the Plan, (iii) that
MPN would customarily receive payment for or seek to recover from an entity or
person that contracts for the provision of Health Care Services, or (iv) that
MPN would, in the custom of the industry, be expected to receive payment for or
to recover from an entity or person that contracts for the provision of Health
Care Services, with respect to claims that infrequently arise and do not
otherwise fall within (i), (ii) or (iii) above.
"MPN Provider Claims" means Claims against MPN for Health Care Services,
-------------------
whether held by Providers or asserted by Plans as reimbursement for payments
made by Plans on account of such Claims.
"MPN Provider Release" means a release by a Provider in form and substance
--------------------
acceptable to the parties and the Creditors Committee (whose approval shall not
be unreasonably or untimely withheld), whereby a Consenting MPN Provider agrees
to release MedPartners, and the Consenting Plans as follows:
(a) such release to be effective as a subordination of all Claims
other than MPN Provider Claims to, and only to MPN Provider Claims and Preserved
Plan Claims which become Allowed MPN Claims. Any distribution on account of
such subordinated Claims shall be assigned for the benefit of Consenting
Providers and Consenting Plans on account of their MPN Provider Claims and
Preserved Plan Claims which become Allowed MPN Claims in such amount as is
necessary to fulfill the MedPartners Funding Commitment on account of such
Allowed MPN Claims and, as to any excess, to the MedPartners California Account;
(b) such release to be effective as a release as to each MPN Provider
Claim in favor of MedPartners upon the receipt by such Consenting Provider of
payment in full on account of the Allowed MPN Claim based upon such MPN Provider
Claim;
(c) upon satisfaction in full of the MedPartners Funding Commitment
with respect to all of the Provider's MPN Provider Claims, such release to be a
general release of all Claims in favor of MedPartners with respect to the
interests, assets and operations of MPN, conditioned upon the receipt of a
reciprocal release from MedPartners of similar scope;
7
<PAGE>
(d) such release to include an agreement by such Consenting Provider
in favor of Consenting Plans whereby such Consenting Provider (1) agrees not to
bill or otherwise seek payment on account of any Provider Claims from Consenting
Plan enrollees for whom MPN previously provided or arranged for Health Care
Services; (2) agrees to refrain from seeking payment from any Consenting Plan
related to any Provider Claims until the Calculation Date; (3) agrees that (i)
to the extent it has received or there has been set aside for its benefit as of
the Calculation Date, in the aggregate, not less than 75% of the amount of its
MPN Provider Claims and its finally adjudicated Managed Physician Practice
Provider Claims (plus the amount, if any, estimated by the Bankruptcy Court or
pursuant to Section 3.5(c), as applicable, for any Provider Claims not yet fully
resolved) for services rendered prior to April 30, 1999, from sources other than
the Letter of Credit, and (ii) if it agrees to provide the Consenting Plans who
provide said Provider with a release as described in subsection (d)(4) hereof
with a release of all Claims for Health Care Services provided to enrollees
pursuant to Health Care Services Agreements, which release shall be in a form to
be appended to the Plan of Reorganization (with the understanding that the
proceeds of a draw under the Letter of Credit shall not be disbursed to holders
of allowed MPN Claims until the Calculation Date) then it shall receive its
ratable share of the proceeds from a draw under the Letter of Credit; and (4)
agrees to release the Consenting Plans from the Provider's Claims for Health
Care Services provided to enrollees pursuant to Health Care Services Agreements
prior to June 1, 1999 upon (i) the satisfaction in full of the MedPartners
Funding Commitment, and (ii) the Consenting Plan's execution of a limited
release in favor of a Provider for the Plan's claims to recover an overpayment
on account of the provision of Health Care Services prior to June 1, 1999
arranged by MPN or a Managed Physician Practice, except to the extent that the
Plan receives an assignment of Claims from MPN, MedPartners or the Managed
Physician Practice as provided in Section 15.17. Nothing herein shall be
effective to release a Provider from any Claim other than a Claim for
overpayment for Health Care Services arranged for by MPN or a Managed Physician
Practice pursuant to a Health Care Services Agreement; and
(e) such release to include an agreement whereby each Consenting
Provider agrees not to initiate an action against MedPartners with respect to
the interests, assets and operations of MPN, on account of such Provider Claims,
while MedPartners is not in Default under this Agreement.
"MPP Plan Subordinated Claims" means all Claims of a Plan against a Managed
----------------------------
Physician Practice other than MPP Plan Preserved Claims, Provider Claims and
claims expressly not waived by reason of Section 15.17.
"MPPP Release" means a release by a Provider in form and substance
-------------
acceptable to the parties and the Creditors Committee (whose approval shall not
be unreasonably or untimely withheld), whereby a Consenting Managed Physician
Practice Provider agrees to release MedPartners, the Consenting Plans and the
applicable Managed Physician Practice, as follows:
(b) such release to be effective as a release as to each Managed
Physician Practice Provider Claim in favor of MedPartners upon the receipt by
such Provider of payment in full on account of such Claim; and
(c) upon payment in full of all of such Provider's Managed Physician
8
<PAGE>
Provider Claims, such release to be a general release of all Claims in favor of
MedPartners and such Managed Physician Practices with respect to Claims relating
to such Managed Physician Practices, conditioned upon the receipt from
MedPartners of a reciprocal release of similar scope.
(d) such release to include an agreement by such Consenting Provider
in favor of the Consenting Plans whereby such Consenting Provider (1) agrees not
to bill or otherwise seek payment on account of any Provider Claims from
Consenting Plan enrollees for whom the applicable Managed Physician Practice
previously provided or arranged for Health Care Services; (2) agrees to refrain
from seeking payment from any Consenting Plan related to any Provider Claims
until the Calculation Date; (3) agrees that (i) to the extent it has received or
there has been set aside for its benefit as of the Calculation Date, in the
aggregate, not less than 75% of the amount of its MPN Provider Claims and its
finally adjudicated Managed Physician Practice Provider Claims (plus the amount,
if any, estimated by the Bankruptcy Court or pursuant to Section 3.5(c) of this
Agreement, as applicable for any Provider Claims not yet fully resolved) for
services rendered prior to April 30, 1999, from sources other than the Letter of
Credit, (ii) to receive its ratable share of the proceeds from a draw under the
Letter of Credit if it agrees to provide the Consenting Plans with a release of
all Claims for Health Care Services provided to enrollees pursuant to Health
Care Services Agreements, with the understanding that the proceeds of a draw
under the Letter of Credit shall not be disbursed to holders of allowed MPN
Claims until the Calculation Date; and (4) agrees to release the Consenting
Plans upon satisfaction in full of the MedPartners Funding Commitment for all
Claims for Health Care Services provided to enrollees pursuant to Health Care
Services Agreements.
(e) such release to include an agreement whereby each Consenting
Provider agrees not to initiate an action against either MedPartners or the
applicable Managed Physician Practice with respect to the interests, assets and
operations of the applicable Managed Physician Practice, on account of such
Provider Claims, while MedPartners is not in Default under this Agreement.
"Net Cash Proceeds" means cash proceeds from the sale of the California
-----------------
Operations less sale expenses actually paid to non-Affiliate third parties by
MedPartners in connection therewith. Cash proceeds shall include proceeds
received from promissory notes executed by the purchasers as consideration for
the sale of the California Operations.
"Person" means and includes natural persons, corporations, limited
------
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Petition Date" means, with respect to MPN, March 11, 1999.
-------------
"Plan" means a health care services plan with which MPN or a Managed
----
Physician Practice had a valid and enforceable Health Care Services Agreement on
the Petition Date.
"Plan of Reorganization" has the meaning set forth in Section 7.1(h).
----------------------
9
<PAGE>
"Plan Preserved Claims" means Claims arising in favor of a Plan (i) under a
---------------------
Health Care Services Agreement in the ordinary course of business; (ii) in the
ordinary custom and practice between the Plan and MPN or a Managed Physician
Practice; (iii) that the Plan would customarily charge back or seek to recover
from an entity or person that provides or arranges for the provision of Health
Care Services to enrollees of the Plan; or (iv) that a Plan would in the custom
of the industry be expected to charge back or seek to recover from an entity or
person that provides or arranges for the provision of Health Care Services to
enrollees of a Plan, with respect to claims that infrequently arise and do not
otherwise fall within (i), (ii) or (iii) above.
"Plan Stipulation" means that certain Stipulation re: (a) Payment of
----------------
Capitation to and by Debtor and (b) Adequate Protection attached to the Order
Granting Motion for Approval of Stipulation; (1) Payment of Capitation to and by
Debtor and (2) Adequate Protection entered by the Bankruptcy Court on April 29,
1999 as subsequently modified by the Court to add additional Plan signatories.
"Providers" means hospitals, hospital groups, physicians, physician groups,
---------
medical service providers, laboratories, specialists and sub-specialists,
ancillary providers and other persons, groups and organizations that provide
Health Care Services.
"Provider Claims" means MPN Provider Claims and Managed Physician Practice
---------------
Provider Claims.
"Provider Stipulation" means that certain [Amended] Stipulation with
--------------------
Certain Providers attached to the Order Granting Motion for Approval of
Stipulation with Certain Providers and Approving Amended Stipulation; Notice of
Entry entered by the Bankruptcy Court on April 29, 1999.
"Records" has the meaning set forth in Section 2.1(b)(iii) of this
-------
Agreement.
"Representatives" has the meaning set forth in Section 15.9(a) of this
---------------
Agreement.
"Requirement of Law" means, as to any Person: (a) all (i) statutes and
------------------
regulations and (ii) court orders and injunctions, arbitrators' decisions,
and/or similar rulings, in each instance by any Governmental Authority or other
body that has jurisdiction over such Person, any property of such Person, or of
any other Person for whose conduct such Person would be responsible; and (b)
that Person's organizational documents, by-laws and/or other instruments that
deal with corporate or similar governance, as applicable.
"SAP" means, where required by the DOC regulations as applicable to MPN,
---
statutory accounting principles.
"Special Monitor" means the special monitor appointed by an order of the
---------------
Los Angeles Superior Court pursuant to the Special Monitor Order, in his or her
capacity as an agent of the DOC.
"Special Monitor-Examiner" means the examiner appointed by the Examiner
------------------------
Order, or any successor Special Monitor-Examiner or superseding official.
10
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"Special Monitor Order" has the meaning set forth in the Recitals.
---------------------
"State" has the meaning set forth in the preamble hereto.
-----
"State Court Actions" means, collectively, the MedPartners Action and the
-------------------
DOC Action.
"Stay" has the meaning set forth in the Recitals.
----
"Stipulation" means the Stipulation in substantially the form attached as
-----------
Schedule 9.2.
"Subsidiary" of a Person means a corporation, partnership, limited
----------
liability company, or other entity in which that Person directly or indirectly
owns or controls the equity ownership interests having ordinary voting power to
elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, partnership, limited liability company, or other
entity.
"Supplemental Plan Agreement" has the meaning set forth in Section 15.17.
---------------------------
"Supplemental Plan Agreement Party" has the meaning set forth in Section
---------------------------------
15.17.
"Term" means the term commencing on the Agreement Date and ending in
----
accordance with Section 13.3.
"Transition Plan" means the transition plan set forth in this Agreement
---------------
providing certain terms for the wind down of the California Operations.
1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP or, where required by the DOC
regulations applicable to MPN, SAP. When used herein, the term "financial
statements" shall include the notes and schedules thereto. Whenever the term
"MedPartners" is used in respect of a financial term, it shall be understood to
mean MedPartners on a consolidated basis unless the context clearly requires
otherwise.
1.3 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Section, subsection, clause,
schedule, and exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, hereto and hereof, as applicable.
1.4 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
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2. SPECIAL MONITOR ROLE.
2.1 Role of Special Monitor-Examiner on Amended Agreement Date.
(a) As provided in the Examiner Order attached hereto as Schedule 2.2,
commencing on the Amended Agreement Date and continuing through the Effective
Date, J. Mark Abernathy (or his successor as and when ordered by the Bankruptcy
Court) shall: (i) serve as the Special Monitor-Examiner of MPN and the
California Operations, (ii) perform the functions described in Section B of the
Stipulation and the Examiner Order with respect to MPN and the California
Operations, (iii) have supervisory oversight authority over MPN, and (iv) have
oversight authority over MedPartners' compliance with its obligations under this
Agreement with respect to MPN and the California Operations, as set forth in the
Stipulation, the Examiner Order and in this Agreement.
(b) Without limiting the foregoing, the responsibilities and authority
of the Special Monitor-Examiner, during the period covered by this Section 2.1,
which MPN and MedPartners acknowledge, are as follows:
(i) The Special Monitor-Examiner shall have the authority to
employ such employees, including a secretary, and professionals (subject to
Bankruptcy Court approval), as reasonably necessary to perform his duties
hereunder. Reasonable expenses incurred in connection therewith shall be paid
upon presentation to MPN of a written request and itemization of services
rendered and costs incurred (subject to Bankruptcy Court approval, if required);
(ii) MPN shall provide the Special Monitor-Examiner and his or
her staff with office space (similar in size and amenities to that of senior
officers of MPN) located at 5000 Airport Plaza Drive, Long Beach, California
90815, reasonably equipped with a facsimile machine, computers, telephones and
such other equipment, in good working order, reasonably required by the Special
Monitor-Examiner, so as to permit the Special Monitor-Examiner to perform his
supervisory oversight duties;
(iii) The Special Monitor-Examiner shall have full and complete
access (including the right to copy) during normal business hours to all books
of account, accounting and financial records, reports and all other records
relating to MPN's business and the California Operations ("Records") wherever
located. MPN and MedPartners shall cooperate with the Special Monitor-Examiner
and promptly provide him or her with such Records as he or she reasonably
requests. The Special Monitor-Examiner and his employees shall have full and
complete access to and cooperation by the officers, directors and employees of
MPN and MedPartners and its Affiliates who perform services for MPN;
(iv) In addition to the access to Records and personnel as
provided herein, MPN shall provide to the Special Monitor-Examiner, not later
than three Business Days in advance of any asset transfer or payment by MPN
(whether by check, wire transfer or other method), a schedule listing as to each
payment, the name of the payee, the amount and the reason for such payment, or
provide such other information as the Special Monitor-Examiner deems
appropriate. Not later than three Business Days after receipt of such schedule,
the Special Monitor-Examiner or his staff shall either approve or disapprove
such payment or transfer and
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<PAGE>
shall state in writing a reason for such disapproval. If the Special Monitor-
Examiner shall not have approved or disapproved of such payment or transfer
within three Business Days, MPN shall be entitled to assume the Special Monitor-
Examiner has approved of such payment or transfer. If the Special Monitor-
Examiner shall have disapproved of any payment or transfer, the payment or
transfer shall not be made. MPN shall be entitled thereafter to make any such
payment or transfer disapproved by the Special Monitor-Examiner only after
obtaining an order of the Bankruptcy Court authorizing or approving such payment
or transfer; and
(v) MedPartners and MPN will provide to the Special Monitor-
Examiner (A) no later than the first Business Day following the first and
fifteenth day of each month, semi-monthly reports in arrears for such semi-
monthly period in narrative form that will provide an update on asset sale
progress, Provider and Plan receivables (if applicable), and the overall status
of claims adjudication and payment pursuant to Section 3.5(b) and (B) no later
than the tenth Business Day following each month, a monthly report in arrears
for such month that will compare the actual cash flow (both sources and uses)
for such month against the cash flow plan set forth in Schedule 3.1, together
with an explanation for any material variance from such plan, and a revised cash
flow plan, if required.
(c) Effective as of the Agreement Date and subject to Section 2.2, the
Undertaking of MPN, dated November 17, 1997, is hereby modified to the extent
necessary to be consistent with this Agreement.
2.2 Role of Special Monitor-Examiner on Effective Date.
(a) From the Effective Date and continuing during the Term of this
Agreement, J. Mark Abernathy (or his successor as and when ordered by the
Bankruptcy Court) shall: (i) continue to serve as the Special Monitor-Examiner
of MPN and the California Operations, (ii) perform the functions described in
Section C of the Stipulation and the Examiner Order with respect to MPN, (iii)
have supervisory oversight authority over MPN, and (iv) have oversight authority
over MedPartners' compliance with its obligations under this Agreement with
respect to MPN and the California Operations, as set forth in the Stipulation,
the Examiner Order and in this Agreement.
(b) Without limiting the foregoing, the responsibilities and authority
of the Special Monitor, during the period covered by this Section 2.2, which MPN
and MedPartners acknowledge, are as follows:
(i) The Special Monitor-Examiner shall have the authority to
employ such employees, including a secretary, and professionals (subject to
Bankruptcy Court approval), as reasonably necessary to perform his duties
hereunder. Reasonable expenses incurred in connection therewith shall be paid
upon presentation to MPN of a written request and itemization of services
rendered and costs incurred (subject to Bankruptcy Court approval, if required);
(ii) MPN shall provide the Special Monitor-Examiner and his or
her staff with office space (similar in size and amenities to that of senior
officers of MPN) located at 5000 Airport Plaza Drive, Long Beach, California
90815, reasonably equipped with a facsimile machine, computers, telephones and
such other equipment, in good working order, reasonably
13
<PAGE>
required by the Special Monitor-Examiner, so as to permit the Special Monitor-
Examiner to perform his or her supervisory oversight duties;
(iii) The Special Monitor-Examiner shall have full and complete
access (including the right to copy) during normal business hours to all Records
wherever located. MPN shall cooperate with the Special Monitor-Examiner and
promptly provide him or her with such Records as he or she reasonably requests.
The Special Monitor-Examiner and his or her employees shall have full and
complete access to and cooperation by the officers, directors and employees of
MPN and MedPartners and its Affiliates who perform services for MPN;
(iv) MedPartners and MPN will provide to the Special Monitor-
Examiner (A) no later than the first Business Day following the first and
fifteenth day of each month, semi-monthly reports in arrears for such semi-
monthly period in narrative form that will provide an update on asset sale
progress, Provider and Plan receivables (if applicable), and the overall status
of claims adjudication and payment pursuant to Section 3.5(b) hereof, and (B) no
later than the tenth Business Day following each month, a monthly report in
arrears for such month that will compare the actual cash flow (both sources and
uses) for such month against the cash flow plan set forth in Schedule 3.1,
together with an explanation for any material variance from such plan, and a
revised cash flow plan, if required.
2.3 Application of DOC Regulations Pertaining to Tangible Net Equity
Requirements. The DOC acknowledges that MPN's operations will be discontinued
in accordance with the Transition Plan. During the Term, unless necessary to
safeguard the delivery or provision of health care services as required by the
Knox-Keene Act to MPN or Plan enrollees, the State shall take no action with
respect to the enforcement against MPN for a violation of the tangible net
equity requirements of 10 C.C.R. (S) 1300.76.
2.4 Payment of Expenses Incurred by or on Behalf of the Conservator, the
Special Monitor, the Special Monitor-Examiner, the DOC or the Agency.
(a) After submission of invoices and review and approval of such
amounts by the State and the Agency, MPN shall pay the reasonable fees and
expenses of Eugene Froelich for the period during which he served as Conservator
under the Conservatorship Order, subject to the approval of such fees by the
Bankruptcy Court, if required. Such fees and expenses shall be paid as soon as
practicable after Bankruptcy Court approval, if required. MPN shall also pay the
reasonable fees and expenses of Pryor Cashman Sherman & Flynn LLP for the period
from the Petition Date through April 11, 1999, and the reasonable fees and
expenses of Danning, Gill, Diamond & Kollitz LLP, when and in the amounts
ordered by the Bankruptcy Court upon the application of such persons for
compensation and reimbursement of expenses.
(b) MPN shall pay the reasonable fees and expenses of J. Mark
Abernathy or any replacement Special Monitor-Examiner (including any fees and
expenses of J. Mark Abernathy in his role as Conservator under the
Conservatorship Order and as Special Monitor under the Special Monitor Order),
including any staff required by the Special Monitor-Examiner, subject to the
approval of the Bankruptcy Court, if required. Such fees and expenses shall be
paid as soon as practicable after Bankruptcy Court approval, if required.
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<PAGE>
(c) Unless previously sought, following the Agreement Date, MPN may
seek authority from the Bankruptcy Court to employ Milbank, Tweed, Hadley &
McCloy LLP ("MTHM") as MPN's bankruptcy counsel, in accordance with applicable
Bankruptcy Court procedures. MPN shall pay the reasonable fees and expenses of
MTHM (or such other law firm which may subsequently be employed by MPN), if
their employment is approved by the Bankruptcy Court, when and in the amounts
ordered by the Bankruptcy Court upon the application of such persons for
compensation and reimbursement of expenses.
(d) MPN shall pay the reasonable fees and expenses of the Creditors
Committee, including the reasonable fees and expenses of Latham & Watkins and
Crossroads Capital Partners, LLP, in accordance with applicable Bankruptcy Court
procedures, when and in the amounts ordered by the Bankruptcy Court upon the
application of such persons for compensation and reimbursement of expenses.
(e) MedPartners shall pay promptly the reasonable fees and expenses of
Deloitte & Touche and Bear, Stearns & Co. Inc. in advising the State with
respect to the Transition Plan and the negotiation of this Agreement including
any term sheet relating thereto.
(f) MedPartners shall reimburse promptly the State and the Agency for
all reasonable fees and expenses of Manatt, Phelps & Phillips, LLP, special
counsel to the State and the Special Monitor-Examiner (and prior to the entry of
the Examiner Order, the Special Monitor under the Special Monitor Order, and
prior to the entry of the Special Monitor Order, the Conservator under the
Conservatorship Order), and incurred in connection with: (i) the Transition
Plan; (ii) the preparation, execution and consummation of this Agreement; (iii)
the State Court Actions; and (iv) the Bankruptcy Case.
(g) MedPartners shall cause to be funded the expenses of MPN set forth
in Sections 2.4(b)-(d) hereof; provided, however, that MedPartners shall not
cause to be funded any claims under Section 503(b)(3) or (4) of the Bankruptcy
Code.
(h) Except as set forth in Section 2.4, Section 12.4 and Section 15.16
of this Agreement, MedPartners shall not be liable for any fees or expenses of
the State or the Agency.
3. THE TRANSITION PLAN; FUNDING.
3.1 The Transition Plan. MedPartners shall oversee and manage the sale and
wind down of the California Operations pursuant to the Transition Plan subject
to the supervisory oversight of the Special Monitor-Examiner and as to MPN's
interest in the California Operations, subject to the provisions of the
Bankruptcy Code and the jurisdiction of the Bankruptcy Court. Set forth on
Schedule 3.1 are key elements of the Transition Plan to the extent not otherwise
addressed in this Agreement.
3.2 Management Agreement. The Management Agreement shall be amended,
effective as of March 12, 1999, substantially in the form set forth on Schedule
3.2. Nothing in this Section or in the amendment to the Management Agreement
shall be construed to be an assumption of the Management Agreement by MPN; and
MPN expressly reserves the right to assume or reject the Management Agreement
and any and all rights it may have in connection with any such assumption or
rejection.
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<PAGE>
3.3 Payments to Managed Physician Practices. MPN shall pay capitation
amounts owed to the Managed Physician Practices on the first Business Day of the
month for which the capitation payment applies, or the first Business Day after
MPN has sufficient funds to make such payment, but otherwise in accordance with
the terms of the underlying capitation agreements with the Managed Physician
Practices.
3.4 Disposition of the California Operations.
(a) Schedule 3.4(a) identifies as of the Agreement Date the portion of
the California Operations that are the subject of pending sale agreements, the
subject of letters of intent and the anticipated closing date of such sales, and
identifies the remainder of the California Operations to be sold under the
Transition Plan.
(b) The Net Cash Proceeds of the sale of the California Operations
shall be deposited in the California Accounts on the date each sale closes and
the dates on which such Proceeds are received in accordance with the agreement
of the parties to the sale. The Net Cash Proceeds from the sales shall be
allocated in accordance with the determination of a valuation consultant,
reasonably satisfactory to MedPartners and the Creditors Committee employed by
MedPartners, between the California Accounts and with respect to the allocation
to MPN, as ordered by the Bankruptcy Court.
3.5 Payment of Claims.
(a) MedPartners Funding Commitment. Subject to the terms and
------------------------------
conditions of this Agreement, MedPartners shall be responsible for the
satisfaction of (e.g., by payment, offset, or by causing to be paid) the
following Provider Claims with respect to MPN and the Managed Physician
Practices, respectively:
(i) As to MPN, (A) the total amount of all MPN Provider Claims
that become Allowed MPN Claims, after giving effect to all valid offsets and
recoupments, in accordance with Section 3.5(b) for all MPN Providers who have
executed an MPN Provider Release, and (B) the total amount of all Plan Preserved
Claims with respect to MPN that become Allowed MPN Claims, after giving effect
to all valid offsets and recoupments, in accordance with Section 3.5(b) for all
Consenting Plans who have executed an MPN Plan Release; and
(ii) As to the Managed Physician Practices, (A) the total
amount of all Managed Physician Practice Provider Claims that are submitted
timely in accordance with the provisions of Section 3.8(c), in such amounts as
are finally determined to be valid and liquidated, after giving effect to all
valid offsets and recoupments, in accordance with Section 3.5(b) for all Managed
Physician Practice Providers who have executed a MPPP Release, and (B) the total
amount of all Plan Preserved Claims with respect to the Managed Physician
Practices that are submitted timely in accordance with the provisions of Section
3.8(c), in such amounts as are finally determined to be valid and liquidated,
after giving effect to all valid offsets and recoupments, in accordance with
Section 3.5(b) for all Consenting Plans who have executed a Managed Physician
Practice Plan Release;
in each case, to the extent that:
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<PAGE>
(xi) The cash assets of MPN and the Managed Physician
practices, respectively, as of the Agreement Date;
(xii) Revenues received by MPN and the Managed Physician
Practices, respectively, following the Agreement Date including, without
limitation, capitation revenues and return of capitation deductions; and
(xiii) Net Cash Proceeds received by MPN and the Managed
Physician Practices, respectively, following the Agreement Date ((xi), (xii) and
(xiii) collectively, the "Funding Sources") less Permitted Expenses (as defined
below) are, in the aggregate, inadequate to satisfy such Provider Claims,
assuming that the entire amount of the Funding Sources for MPN and the Managed
Physician Practices, respectively, is applied to the satisfaction of such
Provider Claims. "Permitted Expenses" shall include:
(xxi) As to MPN, ordinary and necessary operating expenses
necessary to support the liquidation and winding down of MPN and the
administration of the Bankruptcy Case; provided, however, that the fees and
expenses of professional persons employed at the expense of the MPN estate shall
qualify as ordinary and necessary operating expenses only as set forth in
Section 2.4(g); and
(xxii) As to the Managed Physician Practices, ordinary and
necessary operating expenses of the Managed Physician Practices until such time
as its related practice assets are sold or its operations liquidated and wound
down.
(b) Timing of Payments. Pursuant to the MedPartners Funding
------------------
Commitment, MedPartners shall cause Provider Claims to be timely adjudicated
and, to the extent determined to be valid, timely paid. For purposes of this
Section, timely adjudication and timely payment shall mean (provided, for the
first thirty days of the Agreement, the timely standard will be deemed to be
complied with if the MedPartners has implemented a procedure acceptable to the
Special Monitor or Special Monitor-Examiner, as the case may be, for payments to
become current):
(1) with respect to a Managed Physician Practice Provider
Claim, such Claim shall be adjudicated and, to the extent determined to be valid
and after giving effect to any offset or recoupment, paid in accordance with
applicable law, including California Health and Safety Code (S)1371, upon
receipt by MedPartners and the applicable Managed Physician Practice of the MPPP
Release; provided, however, that MedPartners shall have mailed or otherwise
transmitted the MPPP Release to each holder of a Managed Physician Practice
Provider Claim within ten Business Days following the Amended Agreement Date;
(2) with respect to a pre-petition MPN Provider Claim, such
Claim shall be adjudicated and, to the extent determined to be an Allowed MPN
Claim and after giving effect to any offset or recoupment, timely paid, in a
manner that is consistent with the Bankruptcy Code if the Bankruptcy Case is
then pending, upon receipt by MedPartners and MPN of the MPN Provider Release;
provided, however, that MedPartners or MPN shall have mailed or otherwise
transmitted the MPN Provider Release to each holder of a pre-petition MPN
Provider Claim concurrently with the solicitation of acceptance of a plan of
reorganization; and
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<PAGE>
(3) with respect to a post-petition MPN Provider Claim,
such Claim shall be adjudicated and, to the extent determined to be an Allowed
MPN Claim after giving effect to any offset or recoupment, timely paid, in a
manner that is consistent with the Bankruptcy Code if the Bankruptcy Case is
then pending, and if such Claim is being paid pursuant to the MedPartners
Funding Commitment, upon receipt by MedPartners and MPN of the MPN Provider
Release; provided, however, that MedPartners or MPN shall have mailed or
otherwise transmitted the MPN Provider Release to each holder of a post-petition
MPN Provider Claim to the extent such Provider Claim is being satisfied or paid
pursuant to the MedPartners Funding Commitment.
The rights of each holder of a Managed Physician Practice Provider Claim or an
MPN Provider Claim with respect to the MedPartners Funding Commitment shall
constitute an unsecured Claim against MedPartners under this Agreement if such
holder is a Consenting Provider.
(c) Funding. Pursuant to the MedPartners Funding Commitment, within
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five Business Days after January 31, 2000, MedPartners shall deposit into each
of the California Accounts an amount of cash equal to the estimated amount
necessary to satisfy the MedPartners Funding Commitment with respect to MPN and
the Managed Physician Practices, respectively, as of December 31, 1999, as
determined by an actuary or financial consultant reasonably satisfactory to MPN,
MedPartners and the Creditors Committee, and with respect to the allocation to
MPN only, as approved by the Bankruptcy Court after notice and a hearing, less,
the amount of any MPN Preserved Claims and Managed Physician Practice Preserved
Claims, respectively, which are estimated by such actuary or financial
consultant to be valid, and which the Special Monitor-Examiner finds are being
asserted by MPN, or MedPartners, but which are contested by the applicable Plan;
provided, that within three Business Days of the resolution of the dispute with
respect to such Claims, by settlement or conclusion of arbitration, MedPartners
shall deposit into the applicable California Account the amount deducted from
the initial deposit under this Section by reason of such dispute. The funds
deposited into the California Account pursuant to this Section shall be used to
pay Provider Claims as they become payable. In the event the actual amount of
applicable Provider Claims payable under the MedPartners Funding Commitment with
respect to MPN and the Managed Physician Practices, respectively, exceeds the
amount deposited hereunder, MedPartners shall fulfill the MedPartners Funding
Commitment with respect to such Provider Claims in accordance with Section
3.5(b) above.
(d) Excess Funds.
------------
(1) In the event the amount deposited into the applicable
California Account hereunder materially exceeds the funds, as determined by an
actuary or financial consultant satisfactory to the parties hereto or as
otherwise agreed by the parties hereto, necessary to fulfill the MedPartners
Funding Commitment, the excess funds will be returned to MedPartners promptly
upon the occurrence of the following:
(A) as to the MPN California Account, at any time after
March 31, 2000, when the Bankruptcy Court, upon notice and hearing, has
confirmed the determination of excess funds; and
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<PAGE>
(B) as to the MedPartners California Account, when the
Special Monitor-Examiner, upon five Business Days written notice of such
determination to the Creditors Committee, has determined the amount of excess
funds.
(2) In the event the MedPartners Funding Commitment has been
satisfied with respect to the MPN Provider Claims or the Managed Physician
Practice Provider Claims, and there are excess funds in the California Account
with respect to which the Commitment has been satisfied, such excess shall not
be subject to withdrawal as excess funds and shall be used to satisfy Provider
Claims otherwise payable from the other California Account.
(3) All funds remaining in either California Account will be
returned promptly to MedPartners upon the occurrence of the following:
(A) as to the MPN California Account, when the MedPartners
Funding Commitment with respect to MPN Provider Claims has been fully satisfied
and there are adequate funds in the MedPartners California Account to fulfill
the MedPartners Funding Commitment; and
(B) as to the MedPartners California Account, when the
MedPartners Funding Commitment with respect to the Managed Physician Practice
Provider Claims has been fully satisfied.
(4) For purposes of this Section 3.5(d):
(A) The MedPartners Funding Commitment with respect to MPN
Provider Claims shall be deemed fully satisfied when an order of the Bankruptcy
Court has been entered making such finding, following notice and hearing; and
(B) The MedPartners Funding Commitment with respect to the
Managed Physician Practice Provider Claims shall be deemed satisfied upon the
expiration of five Business Days after the Special Monitor-Examiner gives the
Creditors Committee written notice thereof.
(e) Certain Event. In the event that MedPartners shall not have
-------------
executed by July 1, 1999 agreements to sell the practice assets related to
Southern California Medical Corporation, a California professional corporation,
Talbert Medical Group, a California professional corporation, or Mullikin
Practice Group, a Medical Corporation, or any such sale shall not have been
consummated on or before July 31, 1999, MedPartners shall notify the State of
such event on or after July 1, 1999, and MedPartners may begin an orderly
termination of such operations provided that such operations shall continue for
a minimum of 60 days from such notice. In such event, any Claims arising after
giving such notice, shall not be considered to be Provider Claims and shall not
be subject to the MedPartners Funding Commitment. In the event MedPartners gives
a notice with respect to a practice asset under this Section, the State has
consented to the Plans promptly moving their members to unaffiliated networks.
Notwithstanding anything to the contrary in this Agreement, to the extent any
Plan moves any enrollees based on the closure of any Managed Physician Practice,
the Plans shall use their best efforts to move their enrollees to unaffiliated
networks with capacity sufficient to provide uninterrupted Health
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<PAGE>
Care Services to their enrollees. In addition, the Plans shall acknowledge their
obligations under the Knox-Keene Act to provide, and shall agree to provide,
available and accessible health care services to their members consistent with
the requirement of continuity of care under the Knox-Keene Act when the
enrollees have been moved to the unaffiliated networks. Without limiting the
generality of the foregoing, the movement of members may be undertaken without
regulatory filings or approvals, provided that the Plans shall simultaneously
send a letter to the State advising the State of such actions. As soon as
reasonably practicable thereafter, the Plans will file appropriate regulatory
documents. Further, if MedPartners gives notice under this Section concerning
termination of operations, MedPartners, the Managed Physician Practices and
their respective affiliates shall take reasonable steps to (i) assist the Plans
in the transfer of enrollees to unaffiliated providers in accordance with the
Health Care Services Agreements and applicable law, and (ii) carry out the
orderly termination of such operations so as not to unreasonably increase the
Plans and their enrollees' damages associated with termination of operations,
and any such expenses incurred by MedPartners pursuant to this Section shall not
reduce the MedPartners Funding Commitment.
3.6 Letter of Credit. To support the MedPartners Funding Commitment, within
one Business Day after the Effective Date, MedPartners shall cause NationsBank,
N.A. to issue an irrevocable letter of credit in the amount of $25 million in
favor of the Special Monitor-Examiner, which shall be substantially in the form
attached as Schedule 3.6.
3.7 Negative Assurances.
(a) No Liens. Nothing herein is intended, or shall be construed, to
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grant to the State or any other Person any security interest, encumbrance,
assignment, deposit arrangement, lien (statutory or other) or preference,
priority, or other security or similar agreement, or preferential arrangement of
any kind or nature whatsoever, in respect of any assets of MedPartners, MPN or
any other subsidiary of MedPartners, or any agreement to give or grant any of
the foregoing. This Agreement shall not constitute a bond, note, debenture or
similar instrument for the payment of money, and the obligations of MedPartners
and MPN hereunder are not debt for borrowed money.
(b) No Occurrences. Nothing is intended, or shall be construed to
--------------
constitute the occurrence of any of the following events: (i) the entry of a
judgment, decree or order by a court having jurisdiction in the premises
granting relief under the Bankruptcy Code, adjudicating MedPartners to be
insolvent, or approving as properly filed a petition seeking reorganization or
liquidation of MedPartners under the Bankruptcy Code or any similar applicable
Federal or State law; (ii) the entry of a judgment, decree or order by a court
having jurisdiction in the premises for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of MedPartners or
of its property, or for the winding up or liquidation of its affairs; or (iii)
the filing by MedPartners of a petition for relief under the Bankruptcy Code;
the consent by MedPartners to the filing of a bankruptcy proceeding against it;
the filing by MedPartners of a petition or answer or consent seeking
reorganization or liquidation under the Bankruptcy Code or any similar
applicable Federal or State Law, or the consent by MedPartners to the filing of
any such petition; or the consent by MedPartners to the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it
or of its property; or the making by
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<PAGE>
MedPartners of an assignment for the benefit of creditors; or an admission by
MedPartners of its inability to pay its debts generally as they become due.
3.8 Procedures for Provider Claims.
(a) Independent Claims Oversight. MedPartners shall appoint the Claims
----------------------------
Monitor, subject to the supervisory oversight of the Special Monitor-Examiner,
to assist MedPartners and the holders of Provider Claims to (i) determine the
amounts of the Provider Claims and advances by MPN to such holders and (ii)
resolve disputes related thereto. The Special Monitor-Examiner shall oversee the
activities of the Claims Monitor and MPN with respect to the Provider Claims. In
connection with the dispute resolution process with respect to the MPN Provider
Claims, MPN may exercise its rights under the Bankruptcy Code. Any Managed
Physician Practice Provider Claims not fully resolved in accordance with this
procedure shall be resolved through the ordinary course of adjudication under
the applicable agreements.
(b) MPN Bar Date. As soon as reasonably practicable after the
------------
Agreement Date, MPN shall file a motion with the Bankruptcy Court seeking to
establish a bar date of July 31, 1999 (or the first date thereafter as may be
ordered by the Bankruptcy Court) for the filing of all pre-petition Claims. All
objections to such pre-petition Claims shall be filed by October 31, 1999. As
soon as practicable, MPN shall file a motion with the Bankruptcy Court seeking
to establish a bar date of October 31, 1999 for all post-petition Claims with
dates of service before August 1, 1999 other than administrative expense
priority claims of professional persons against MPN. The Special Monitor-
Examiner may file a pleading in support of such motion. The parties shall agree
on the establishment of a subsequent bar date for services performed or goods
provided after August 1, 1999. Unless the Bankruptcy Order orders otherwise for
cause shown, the subsequent bar date shall be no later than November 30, 1999.
(c) Managed Physician Practice Bar Date. As soon as reasonably
-----------------------------------
practicable after the Agreement Date, MedPartners shall provide a notice to all
parties (including, without limitation, the Plans) known to MedPartners to have,
or who might reasonably assert, Managed Physician Practice Provider Claims to
establish a bar date of October 31, 1999 for the filing of all Claims against
the Managed Physician Practices and informing such holders that failure to file
Claims prior to such bar date will preclude satisfaction of such Claims pursuant
to the terms of this Agreement.
(d) Special Monitor-Examiner Supervision. The Special Monitor-Examiner
------------------------------------
shall supervise MPN and MedPartners' compliance with their obligations under
Section 3.5(b) to adjudicate timely and pay timely Provider Claims, and shall
supervise the Claims Monitor in the performance of its duties. Among his other
duties, the Special Monitor-Examiner shall review compliance with Section 3.5(b)
not less frequently than biweekly. In the event the Special Monitor-Examiner
determines that MPN and MedPartners are not in compliance with the obligations
to adjudicate timely and pay timely Provider Claims, he or she shall give prompt
written notice of that determination to MPN, MedPartners, the DOC and the
Creditors Committee. Upon receipt of such notice, MPN, with respect to MPN
Provider Claims, and MedPartners, with respect to Managed Physician Practice
Provider Claims, shall have five Business Days to initiate procedures to cure
any alleged failure to comply with its obligation to
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adjudicate timely, and three Business Days to cure any alleged failure to comply
with its obligation to pay timely. If, at the conclusion of the applicable
period, the Special Monitor-Examiner determines that MPN or MedPartners, as the
case may be, has not adequately commenced to cure the alleged failure, the
Special Monitor-Examiner, as his or her sole remedy, may initiate final and
binding arbitration pursuant to the provisions of Section 12, regarding such
alleged failure. If a Representative of one or more eligible Beneficiaries under
Section 15.14 makes written demand upon the Special Monitor-Examiner to make a
determination of non-compliance pursuant to this Section 3.8(d), and the Special
Monitor-Examiner fails to make such a determination within ten Business Days
following receipt of such notice or determines that there is compliance, then
such Representative may give written notice of such Beneficiaries' assertion of
an alleged failure to comply to MPN, MedPartners, the State and the Creditors
Committee. If, at the conclusion of the same five and three Business Day periods
following receipt of such notice to address such alleged non-compliance that
would apply following written notice by the Special Monitor-Examiner, such
Beneficiaries determine that MPN or MedPartners, as the case may be, has not
adequately commenced to cure the alleged failure, the Representative, as his,
her or its sole remedy, may initiate final and binding arbitration pursuant to
the provisions of Section 12 regarding such alleged failure.
3.9 Relinquishment of License of MPN. As soon as reasonably practicable
and subject to applicable provisions of the Bankruptcy Code and California
Health and Safety Code (S) 1399, MPN's health care service plan license shall be
surrendered when MPN no longer has institutional risk and when approved by DOC
and the Bankruptcy Court.
4. REPRESENTATIONS AND WARRANTIES OF MEDPARTNERS.
MedPartners represents and warrants as follows:
4.1 Organization. MedPartners is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and qualified
and licensed to do business in, and in good standing in, all states except where
the failure to be so licensed or qualified reasonably could be expected to
constitute a Material Adverse Change.
4.2 Due Authorization; No Conflict.
(a) The execution, delivery and performance by MedPartners of this
Agreement has been duly authorized by all necessary corporate action.
(b) The execution, delivery and performance by MedPartners of this
Agreement does not (i) violate any provision of federal, state or local law or
regulation applicable to MedPartners, the Governing Documents of MedPartners, or
any order, judgment or decree of any court or other Governmental Authority
binding on MedPartners; (ii) conflict with, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under any material
contractual obligation of MedPartners, or (iii) require any approval of
stockholders or any approval or consent of any Person under any material
contractual obligation of MedPartners, other than the consent of MedPartners'
lenders.
(c) Other than the consent of MedPartners' lenders, the execution,
delivery and performance by MedPartners of this Agreement does not require any
registration with,
22
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consent or approval of, or notice to, or other action with or by, any federal,
state, foreign, or other Governmental Authority or other Person.
(d) This Agreement is the legally valid and binding obligation of
MedPartners, enforceable against MedPartners in accordance with its terms,
except as enforcement may be limited by equitable principles or by bankruptcy,
insolvency, reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.
4.3 Letters from Experts. Attached hereto as Schedule 4.3 are true and
correct copies of the following:
(a) Letter, dated March 31, 1999, from Merrill Lynch with respect to
the valuation of MedPartners.
(b) Actuarial opinion, dated March 27, 1999, from David J. Bohmfalk,
F.S.A., M.A.A.A., consulting actuary with Ernst & Young, L.L.P.
5. REPRESENTATIONS AND WARRANTIES OF MPN.
MPN represents and warrants as follows:
5.1 Organization. MPN is duly organized and existing and in good standing
under the laws of the State of California and is qualified to do business in the
State of California and in no other state.
5.2 Due Authorization; No Conflict.
(a) The execution, delivery and performance by MPN of this Agreement
has been duly authorized by all necessary corporate action.
(b) The execution, delivery and performance by MPN of this Agreement
does not (i) violate any provision of federal, state or local law or regulation
applicable to MPN, the Governing Documents of MPN, or any order, judgment or
decree of any court or other Governmental Authority binding on MPN; (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any material contractual obligation of MPN, or
(iii) require any approval of stockholders or any approval or consent of any
Person under any material contractual obligation of MPN.
(c) Other than the consent of, and the approval of the Bankruptcy
Court and the approval of the court in the DOC Action, the execution, delivery
and performance by MPN of this Agreement does not require any registration with,
consent or approval of, or notice to, or other action with or by, any federal,
state, foreign, or other Governmental Authority or other Person.
(d) This Agreement is the legally valid and binding obligation of
MPN, enforceable against MPN, in accordance with its terms, except as
enforcement may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally.
23
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6. REPRESENTATIONS AND WARRANTIES OF THE STATE.
The DOC represents and warrants as follows:
6.1 Organization. The DOC is a department of the Agency. The DOC is duly
formed and validly existing under the laws of the State of California. The
Commissioner is the duly appointed and acting interim commissioner of the DOC.
6.2 Due Authorization. The execution, delivery and performance by the DOC
has been duly authorized by all necessary action.
7. AFFIRMATIVE COVENANTS.
7.1 Affirmative Covenants of MedPartners. MedPartners shall do all of the
following:
(a) Financial Statements, Reports. Deliver to the Special Monitor-
-----------------------------
Examiner or make available on EDGAR, promptly after they are filed with the
Securities and Exchange Commission, MedPartners' Form 10-Q Quarterly Reports,
Form 10-K Annual Reports, and Form 8-K Current Reports, and any other public
filings made by MedPartners with the Securities and Exchange Commission.
(b) Notice of Certain Events. Promptly notify the Special Monitor-
------------------------
Examiner of any event or circumstance that MedPartners reasonably believes will
result in a material adverse change for the California Operations after taking
into account the events contemplated in the Transition Plan.
(c) Asset Sales. Take such actions as are reasonably necessary
-----------
(subject to the business judgment rule) to sell the California Operations in the
time periods contemplated hereby, including MPN applying for and obtaining
approval by the Bankruptcy Court to the extent of its interests therein;
provided, however, that the failure of a sale to close within such time periods
shall not constitute a Default by MedPartners hereunder if such failure to close
is the result of the purchasers' actions or the failure of the Bankruptcy Court
to approve such sale. MedPartners shall timely consult with the Plans concerning
the purchaser including the adequacy of the purchasers' capitalization,
administrative capacity and business planning to allow such purchasers to
achieve profitability, provided that MedPartners shall retain ultimate
discretion with respect to decisions regarding the purchaser for, and
consummation of, any transaction. Any asset sale shall address the claims
processing procedure and Provider access for enrollees.
(d) Access to Information Regarding Claims Payments. Upon the
-----------------------------------------------
reasonable request of the Plans, MedPartners and MPN shall provide reasonable
on-site access to the information required by the contracts with the Plans to
enable the Plans to substantiate compliance with claims payment obligations and
to resolve Cap Deducts.
(e) Dismissal. Within three Business Days after the Effective Date,
---------
MedPartners shall file with the Bankruptcy Court a withdrawal, in accordance
with the Local Rules of the United States Bankruptcy Court for the Central
District of California, of MedPartner's Motion to Dismiss.
24
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(f) Examiner Oversight. Reasonably cooperate with the Special Monitor-
------------------
Examiner in the performance of his duties under this Agreement.
(g) Reports. Deliver to the Creditors Committee copies of the reports
-------
delivered pursuant to Sections 2.1(b)(v), 2.2(b)(iv), 7.1(a) and 7.1(b) and
copies of notices of Default delivered pursuant to Section 11.2 and notices,
pleadings and other filings delivered pursuant to Sections 11.3 and 11.4.
(h) Plan of Reorganization. Cause MPN to file in the Bankruptcy Case a
----------------------
plan of reorganization (the "Plan of Reorganization") and disclosure statement
consistent with this Agreement, except as provided in Section 15.14(e)(ii),
within ten Business Days after the later to occur of (i) the Effective Date and
(ii) the first pre-petition Claim bar date established pursuant to Section
3.8(b).
7.2 Affirmative Covenants of the State/Special Monitor-Examiner.
(a) Notice of Certain Events. The State shall notify MedPartners of
------------------------
any event or circumstances that the State reasonably believes would require it
to take action under any relevant provision of the Knox-Keene Act, Health and
Safety Code or the rules and regulations applicable to MPN.
(b) Asset Sales. The State shall, in good faith, cooperate with
-----------
MedPartners, MPN, and the Managed Physician Practices to facilitate the timely
consummation of the sales of the California Operations in the time periods and
in the manner contemplated hereby and in accordance with the requirements of
applicable law.
(c) Monitoring of Plans. In accordance with its authority under the Knox-
-------------------
Keene Act, the State shall monitor the actions of the Plans with respect to the
matters addressed herein and in any separate agreement among the Plans in
connection herewith.
(d) Letter of Credit. The Special Monitor-Examiner shall use any proceeds
----------------
received pursuant to an irrevocable letter of credit solely to fund payment of
finally adjudicated and valid Provider Claims and Allowed MPN Claims of
Consenting Providers. In the event of a draw under the Letter of Credit, the
proceeds of such draw shall be made available to holders of such Claims in
accordance with subparagraph (c) of the MPN Provider Release and the MPPP
Release even if the draw was triggered by nonpayment of an arbitration award.
All proceeds of any draw shall be allocated between holders of MPN Provider
Claims and Managed Physician Practice Provider Claims on the basis of the
Special Monitor-Examiner's determination of the respective estimated amount
remaining under the MedPartners Funding Commitment. The portion of the draw
allocated to MPN Provider Claims shall be deposited into the MPN California
Account. If all Provider Claims of MPN Providers or Managed Physician Practice
Providers are paid in full, any funds from such draw for such Providers shall be
reallocated to be held for the other group of Providers. Any amounts that are
drawn under the Letter of Credit by the Special Monitor-Examiner that are not
used to make payments on account of the MedPartners Funding Commitment shall be
returned to MedPartners after MedPartners Funding Commitment has been finally
satisfied in full. Any funds drawn under the Letter of Credit
25
<PAGE>
allocated to the Claims shall be held by the Special Monitor-Examiner in trust
until used as provided herein.
(e) Intentionally Left Blank.
(f) Reports. The State shall deliver to the Creditors Committee
-------
copies of the reports delivered pursuant to Section 7.2(a) and copies of notices
of Default delivered pursuant to Section 10.2 and notices, pleadings and other
filings delivered pursuant to Sections 10.3 and 10.4; provided, however, that
the failure of the State to provide such reports or notices, as the case may be,
shall not constitute a Default by the State hereunder and the Creditors
Committee shall have no recourse against the State therefor.
(g) Reports. The State shall deliver to the administrative agent
-------
for the lenders under the Credit Agreement in accordance with Section 14 copies
of the reports delivered pursuant to Section 7.2(a) and copies of notices of
Default delivered pursuant to Section 10.2 and notices, pleadings and other
filings delivered pursuant to Sections 10.3 and 10.4; provided, however, that
the failure of the State to provide such reports or notices, as the case may be,
shall not constitute a Default by the State hereunder and such lenders shall
have no recourse against the State therefor.
(h) State Release of Health and Safety Code Section 1371 for
--------------------------------------------------------
Consenting Plans. The State hereby agrees that with respect to Consenting
- ----------------
Plans, the State shall not seek to take or threaten to take any action against
such Plans as a result of the failure by MPN, the Managed Physician Practices,
their affiliates, management entities and management personnel to pay or
adjudicate claims in accordance with the Knox-Keene Act or other law or
regulation. The State's agreement to this provision shall (i) survive any breach
of this Agreement, provided the applicable Consenting Plan performs as
contemplated by this Agreement, and (ii) have no precedential effect in any
other case and is expressly limited to the facts and circumstances of this case.
8. NEGATIVE COVENANTS.
8.1 Negative Covenants of MedPartners. During the Term, except as
otherwise provided in this Agreement, MedPartners shall not file any litigation
against the Special Monitor-Examiner or the State with respect to the California
Operations without fifteen Business Days prior notice to the Special Monitor-
Examiner and the State.
8.2 Negative Covenants of the State. During the Term, except to the
extent necessary to safeguard the delivery or provision of health care services
as required by the Knox-Keene Act to MPN or Plan enrollees, and provided that
there is no Default by MPN or MedPartners under the Agreement, the State shall
not exercise or seek to exercise authority over any assets of MPN, except as
otherwise provided by this Agreement.
9. MUTUAL COVENANTS.
9.1 State Court Actions. On or before June 16, 1999, MedPartners shall
file a Dismissal without Prejudice, of the MedPartners' Action, and the State
shall file a Dismissal
26
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without Prejudice, of the DOC Action, and the State shall issue a Stay of the
Conservatorship Order, in the form attached hereto as Schedule 9.1.
9.2 Bankruptcy Court
(a) Examiner Order. On or before June 16, 1999, the Creditors
--------------
Committee shall make an Emergency Application for approval of the Stipulation
and appointment in the Bankruptcy Case of the Special Monitor-Examiner as an
examiner pursuant to Section 1104 of the Bankruptcy Code pursuant to which the
Special Monitor-Examiner shall be authorized to perform the functions of the
Special Monitor-Examiner set forth in the Stipulation and the Examiner Order
with respect to MPN and in this Agreement with respect to MPN and the California
Operations. The State will consent to the Emergency Application for approval of
the Stipulation and appointment of the Special Monitor-Examiner. Nothing in the
Examiner Order is intended, or shall be construed to constitute the occurrence
of any of the following events: (i) the entry of a judgment, decree or order by
a court having jurisdiction in the premises granting relief under the Bankruptcy
Code adjudicating MedPartners to be insolvent, or approving as properly filed a
petition seeking reorganization or liquidation of MedPartners under the
Bankruptcy Code or any similar applicable Federal or State law; (ii) the entry
of a judgment, decree or order by a court having jurisdiction in the premise for
the appointment of a receiver or liquidator or trustee or assignee in bankruptcy
or insolvency of MedPartners or of its property, or for the winding up or
liquidation of its affairs; or (iii) the filing by MedPartners of a petition for
relief under the Bankruptcy Code; the consent by MedPartners to the filing of a
bankruptcy proceeding against it; the filing by MedPartners of a petition or
answer or consent seeking reorganization or liquidation under the Bankruptcy
Code or any similar applicable Federal or State Law, or the consent by
MedPartners to the filing of any such petition; or the consent by MedPartners to
the appointment of a receiver or liquidator or trustee or assignee in bankruptcy
or insolvency of it or of its property; or the making by MedPartners of an
assignment for the benefit of creditors; or an admission by MedPartners of its
inability to pay its debts generally as they become due.
(b) Within three Business Days of the Amended Agreement Date, MPN
shall file a motion to approve the Agreement with the Bankruptcy Court. The
Special Monitor-Examiner shall file an appropriate pleading in support of such
motion.
9.3 Cooperation in Implementation of the Transition Plan. Subject to the
terms and conditions hereof, each of the parties will use all reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to implement this Agreement.
9.4 Agreement to Defend. In the event any claim, action, suit, proceeding
or investigation by any Person is commenced that questions the validity or
legality of this Agreement after the Effective Date or the transactions
contemplated hereby, the Special Monitor-Examiner, MPN and MedPartners will
notify the other and cooperate and use their reasonable best efforts to defend
against such claims, actions, suits, proceedings or investigations.
27
<PAGE>
10. DEFAULT BY MEDPARTNERS.
10.1 Default. Each of the following shall constitute a default (a
"Default") by MedPartners under this Agreement:
(a) Except as set forth in Section 10.1(b) or (c) below, the failure
of MedPartners to perform, in any material respect, the obligations required to
be performed by it under this Agreement; provided, however, that a determination
by the Special Monitor-Examiner under Section 3.8(d), or the initiation of any
arbitration by any Representative under Section 12, shall not constitute the
failure by MedPartners to perform its obligations hereunder, in any material
respect, but MedPartners' failure to pay the amount of any arbitration award
under Section 12 (including an award obtained pursuant to the procedure set
forth in Section 15.14) by reason of such determination or arbitration within
five Business Days of such award shall constitute a Default hereunder.
(b) The failure by MedPartners or MPN to comply with the provisions
of Sections 3.4(b) or the failure by MedPartners or MPN to permit the Special
Monitor-Examiner to exercise his or her authority under Section 2.1 or Section
2.2 above; or
(c) The use of Net Cash Proceeds from the sales of the California
Operations for any purpose other than to satisfy obligations in accordance with
this Agreement.
(d) For purposes of this Section 10, MedPartners shall not be deemed
to have failed to make a payment or to have satisfied any obligations, where
such failure would constitute a Default, during the period that MedPartners or
MPN, as applicable, is adjudicating in good faith the nature or amount of the
payment or obligation, provided that MedPartners shall fulfill the MedPartners
Funding Commitment in connection with any portion of any Provider Claim that is
not contested or subject to a setoff or recoupment asserted in good faith;
provided, however, to the extent any obligation of MedPartners under this
Agreement is contingent upon performance by any third party, including
satisfaction of any condition precedent to the effectiveness of this Agreement,
it shall not be a Default hereunder if MedPartners fails to complete such
obligation despite good faith efforts to do so, by reason of such third party's
non-performance.
10.2 Notice of Default. If the Special Monitor-Examiner or the State
believes that MedPartners is in Default, the Special Monitor-Examiner or the
State shall provide MedPartners with written notice of the alleged violation,
specifying the section of this Agreement that MedPartners has allegedly
violated, and specifically identifying the act, omission, event, occurrence,
incident, circumstance or other conduct of MedPartners that the Special Monitor-
Examiner or the State believe constitutes the Default. MedPartners shall have 20
Business Days in the case of a Default of the type set forth in Section 10.1(a)
and three Business Days in the case of a Default of the type set forth in
Section 10.1(b) or 10.1(c) to cure such Default. In the event the Default is not
cured after such period, the State may exercise the remedies set forth in
Section 10.3.
10.3 Application to State Court. In the event MedPartners does not cure
any alleged Default within the time period set forth in Section 10.2, either the
Special Monitor-Examiner or
28
<PAGE>
the State may file a motion with the Los Angeles Superior Court seeking a
judicial determination by the judge assigned to the case or the referee, if any,
assigned to the case as to whether a Default has occurred and remains uncured.
The expedited procedures pursuant to California Code of Civil Procedure Section
664.6 shall apply to such motion. Such motion may be brought on an ex parte
basis under and pursuant to the Los Angeles Superior Court Local Rules then in
effect provided that the moving party shall provide MedPartners three Business
Days' advance notice. The Court's ruling on such motion shall not be executable
as a money judgment until such time as the Court enters the stipulated judgment
provided for in Section 10.4, at which time the Court will be deemed to have
entered the final judgment in the action that is subject to the right of appeal
pursuant to Code of Civil Procedure, Section 904.1. Either party may appeal the
judicial determination provided that a bond, in the amount equal to two times
the amount in dispute, is posted.
10.4 Remedies. Upon a determination by the Los Angeles Superior Court
that a Default has occurred, the State may file the stipulated judgment in the
form attached hereto as Schedule 10.4 and may exercise all remedies relating
thereto, including but not limited to, authorizing the Special Monitor-Examiner
on behalf of the State to carry out the terms of this Agreement, exercising the
remedies available to a judgment creditor with respect to MedPartners' assets,
and pursuing any other remedies provided by law or equity.
11. DEFAULT BY THE STATE.
11.1 Default. The failure of the State to perform, in any material
respect, the obligations required to be performed by it under this Agreement
after twenty days written notice and opportunity to cure shall constitute a
default by the State ("Default"); provided, however, to the extent any
obligation of the State under this Agreement is contingent upon performance by
any third party, including satisfaction of any condition precedent to the
effectiveness of this Agreement, it shall not be a Default hereunder if the
State fails to complete such obligation despite good faith efforts to do so, by
reason of such third party's non-performance.
11.2 Notice of Default. If MedPartners or MPN believes that the State or
the Special Monitor-Examiner is in Default, MedPartners or MPN shall provide the
State and the Special Monitor-Examiner with written notice of the alleged
violation, specifying the section of this Agreement that the State or Special
Monitor-Examiner has allegedly violated, and specifically identifying the act,
omission, event, occurrence, incident, circumstance or other conduct of the
State or the Special Monitor-Examiner that MedPartners or MPN believes
constitutes the Default. In the event the Default is not cured after the cure
period, MedPartners or MPN may exercise the remedies set forth in Section 11.3.
11.3 Application to State Court. In the event the State or the Special
Monitor-Examiner does not cure any alleged Default within the time period set
forth in Section 11.2, MedPartners or MPN may file a motion with the Los Angeles
Superior Court seeking a judicial determination by the judge assigned to the
case or the referee, if any, assigned to the case as to whether a Default has
occurred and remains uncured. The expedited procedures pursuant to California
Code of Civil Procedure Section 664.6 shall apply to such motion. Such motion
may be brought on an ex parte basis under and pursuant to the Los Angeles
Superior Court local rules then in effect provided that the moving party shall
provide the State and the Special Monitor-
29
<PAGE>
Examiner three Business Days' advance notice. Any party may appeal the judicial
determination provided that a bond, in the amount equal to two times the amount
in dispute, is posted.
11.4 Remedies. Upon determination by the Los Angeles Superior Court that
a Default has occurred, MedPartners and MPN may exercise all remedies that they
may have at law or equity. Additionally, if the Default is a seizure of assets
of MPN or MedPartners with respect to the California Operations which is
determined to be either unlawful or is a Default under this Agreement, the
MedPartners Funding Commitment shall be reduced by an amount as determined by
the court equal to the impairment in MedPartners' ability to fulfill the
MedPartners Funding Commitment and all assets improperly seized shall be
returned to MedPartners or MPN, as the case may be.
12. ALTERNATIVE DISPUTE RESOLUTION.
12.1 Disputes. Any controversy, dispute, or claim in connection with, or
in relation to the interpretation or performance of Section 3.5(b) of the
Agreement shall be resolved by final and binding arbitration at the request of
any party, conducted in Los Angeles, California. Such arbitration shall be the
sole and exclusive remedy for adjudicating such controversy, dispute or claim.
The arbitrator shall determine the procedures to be followed in any arbitration
under this Agreement, which procedures shall be governed by the rules of the
American Arbitration Association unless inconsistent with this Section 12. The
arbitrator shall notice hearings at least five days in advance, shall permit
parties to brief issues, introduce documents, present oral testimony of
witnesses, cross-examine witnesses, and present opening and closing argument. To
the extent not otherwise provided in this Agreement, or by law, all other
matters relating to the governance of the arbitration shall be within the
arbitrator's discretion. As used in this Section 12, "party" means party to the
controversy, dispute, or claim.
12.2 Initiation of Arbitration. Any party may initiate arbitration by
giving the other party a written demand for arbitration pursuant to the notice
requirements of Section 14; provided, however, that the arbitration shall be
initiated within a reasonable time after the claim or dispute has arisen. Within
five Business Days of receipt of a demand for arbitration, the other party shall
serve a written response on the demanding party in accordance with Section 14.
The demand for arbitration shall contain a statement of the demanding party's
position as to the matter or matters in dispute, the amount of the claim, and
the remedy sought. The response shall contain a statement of the responding
party's positions as to the matter or matters in dispute, and any defenses the
responding party intends to assert in response to the demanding party's claim.
Additionally, the response shall state any cross-complaint the respondent
intends to assert in the arbitration against the initiating party, the cross-
complainant's position as to the matter or matters in dispute, the amount of the
claim, and the remedy sought. The party initiating the arbitration shall have
five Business Days to respond to the cross-claims.
12.3 Arbitrator. The arbitration shall be conducted and determined by a
sole arbitrator. The arbitrator shall be Justice Campbell Lucas, or if he is
unavailable, an individual selected by Justice Lucas, or if no individual is
selected by Justice Lucas within five Business Days, the arbitrator shall be
selected by agreement of the parties; if the parties cannot so agree within five
Business Days, then the arbitrator shall be selected by the Presiding Judge of
the Los Angeles Superior Court. Any party may request such judge to designate
the arbitrator.
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12.4 Costs of Arbitration; Attorneys' Fees. The costs of the arbitration
shall be shared equally by the parties. The prevailing party in the arbitration
proceeding and in any legal proceedings relating to the arbitration shall be
entitled to recover reasonable attorneys' fees and costs.
12.5 Timing.
(a) The parties desire a speedy resolution of any disputes that may
arise. To that end, the arbitrator will, on his or her appointment, consult with
the parties to discuss a reasonable hearing schedule.
(b) The arbitrator will use his or her best efforts to ensure that
the first day of hearing takes place within ten Business Days of the last
response served under Section 12.2. The arbitrator will schedule further
hearings as necessary and appropriate within the arbitrator's discretion.
(c) The arbitrator will use his or her best efforts to conclude the
hearings and render a written opinion and an award within 20 Business Days of
commencement of the first arbitration hearing. In no event will the arbitrator
render an award later than ten Business Days from the conclusion of the hearing,
unless otherwise agreed by the parties.
12.6 Determination of Arbitrable Issues. In the event of a dispute over
whether particular issues are arbitrable under this Agreement, the arbitrator,
and not the court, shall determine whether or not the arbitrator has
jurisdiction over such issues. The arbitrator's decision as to the arbitrator's
jurisdiction over issues is final and binding.
12.7 Sanctions. The arbitrator is empowered to grant sanctions for
dilatory conduct with respect to arbitration under this Agreement.
12.8 Judgments. Judgment on the award rendered by the arbitrator may be
entered in any State or Federal court, within California, having jurisdiction.
12.9 Failure to Appear. If a party fails or refuses to appear or
participate in the arbitration, or in any portion of the arbitration, after
having been given notice and opportunity to participate as provided in this
Agreement, the arbitration shall proceed. The arbitrator may render a final
award on the basis of the evidence presented by the participating party. An
award rendered under such circumstances is valid and enforceable as if all
parties had participated fully.
13. EFFECTIVE DATE; CONDITIONS PRECEDENT AND TERMINATION.
13.1 Effective Date. Except as otherwise provided herein, the Agreement
shall become effective (the "Effective Date") on the first day following the
satisfaction or waiver in writing by each of the parties of all of the following
conditions:
(a) Approval of the Agreement and the transactions contemplated
thereby by the requisite lenders under the Credit Agreement.
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(b) Execution by such of the following Plans of renegotiated
contracts as contemplated by the Transition Plan effective January 1, 1999 and
incorporating such Plans' agreements to pay retroactive premium adjustments due
thereunder to MPN in the aggregate amount of not less than Ten million dollars:
Aetna U.S. Healthcare, Foundation Health Systems, Inc. (including Health Net and
Foundation Health), Prudential Health Care Plans, Inc., United HealthCare of
California, Inc. and Wellpoint Health Networks (including Blue Cross of
California and California Care).
(c) Assumption by Plans constituting 95% of capitation amounts
payable to MPN for the month of May 1999 of institutional risk effective by
July 1, 1999. For purposes of this Agreement, the parties agree not to
characterize the legal implications of such assumption, other than the
assumption of institutional risk; provided, however, that (i) such assumption
shall not affect any Claim a Plan may have against MPN concerning damages
related to such assumption of institutional risk, and (ii) any obligations to
pay institutional capitation to MPN under the Plan Agreements or the Plan
Stipulation subsequent to the applicable date of assumption of institutional
risk shall have been terminated by order of the Bankruptcy Court prior to the
due date and the making of such payment.
(d) Authorization and approval by the Bankruptcy Court of MPN's
execution and performance of the Agreement. As used in this Section 13.1(d), the
date on which "Authorization and Approval by the Bankruptcy Court" occurs shall
mean the date on which the order of the Bankruptcy Court approving this
Agreement as it relates to MPN becomes a Final Order, unless the requirement of
finality is waived by the Special Monitor-Examiner, MPN, MedPartners, and the
Creditors Committee, in which case such date shall be the eleventh day following
the date on which the Bankruptcy Court enters an order approving this Agreement,
unless that order is subject to a stay pending appeal, in which case upon such
waiver of the date, shall be no earlier than the first Business Day after the
expiration of the stay.
(e) The Bankruptcy Court order approving this Agreement shall provide
that the parties hereto (and any parties claiming thereto) shall be prohibited
from using any funds deposited in the MPN California Account otherwise than in
accordance with the terms of this Agreement.
13.2 Failure of Conditions Precedent. This Agreement shall terminate and
the Stipulation for Stay shall be vacated if any of the following occur:
(a) Failure of the conditions precedent set forth in
Section 13.1(b)-(e) to have been satisfied or waived within 45 days from
the Amended Agreement Date; or
(b) Failure of the condition precedent set forth in Section 13.1(a)
to have been satisfied or waived by all parties within ten Business Days of
the Amended Agreement Date.
In the event this Agreement terminates pursuant to this Section 13.2, the
parties acknowledge that any and all of their positions existing prior to the
Agreement Date against each other shall be revived, including without limitation
all remedies of the State and all rights and defenses of MedPartners and MPN.
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13.3 Termination. This Agreement shall terminate at such time MedPartners
shall have satisfied MedPartners Funding Commitment.
14. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by registered or
certified mail (postage prepaid, return receipt requested), overnight courier,
or telefacsimile to the applicable party at the address set forth below:
If to MedPartners: MEDPARTNERS, INC.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
Attn: Chief Executive Officer
Fax No.: (205) 985-0636
and
Attn: General Counsel
Fax No.: (205) 982-4423
with copies to: JONES, DAY, REAVIS & POGUE
555 West Fifth Street, Suite 4600
Los Angeles, California 90013
Attn: Ross Stromberg, Esq.
Fax No.: (213) 243-2539
If to MPN: MEDPARTNERS NETWORK, INC.
5000 Airport Plaza Drive
Long Beach, California 90815
Attn: Bradley Karro
Fax No.: (562) 497-4050
If to the Special Monitor- OFFICE OF THE SPECIAL MONITOR-
Examiner EXAMINER
5000 Airport Plaza Drive
Long Beach, California 90815
Attn: Mark Abernathy
Fax No.: (562) 497-4050
with copies to: MILBANK, TWEED, HADLEY & MCCLOY LLP
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attn: Robert J. Moore, Esq.
Fax No.: (213) 892-4701
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with copies (until the DANNING, GILL, DIAMOND
later of Effective Date & KOLLITZ, a limited liability partnership
or the retention by MPN 2029 Century Park East, Third Floor
of replacement counsel Los Angeles, California 90067-2904
in accordance with the Attn: Richard K. Diamond, Esq.
approval of the Fax No.: (310) 277-5735
Bankruptcy Court):
If to the Commissioner: COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
980 9th Street, Suite 500
Sacramento, California 95814-2725
Attn: William Kenefick, Esq.
Acting Commissioner
Fax No.: (916) 322-5875
If to the DOC: DEPARTMENT OF CORPORATIONS
980 9th Street, Suite 500
Sacramento, California 95814-2725
Attn: Christopher Nuechterlein, Esq.
Fax No.: (916) 322-5875
with copies to: BUSINESS, TRANSPORTATION AND
HOUSING AGENCY
980 9th Street, Suite 2450
Sacramento, California 95814-2725
Attn: Donna May Campbell, Esq.
Fax No.: (916) 323-5440
MANATT, PHELPS & PHILLIPS, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attn: Nancy H. Wojtas, Esq.
Fax No.: (310) 312-4224
OFFICIAL COMMITTEE OF CREDITORS
HOLDING UNSECURED
CLAIMS IN THE BANKRUPTCY CASE
c/o LATHAM & WATKINS
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attn: Michael S. Lurey, Esq.
Fax No.: (213) 891-8763
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If to Lenders: NATIONSBANK, N.A.
Independence Center
101 North Tryon Street, 15th Floor
Charlotte, North Carolina 28255
Attn: Corporate Credit Services -
MedPartners
Fax No.: (704) 386-9923
with copies to: SHEARMAN & STERLING
599 Lexington Avenue
New York, New York 10022
Attn: William E. Hirschberg, Esq.
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 14, shall be
deemed received on the earlier of the date of actual receipt or three days after
the deposit thereof in the mail.
15. GENERAL PROVISIONS.
15.1 Time of the Essence. Time is of the essence with respect to the
performance of each of the parties' obligations hereunder.
15.2 Choice of Law. The validity of this agreement, the construction,
interpretation, and enforcement hereof and the rights of the parties hereto with
respect to all matters arising hereunder or related hereto shall be determined
under, governed by and construed in accordance with the laws of the State of
California.
15.3 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties.
15.4 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
15.5 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6 Amendments in Writing. This Agreement can only be amended by a writing
signed by all of the parties, subject to Section 15.11.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this
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Agreement by telefacsimile also shall deliver an original executed counterpart
of this Agreement but the failure to deliver an original executed counterpart
shall not affect the validity, enforceability, and binding effect of this
Agreement.
15.8 Integration. This Agreement reflects the entire understanding of the
parties with respect to the transactions contemplated hereby and shall not be
contradicted or qualified by any other agreement, oral or written, before the
date hereof.
15.9 Confidentiality.
(a) Confidential Information. As used in this Agreement, the term
------------------------
"Confidential Information" means and includes any and all confidential
information regarding MedPartners, its Affiliates other than MPN, or the Managed
Physician Practices that has been or may hereafter be provided or shown to the
State or any of its Representatives (as hereinafter defined) by MedPartners, any
of its Subsidiaries, Affiliates or the Managed Physician Practices or any of
their respective Representatives or is otherwise obtained from a review of
documents from MedPartners or any of its Subsidiaries, Affiliates or the Managed
Physician Practices irrespective of the form of the communication, and also
includes all notes, analysis, compilations, studies, summaries, and other
material prepared by MedPartners or its Representatives containing or based, in
whole or in part, on any information included in the foregoing. For purposes of
this Section 15.9, "Representatives" means directors, officers, employees,
agents, consultants, advisors, conservators, special monitors, examiners or
other representatives, including legal counsel, accountants and financial
advisors of a party.
(b) Nondisclosure. Confidential Information (a) will be kept
-------------
confidential by the State and the State shall use reasonable best efforts to
ensure that its Representatives comply with this Section 15.9 and (b) without
limiting the foregoing, will not be disclosed by the State or its
Representatives to any person except with the specific prior written consent of
MedPartners or except as expressly otherwise permitted by the terms of this
Agreement. The State may disclose Confidential Information to only those
Representatives who (i) reasonably require such material in connection with the
obligations under this Agreement, and (ii) are informed by the State of the
confidential nature of the Confidential Information and the obligations of this
Agreement. Neither the State nor its Representatives will use any of the
Confidential Information for any reason or purpose other than in connection with
this Agreement.
(c) Notification. If the State or its Representatives are requested to
------------
disclose any Confidential Information the State will promptly notify the party
furnishing such Confidential Information to permit it to seek a protective order
or take other appropriate action. Each party will reasonably cooperate in such
party's efforts to obtain a protective order or other reasonable assurance that
confidential treatment will be accorded such Confidential Information. If, in
the absence of a protective order, the party or Representatives are, in the
written opinion of its legal counsel, compelled as a matter of law to disclose
any such Confidential Information to a third party, such party may disclose to
the third party compelling disclosure only the part of such Information as is
required by law to be disclosed (in which case, prior to such disclosure, each
party will use reasonable efforts to advise and consult with the party
furnishing such Confidential Information and its counsel as to such disclosure
and the nature and wording of such disclosure) and each party will each use
reasonable efforts to obtain confidential treatment therefor.
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(d) Exceptions. None of the foregoing obligations and restrictions
apply to that part of the Confidential Information that the State demonstrates
(i) is or becomes generally available to the public other than as a result of a
disclosure by the State or its Representatives, provided that the source of such
information was not known by the State or its Representatives to be bound by a
confidentiality agreement with MedPartners or MPN, with respect to such
Confidential Information, or (ii) is available, or becomes available, to the
State on a non-confidential basis, including as a result of MedPartners, its
Affiliates, the Managed Physician Practices or MPN's filing of such information
with the Bankruptcy Court or Los Angeles Superior Court (other than under seal
or subject to similar protections), or submission of such information to the
Office of the United States Trustee.
Notwithstanding Section 15.9(d)(i) above, the State shall not continue to
disclose Confidential Information learned from a third party if MedPartners or
MPN notifies the State in writing that such information is the subject of a
Confidentiality Agreement between MedPartners or MPN and the party originally
disclosing such information to the State, or its Representatives.
Nothing herein shall in any way limit any right to obtain such Confidential
Information in any pending or future litigation, administrative, or other
adversarial proceeding (including arbitration or mediation).
15.10 Press Releases. Neither MedPartners, MPN nor the State or the Special
Monitor-Examiner shall issue any press release or other public statement with
respect to the execution of this Agreement and the contents hereof without
consulting with the other. MedPartners, MPN and the State will cooperate with
each other prior to issuing any press release or other public statements
regarding this Agreement or the transactions contemplated hereby; provided,
however, MedPartners shall not be required to provide the State with advance
copies or drafts of any documents it files with the Securities and Exchange
Commission or pursuant to applicable stock exchange rules or any press release
or public statement that MedPartners is required, based upon the advice of
counsel, to release under applicable law or stock exchange policy.
15.11 Actions by the State. Each of the Commissioner and the DOC shall act
collectively hereunder through the Commissioner. No exercise of remedies or
other actions hereunder shall be effective unless exercised by the Commissioner.
MedPartners and MPN may rely upon the actions of the Commissioner with respect
to any action of the State hereunder.
15.12 Consent to Jurisdiction. Any suit, including insolvency and
bankruptcy proceedings or other enforcement action relating to MPN or
MedPartners and this Agreement shall be tried and litigated in the state or
federal courts located in the county of Los Angeles, State of California;
provided, however, the Bankruptcy Court also shall have jurisdiction over any
action relating to MPN. Each party waives, to the extent permitted under
applicable law, any right it may have to assert the doctrine of forum non
conveniens or to object to venue to the extent any proceeding is brought in
accordance with this Section.
15.13 Plan and Provider Stipulations. This Agreement shall not in any
manner modify or amend or affect the Provider Stipulation or Plan Stipulation.
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15.14 Third Party Beneficiaries.
(a) Scope of Rights. This Agreement is for the benefit of the
following entities to the extent provided herein and subject to the limitations
and requirements of this Section:
(1) Holders of MPN Provider Claims to the extent of seeking to
enforce adjudication and payment of their Claims under Section 3.5(b);
(2) Holders of Managed Physician Practice Provider Claims to
the extent of seeking to enforce adjudication and payment of their Claims under
Section 3.5(b);
(3) The Plans to seek an order requiring a party to
specifically perform its obligations under this Agreement; and
(4) The Creditors Committee to seek an order requiring a party
to specifically perform its obligations under this Agreement (each individually,
a "Beneficiary," and collectively, the "Beneficiaries").
(b) Jurisdiction and Representative. Any action under this Section
-------------------------------
15.14 against MedPartners may only be brought on behalf of one or more
Beneficiaries by a representative of such Beneficiary or group of Beneficiaries
in the Los Angeles Superior Court, or, with respect to MPN, the Bankruptcy
Court; provided, however, that in the event any Beneficiary asserts that
MedPartners or MPN has violated Section 3.5(b), its sole remedy shall be
arbitration pursuant to Section 12. The representative in any such action can be
any of the following: (i) the Special Monitor-Examiner, (ii) one or more MPN
Provider Claim Beneficiaries as designated by the group, (iii) one or more
Managed Physician Practice Provider Claim Beneficiaries as designated by the
group, (iv) with respect to Beneficiaries holding Managed Physician Practice
Provider Claims, a subcommittee of the Creditors Committee representing such
Beneficiaries, (v) with respect to Beneficiaries holding MPN Provider Claims, a
subcommittee of the Creditors Committee representing such Beneficiaries, (vi)
the Creditors Committee, or (vii) a Plan with respect to its rights under
Section 15.14(a)(3) (each, a "Representative").
(c) Threshold for Enforcement. An action to enforce any right granted
-------------------------
to a Representative in the following circumstances: (i) physician claimants who
are eligible Beneficiaries holding in aggregate not less than $600,000 of non-
adjudicated Managed Physician Practice Provider Claims; (ii) physician claimants
who are eligible Beneficiaries holding in aggregate not less than $300,000 of
finally adjudicated Managed Physician Practice Provider Claims; (iii) non-
physician claimants who are eligible Beneficiaries holding in aggregate not less
than $5 million in non-adjudicated Provider Claims; (iv) non-physician claimants
who are eligible Beneficiaries holding an aggregate not less than $5 million in,
with respect to the Managed Physician Practices, finally adjudicated and
liquidated Managed Physician Practice Provider Claims and, with respect to MPN,
MPN Provider Claims that have become Allowed MPN Claims; (v) three or more Plans
with respect to their rights under Section 15.14(a)(3). Notwithstanding the
foregoing, with respect to eligible Beneficiaries who hold pre-petition MPN
Provider Claims, no such
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enforcement action may be commenced or maintained until the earlier to occur of:
(i) the effective date of a confirmed plan of reorganization for MPN in the
Bankruptcy Case, or (ii) November 30, 1999.
(d) Notice. Prior to bringing an action, the Representative shall give
------
notice of intent to sue to MedPartners, MPN, the Creditors Committee and the
Special Monitor-Examiner. Such notice shall provide the name of each eligible
Beneficiary within the group and the amount of each such Beneficiary's Provider
Claim or the provision of the Agreement that such Representative is seeking to
enforce. MedPartners and/or MPN, as the case may be, shall have ten Business
Days after receipt of such notice to cause such Provider Claims to be paid or to
comply with the Agreement. If payment or other cure is not made during such cure
period, the Representative may proceed with filing the action or initiating the
arbitration, as the case may be.
(e) Limitation on Rights. The benefits conferred to Beneficiaries
--------------------
pursuant to this Section 15.14 shall be subject to the following provisions:
(i) Notwithstanding any other provision of this Agreement to
the contrary, any Plan that has made a loan to MedPartners or any purchaser of
the assets of any of MedPartners Managed Physician Practices shall not have any
third party beneficiary rights under this Agreement to pursue any claim relating
to such loan .
(ii) With respect to the rights and benefits conferred to the
holders of MPN Provider Claims pursuant to this Section 15.14, such rights and
benefits may be modified, waived, terminated or released pursuant to a confirmed
and effective plan of reorganization for MPN in the Bankruptcy Case under which
(1) the holders of MPN Provider Claims are placed in a separate class, and (2)
such class votes to accept the Plan by the required majorities in number and
amount in Section 1126 of the Bankruptcy Code, in which event the rights of the
holders of MPN Provider Claims with respect to Allowed MPN Claims shall be as
set forth in such plan and the order confirming such plan.
(iii) Neither the expedited procedures provided for in Section
10.3 hereof nor the provision for stipulated judgment shall apply to any action
brought by or on behalf of one or more Beneficiaries under this Section 15.14
unless the Beneficiary is acting as the assignee or designee of the State.
15.15 Exhibits or Schedules. If and to the extent that any provisions of
any document or agreement incorporated herein shall conflict with any of the
express terms and provisions of this Agreement, the terms and provisions of this
Agreement shall control the rights and obligations of the parties hereto.
15.16 Attorneys' Fees. In the event of any dispute between the parties
arising out of this Agreement, the prevailing party shall be entitled to recover
its attorneys' fees and costs.
15.17 Related Agreements. Additional documents implementing this Agreement
are necessary, including in the case of MPN the Plan of Reorganization, and in
the case of MPN and the Managed Physician Practices an additional agreement (the
"Supplemental Plan Agreement") that shall govern certain rights and obligations
of MPN, MedPartners, those Managed Physician Practices that elect to receive the
benefits of this Agreement by executing the Supplemental Plan
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Agreement (each such Managed Physician Practice, a "Consenting MPP"), the direct
and indirect subsidiaries of MedPartners which provide management of the non-
medical operations of the Managed Physician Practices, and those Plans that
elect to receive the benefits of this Agreement by executing the Supplemental
Plan Agreement (each such Plan, a "Consenting Plan"; together with MPN,
MedPartners, the Consenting MPPs and such subsidiaries, the "Supplemental Plan
Agreement Parties"). MedPartners and such subsidiaries, as appropriate, will use
their best efforts to cause the Managed Physician Practices to become Consenting
MPPs. The Supplemental Plan Agreement shall be limited to the California
Operations and shall include as covenants each of the provisions set forth below
in this Section 15.17 regarding certain aspects of the Plan of Reorganization,
certain waivers, releases and subordinations affecting Claims of the
Supplemental Plan Agreement Parties, and certain other matters, all of which are
deemed to be material to the performance by MPN and MedPartners of their
obligations under this Agreement, and each of which shall be deemed material to
the agreement by any Supplemental Plan Agreement Party to grant such waivers,
releases or subordinations.
(a) Each Consenting Plan shall support confirmation and implementation
of the Plan of Reorganization; provided, however, that:
(i) The obligations of a Consenting Plan which is a member of
the Creditors Committee regarding this Section 15.17(a) shall be subject to such
Plan's fiduciary duties as such a member, exercised reasonably and in good
faith, and such Consenting Plans' obligation to support the Plan of
Reorganization shall be effective when the Creditors Committee votes by a
requisite majority vote not to object to the Plan of Reorganization;
(ii) No Consenting Plan shall be required to support a plan of
reorganization that contains terms which are materially adverse to the
Consenting Plans other than as set forth in this Agreement, the Supplemental
Plan Agreement, or as otherwise agreed to by a Consenting Plan;
(iii) The Consenting Plans' obligations to support the Plan of
Reorganization are contingent upon confirmation of such Plan of Reorganization
by January 31, 2000 (provided further, however, that a failure to confirm the
Plan of Reorganization by such date shall not excuse compliance with this
provision if the delay is attributable to the Consenting Plans).
(iv) The Consenting Plans, the Creditors Committee, the Special
Monitor-Examiner, MPN and MedPartners shall meet and confer in an effort to
agree upon and propose an appropriate minimum number of Providers and Plans who
must become Consenting Providers and Consenting Plans for the waiver, release,
subordination and other provisions of the Supplemental Plan Agreement to be
enforceable, such thresholds to be set at levels that assure that Consenting
Providers and Consenting Plans, as well as the parties to this Agreement,
receive, to the greatest extent practicable, the reasonable benefit of their
bargain.
(b) Except with respect to a Consenting Provider concerning its
Provider Claim, each Consenting Provider, each Consenting Plan, each Consenting
MPP, MedPartners and MPN shall agree (i) not to pursue any Claims which,
pursuant to the terms of this Agreement, the Plan of Reorganization or the
Supplemental Plan Agreement are waived,
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released or subordinated, until (x) the effectiveness of such waiver, release or
subordination, or (y) a Default under this Agreement, the Plan of Reorganization
or the Supplemental Plan Agreement, as applicable; and (ii) to toll all
applicable statutes of limitations as to any Claims which, pursuant to this
Agreement, the Plan of Reorganization, or the Supplemental Plan Agreement, are
subject to waiver, release or subordination in accordance with the terms thereof
until ninety days after the termination of the standstill referred to in (i)
above. Notwithstanding anything to the contrary, nothing herein shall stay or
restrain the holder of a Claim against a Managed Physician Practice from
pursuing such Claim against the Managed Physician Practice.
(c) The Plan of Reorganization, in the case of MPN, and the
Supplemental Plan Agreement, in the case of MPN and the Managed Physician
Practices, shall provide that to receive the benefits of this Agreement, each
holder of a Provider Claim other than a Plan shall be required to sign a MPN
Provider Release or a MPPP Release, or both Releases, as applicable. In the case
of a Plan, the Plan shall sign a release with respect to a Provider Claim held
by a Plan in such form as is agreed upon in the Supplemental Plan Agreement.
(d) In connection with the Plan of Reorganization, each Consenting
Plan shall subordinate its MPN Plan Subordinated Claims to, and only to, the MPN
Provider Claims held by Consenting MPN Providers and the Plan Preserved Claims
against MPN held by Consenting Plans. Any distribution on account of the MPN
Plan Subordinated Claims shall be assigned for the benefit of Consenting
Providers on account of their MPN Provider Claims which become Allowed MPN
Claims in such amount as is necessary to fulfill the MedPartners Funding
Commitment on account of such Allowed MPN Claims and, as to any excess, to the
MedPartners California Account. The MPN Plan Subordinated Claims include, by way
of example and not limitation: (u) all Claims asserted by a Consenting Plan
against MPN for prospective damages (including lost profits and costs incurred
in recontracting with other Providers) arising as a consequence of (i) the
failure to perform for the full remaining term under a Health Care Services
Agreement between MPN and such Plan as a consequence of the sale of practice
assets of a Managed Physician Practice or closure of a Managed Physician
Practice or clinic thereof (including pre-Petition Date and post-Petition Date
sales or closures), (ii) the failure by MPN to assume in the Bankruptcy Case any
lease or executory contract relating to the post-Petition Date sale or closure
of a Managed Physician Practice or clinic thereof, (iii) increased capitation or
fee for service expenses incurred by a Consenting Plan as a result of a pre-
Petition Date or post-Petition Date clinic closure through the remaining term of
the Health Care Services Agreement, or (iv) the transfer of institutional risk
to such Consenting Plan, (v) all Claims relating to a Health Care Services
Agreement arising from the failure by MedPartners to sell the practice assets of
Mullikin Practice Group or Southern California Medical Corporation or resulting
from a closure thereof; (w) all Claims resulting from MPN's rejection and the
Managed Physician Practice's termination of a Consenting Plan's Health Care
Services Agreements; (x) all Claims for damages under a Health Care Services
Agreement (including consequential, damage to reputation, special, incidental or
indirect damages, loss of profits or income, exemplary or punitive) by a
Consenting Plan against MPN or the Managed Physician Practices that did not
result in actual pecuniary losses to such Consenting Plan; (y) Claims incurred
as a result of a Consenting Plan moving members from a Managed Physician
Practice or MPN; and (z) all Claims arising from the tortious acts or omissions
of MPN or the Managed Physician Practices. Notwithstanding the foregoing, such
subordinated Claims shall not include Claims which are Plan Preserved Claims
arising from Health Care Services arranged for by MPN and rendered
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prior to the sale, closure or transfer, and the out-of-pocket expenses relating
to processing of such Claims.
(e) Effective upon the satisfaction of the MedPartners Funding
Commitment, each Consenting Plan shall waive and release all Claims against
MedPartners, any affiliate of MedPartners (other than MPN) and the Consenting
MPPs related to the California Operations: (w) which are alleged to exist solely
on the basis that MedPartners or an affiliate of MedPartners (other than MPN) is
liable on account of alter ego, piercing the corporate veil, respondeat
superior, principal-agent, substantive consolidation or similar theories of
vicarious, nonconsensual liability by, through or on account of MPN's or a
Managed Physician Practice's liability to the Consenting Plan; (x) Claims for
damages (including consequential, damage to reputation, special, incidental or
indirect damages, loss of profits or income, exemplary or punitive) that did not
result in actual pecuniary losses to such Consenting Plan; and (y) sounding in
tort. Notwithstanding the foregoing, such waiver and release shall not apply to
any Claims arising under a direct contract, excluding a Health Care Services
Agreement, but including, without limitation (i) any lease, surety arrangement
or guaranty, and (ii) any guaranty of a Health Care Services Agreement to which
MedPartners or an affiliate of MedPartners (other than MPN) or a Managed
Physician Practice is a party.
(f) In connection with the Plan of Reorganization, and otherwise with
respect to the Managed Physician Practices, MPN and the Consenting MPPs shall
each waive and release all Claims against Consenting Plans except for MPN
Preserved Claims and Managed Physician Practice Preserved Claims; provided,
however, that any Claims waived and released pursuant to this section shall be
waived and released for purposes of (i) seeking affirmative relief, or (ii)
defense of or setoff against MPN Plan Preserved Claims and Managed Physician
Practice Plan Preserved Claims, as applicable, and shall only be preserved for
purposes of defense of or setoff against the MPN Plan Subordinated Claims and
the Managed Physician Practice Plan Subordinated Claims, as applicable. Claims
waived by MPN or a Managed Physician Practice include, by way of example and not
limitation: (w) Claims related to the recovery of capitation fees or other
amounts that would be due after the dates of the sale of the practice assets of
a Managed Physician Practice or the rejection of an agreement by MPN; (x) Claims
related to the sale or closure of a Managed Physician Practice or in connection
with the movement of members from a Managed Physician Practice; (y) Claims for
damages (including consequential, damage to reputation, special, incidental or
indirect damages, loss of profits or income, exemplary or punitive) against a
Consenting Plan that did not result in actual pecuniary losses to MPN or an MPP;
and (z) Claims arising from the tortious acts or omissions of the Consenting
Plans.
(g) At such time as a Consenting Plan waives and releases all Claims
identified in Section 15.17(e), MedPartners and its affiliates (other than MPN)
and the Consenting MPPs shall waive and release all Claims against each
Consenting Plan related to the California Operations: (y) Claims for damages
(including consequential, damage to reputation, special, incidental or indirect
damages, loss of profits or income, exemplary or punitive) that did not result
in actual pecuniary losses to MedPartners or its affiliates (other than MPN);
and (z) sounding in tort. Notwithstanding the foregoing, such waiver and release
shall not apply to any Claims arising under a direct contract, excluding a
Health Care Services Agreement, but
42
<PAGE>
including, without limitation (i) any lease, surety arrangement or guaranty, and
(ii) any guaranty of a Health Care Services Agreement to which a Consenting Plan
is a party.
(h) MPN shall agree that with respect to the Claims against a
Consenting Plan for allegedly improper, excessive or wrongful capitation
deductions taken by such Plan that allegedly arose out of an improper, excessive
or wrongful payment to a Provider, it shall first object to the Claim of any
Provider holding a Provider Claim and assert the offset in defense to that
portion of an MPN Provider Claim that becomes an Allowed MPN Claim to the
fullest extent available as an offset, and prosecute the objection to a final
resolution or compromise. In the event of a compromise with an MPN Provider,
however, the balance of the setoff not recovered or set off against the Provider
may not be recovered from a Consenting Plan. MedPartners or a Consenting MPP
shall agree that with respect to the Claims against a Consenting Plan for
allegedly improper, excessive or wrongful capitation deductions taken by such
Plan that allegedly arose out of an improper, excessive or wrongful payment to a
Provider, it shall contest the claim of any Provider holding a Provider Claim to
the fullest extent available as an offset through the conclusion of the final
adjudication or compromise thereof. In the event of a compromise with a Managed
Physician Practice Provider, however, the balance of the set off not revived or
set off against such Provider may not be recovered from a Consenting Plan. Any
amount so collected from Providers by offset or otherwise shall be deposited in
the MPN California Account or the MedPartners California Account, as the case
may be. To the extent such Consenting Provider has repaid such overpayments to a
Consenting Plan or such offset is not otherwise obtained from the Consenting
Provider, then MPN and the affected Managed Physician Practice may pursue such
Claims against the Consenting Plan and, in that case, MPN or the affected
Managed Physician Practice, as the case may be, and the Consenting Plan shall
cooperate in good faith to promptly settle and satisfy such Claim; and, if it
cannot be settled, the parties to the dispute agree to resolve such dispute by
arbitration pursuant to a process to be set forth in the Plan of Reorganization
and the Supplemental Plan Agreement. As a part of such settlement or
arbitration, MPN or the affected Managed Physician Practice, as the case may be,
shall assign to the Consenting Plan any Claims against the Consenting Provider
on whose account the capitation payment was made.
(i) No waiver or subordination of any Claim by any Consenting Plan,
Consenting Provider, MPN, Consenting MPP, MedPartners or any affiliate, nor such
entity's participation in this Agreement, will impair the ability to recover on
account of any Claim by any of the foregoing entities against any other of the
foregoing entities that is not waived, released or subordinated pursuant to the
terms of this Agreement or the Supplemental Plan Agreement.
(j) Each Consenting Provider shall have offered each Consenting Plan
the opportunity to assume institutional risk pursuant to this Agreement through
the earlier of (i) December 31, 1999 or (ii) the expiration of the applicable
Consenting Provider's contract with MPN, pursuant to economic terms no less
favorable than MPN received from such applicable Consenting Provider immediately
prior to the transfer of such institutional risk to the Consenting Plan.
(k) Each entity that purchases or acquires, directly or indirectly, an
interest in the practice assets of a Managed Physician Practice shall have
offered (or shall have used its best efforts to see that a Managed Physician
Practice shall offer) to each Consenting Plan the
43
<PAGE>
opportunity to obtain covered services under a Health Care Services Agreement
through the earlier of (i) December 31, 1999 or (ii) the expiration of the
applicable Provider Contract with MPN, pursuant to economic terms that are no
less favorable than MPN received from such Managed Physician Practice
immediately prior to the sale of its practice assets by MedPartners.
(l) Prior to the consummation of a sale or transfer of the practice
assets of a Managed Physician Practice, or the issuance of a notice of intent to
close (pursuant to Section 3.5(e)) a Managed Physician Practice, each Consenting
Plan shall satisfy those terms set forth in Section 13 of the Plan Stipulation
concerning moving of Plan enrollees, subject to the satisfaction of those terms
and conditions set forth in Sections 8, 9, 18 and 20 of the Plan Stipulation in
the form approved by the Court as of May 2, 1999, without reference to any
subsequent amendments or modifications thereto.
(m) MedPartners, the Consenting MPPs and their affiliates shall
subordinate to, and only to, the MPN Provider Claims held by Consenting
Providers, all of their Claims against the bankruptcy estate of MPN including,
without limitation, any Claims MedPartners may have to receive any amounts due
under the Management Agreement on or prior to the Petition Date by reason of the
rejection in the Bankruptcy Case of the Management Agreement or otherwise.
(n) The Plan of Reorganization for MPN shall provide that upon the
full and final satisfaction of the MedPartners Funding Commitment, MPN releases
MedPartners and its affiliates from any and all claims, liabilities, actions and
causes of action arising prior to the satisfaction of the MedPartners Funding
Commitment.
(o) Each Supplemental Plan Agreement Party reserves all rights with
respect to counterclaims, cross-complaints, setoffs, recoupments and other
defenses not otherwise waived, released or subordinated as to and up to the
amount of any Claim of such Supplemental Plan Agreement Party not waived by
reason of this Section 15.17. In addition, notwithstanding anything herein to
the contrary, each Supplemental Plan Agreement Party shall reserve as a defense
to recovery of any Claim not waived pursuant to the terms hereof, that the acts
of the Plans, or the acts of MedPartners, MPN, the Managed Physician Practices
or the affiliates thereof, as the case may be, were reasonable responses to
breaches of the applicable agreements by the other party or parties, and the
other party or parties to the agreement may dispute the validity of the defense,
but not the right to assert the defense.
(p) The Plan of Reorganization and the Supplemental Plan Agreement
shall contain other appropriate terms and conditions, including appropriate
remedies of the parties thereto, such as specific performance. Any breach of or
default under the Supplemental Plan Agreement shall not be a cross default of
this Agreement.
15.18 Representation by Counsel; Drafts; Interpretation. The parties each
acknowledge that each party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of law, including, but not limited to, Section
1654 of the California Civil Code, or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement against the party
that drafted it has no application and is expressly waived. In addition, the
parties
44
<PAGE>
acknowledge that there have been a number of drafts of this Agreement. The
presence, absence, inclusion or deletion of any provision in any prior draft
shall not be evidence of the intent of the parties. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect the intent of
the parties.
15.19 Waiver of Defenses.
MedPartners hereby waives and agrees not to assert or take advantage of:
(a) any defense to its obligations hereunder by reason of the modification of
the time, manner or terms of payment of any Provider Claim, pursuant to or by
reason of the terms of this Agreement or with the consent of MPN or the Managed
Physician Practices or (b) any other forbearance by any Provider as applicable,
provided each Provider Claim is otherwise eligible for payment under the
MedPartners Funding Commitment and Section 3.5.
15.20 Further Assurances. Each of the parties and the Beneficiaries agree
to cooperate with each, take such acts, and negotiate and execute any additional
agreements, including, without limitation any amendments to this Agreement,
which are reasonably necessary to carry out and effectuate the transactions and
agreements contemplated in this Agreement.
16. RELEASE.
16.1 Release. Upon the full and final satisfaction of the obligations set
forth in this Agreement by MPN and MedPartners, MPN and MedPartners and their
assigns (and all past, present and future successors, beneficiaries,
representatives, its businesses, companies, corporations, partners, business
associates, affiliated businesses, parent businesses, associated businesses, co-
owned businesses, stockholders, directors, employees, agents, heirs, legatees,
executors, administrators, legal counsel and insurers) on the one hand and the
State or its representatives (including, but not limited to, all past, present
and future administrators, officials, directors, officers, employees, agents,
consultants, advisors, conservators, special monitors, examiners, legal counsel,
accountants, financial advisors, whether retained directly or indirectly on
behalf of the State or its representatives) and their assigns, heirs, legatees,
or executors, on the other hand, do hereby fully and forever release and
discharge the other for and from all manner of action or causes of action in law
or in equity, suits, liabilities, liens, contracts, agreements, promises,
demands, affirmative relief or offset, debts, claims, damages, expenses, costs,
causes or demands of every nature, kind and descriptions whatsoever, or anything
whatsoever, known or unknown, fixed or contingent, which they now have or may
now have against each other, or which they may hereafter have by reason of any
matter whatsoever arising prior to the Agreement Date or arising out of or
related to the State Actions. Notwithstanding the above, this Section shall not
act as a release between MPN and MedPartners and their assigns on the one hand,
and any Beneficiary or its representatives and assigns, on the other hand.
16.2 Waiver. The parties hereto acknowledge that they have been advised by
legal counsel and are familiar with the provisions of California Civil Code
(S) 1542, which provides:
A general release does not extend to claims which the creditor does
not know or expect to exist in his favor at the time of the executing
45
<PAGE>
of the release, which if known by him, must have materially affected
his settlement with the debtor.
Each party hereto hereby expressly waives all rights each of them may
have under Civil Code (S) 1542, as well as under any other statute or common law
principles of similar effect relating to the claims released
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Los Angeles, California.
MEDPARTNERS, INC.,
a Delaware corporation
By /s/ E. Mac Crawford
---------------------------------
E. Mac Crawford
Title: Chief Executive Officer
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By /s/ Bradley S. Karro
---------------------------------
Bradley S. Karro
Title: President
COMMISSIONER OF THE
DEPARTMENT OF CORPORATIONS
By: /s/ William Kenefick
---------------------------------
William Kenefick
Title: Acting Commissioner of the
Department of Corporations
46
<PAGE>
DEPARTMENT OF CORPORATIONS
By: /s/ William Kenefick
William Kenefick
Title: Acting Commissioner of the
Department of Corporations
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By: /s/ J. Mark Abernathy
Title: J. Mark Abernathy,
as Special Monitor-Examiner
47
<PAGE>
Schedule 3.1
------------
Elements of Transition Plan Not Addressed in Agreement
<PAGE>
Schedule 3.2
------------
Form of Amendment to Management Agreement
<PAGE>
Schedule 3.4(a)
---------------
Disposition of the California Operations
<PAGE>
Schedule 3.6
------------
Letter of Credit
<PAGE>
Schedule 4.3
------------
Letters from Experts
<PAGE>
Schedule 9.1
------------
Stipulation for Stay
<PAGE>
Schedule 9.2
------------
Stipulation
<PAGE>
Schedule 10.4
-------------
Stipulated Judgment
<PAGE>
EXHIBIT 2.2
AMENDED NO.1 TO THE AMENDED AND
-------------------------------
RESTATED OPERATIONS AND SETTLEMENT AGREEMENT
--------------------------------------------
This Amendment No. 1 (this "Amendment") to the Amended and
Restated Operations and Settlement Agreement (the "Agreement") is entered into
as of July 31, 1999, among the Commissioner of the Department of Corporations of
the State of California (the "Commissioner" acting for himself and the
Department of Corporations of the State of California (collectively, the
"State")), J. Mark Abernathy, as Special Monitor-Examiner, MedPartners, Inc., a
Delaware corporation, and its successors and assigns ("MedPartners") and
MedPartners Provider Network, Inc, a California corporation ("MPN"), as a debtor
and debtor in possession in the Bankruptcy Case. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the Agreement.
RECITALS
--------
WHEREAS, the parties entered into the Agreement as of June 16,
1999; and
WHEREAS, the parties desire to allow for additional time for
implementation of the Agreement to be effected.
NOW THEREFORE, in consideration of the mutual covenant and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
AGREEMENT
---------
Section 1. Section 3.5(b)(1) is amended by deleting the
----------
language after the semicolon and inserting in its place the following:
provided, however, that MedPartners shall have mailed or
otherwise transmitted the MPPP Release to each holder of a
Managed Physician Practice Provider Claim within three Business
Days after MedPartners receives the approval by the Creditors
Committee of the form of the MPPP Release.
Section 2. Section 13.2 is amended to read as follows:
----------
13.2 Failure of Conditions Precedent. This Agreement
shall terminate if the conditions precedent set forth in Section
13.1 have not been satisfied or waived by all parties by August
31, 1999. In the event this Agreement terminates pursuant to
this Section 13.2, the parties acknowledge that any and all of
their positions existing prior to the Agreement Date against
each other shall be revived,
<PAGE>
including without limitation all remedies of the State and all rights
and defenses of MedPartners and MPN.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the dated first above written.
MEDPARTNERS, INC.
a Delaware corporation
By /s/ E. Mac Crawford
-------------------------------
E. Mac Crawford
Title: Chief Executive Officer
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By /s/ Bradley S. Karro
-------------------------------
Bradley S. Karro
Title: President
COMMISSIONER OF THE DEPARTMENT OF
CORPORATIONS
By /s/ William Kenefick
-------------------------------
William Kenefick
Title: Acting Commissioner of the Department
of Corporations
J.MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By /s/ J. Mark Abernathy
-------------------------------
Title: J. Mark Abernathy,
as Special Monitor-Examiner
-2-
<PAGE>
EXECUTION COPY
--------------
AMENDMENT NO. 7 TO THE LOAN DOCUMENTS
AMENDMENT dated as of June 29, 1999 to the Amended and Restated Credit
Agreement dated as of June 9, 1998 (as amended and otherwise modified by
Amendment and Waiver No. 1 to the Loan Documents dated as of December 4, 1998,
Amendment No. 2 to the Loan Documents dated as of January 13, 1999, Amendment
No. 3 to the Loan Documents dated as of February 9, 1999, Amendment and Waiver
No. 4 to the Loan Documents dated as of March 18, 1999, Amendment and Waiver No.
5 to the Loan Documents dated as of April 1, 1999 and Amendment No. 6 to the
Loan Documents dated as of April 14, 1999, the "Credit Agreement") among
MedPartners, Inc., a Delaware corporation (the "Borrower"), the Lenders party
thereto, NationsBank, N.A., as the Initial Issuing Bank and the Swing Line Bank
thereunder, Credit Lyonnais New York Branch, The First National Bank of Chicago
and Morgan Guaranty Trust Company of New York, as the Syndication Agents
therefor, Banc of America Securities LLC (formerly NationsBanc Montgomery
Securities LLC), as the Arranger therefor, and NationsBank, N.A., as the
Administrative Agent for the Lender Parties thereunder. Capitalized terms not
otherwise defined in this Amendment have the same meanings as specified therefor
in the Credit Agreement.
PRELIMINARY STATEMENTS
(1) The Borrower has requested that the Lender Parties agree to amend
the Credit Agreement in order, among other things, (a) to permit the Borrower to
dispose of MPN and the California Property and Assets and to resolve all of its
Obligations related to the California Subsidiaries in an orderly manner and
otherwise in accordance with the terms of the Amended and Restated Operations
and Settlement Agreement dated as of June 16, 1999 (the "California Settlement
Agreement") among the Commissioner of the Department of Corporations of the
State of California, the Department of Corporations of the State of California,
J. Mark Abernathy, as Special Monitor-Examiner, the Borrower and MPN, (b) to
increase the maximum amount permitted to be recovered by Caremark Inc. from the
sale and assignment of its accounts receivable under the Caremark Receivables
Securitization to $150,000,000 in the aggregate, and to permit such amendments,
supplements and other modifications to the Caremark Receivables Securitization
Documents as are necessary to permit the accounts receivable of the Therapeutic
Services Division of Caremark Inc. to be sold and assigned into the Caremark
Receivables Securitization on substantially the same terms as are set forth in
the Caremark Receivables Securitization Documents on the date of this Amendment,
and (c) to modify the requirements of Sections 5.04(b) and 5.04(c) of the Credit
Agreement to permit a lower Fixed Charge Coverage Ratio and Interest Coverage
Ratio for the Measurement Periods ending in June 1999, September 1999 and
December 1999.
(2) The Required Lenders have indicated their willingness to agree to
amend the terms and conditions of the Credit Agreement described above in
Preliminary Statement (1) on the terms and subject to the satisfaction of the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein and in the Loan Documents, the parties
hereto hereby agree as follows:
SECTION 1. Amendments of Certain Provisions of the Credit Agreement.
--------------------------------------------------------
The Credit Agreement is, upon the occurrence of the Amendment Effective Date (as
hereinafter defined), hereby amended to read as follows:
<PAGE>
-2-
(a) Section 1.01 of the Credit Agreement is hereby amended to add the
following new definitions in their appropriate alphabetical order:
"Amendment No. 7 Effective Date" means the first date on which
all of the conditions precedent to the effectiveness of Amendment No.
7 to the Loan Documents were satisfied.
"California Settlement Agreement" means the Amended and Restated
Operations and Settlement Agreement dated as of June 16, 1999 among
the Commissioner of the Department of Corporations of the State of
California, the Department of Corporations of the State of California,
J. Mark Abernathy, as Special Monitor-Examiner, the Borrower and MPN,
as amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, but solely to the extent permitted
under the terms of the Loan Documents.
"California Transition Plan Documents" means the California
Settlement Agreement and all of the other agreements, instruments and
documents entered into in connection with or related to the California
Transition Plan other than any non-consensual orders or other orders
and stipulations entered into in the ordinary course of the bankruptcy
proceeding of MPN and not adversely affecting the rights or interests
of the Guaranteed Parties (including, without limitation, all of the
supplemental plan agreements and other related agreements referred to
in Section 15.17 of the California Settlement Agreement and all such
agreed orders and court stipulations entered into or rendered in
connection with the California Transition Plan or the bankruptcy of
MPN), in each case as such agreement, instrument or other document may
be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof, but solely to the extent permitted
under the terms of the Loan Documents.
"Consenting Plans" means any health care plan that accepts the
benefits of the California Settlement Agreement by executing a
Supplemental Plan Agreement.
"Incremental Cts Receivables Securitization" means limited
recourse sales and assignments from time to time by the Therapeutic
Services Division of Caremark Inc. of its accounts receivable to MP
Receivables and by MP Receivables of such accounts receivable or
interests therein to Park Avenue Receivables Corporation and one or
more financial institutions pursuant to an amendment and supplement to
the Caremark Receivables Securitization Documents that permits such
sales and assignments on substantially the same terms and conditions
as are set forth therein on the Amendment No. 7 Effective Date (except
for any modifications to the eligibility criteria for (and the other
provisions included in the Caremark Receivables Securitization
Documents relating to) accounts receivable sold and assigned into the
Caremark Receivables Securitization that are reasonably necessary due
to the ordinary course nature of the accounts receivable of the
Therapeutic Services Division of Caremark Inc.), but solely to the
extent permitted under the terms of the Loan Documents.
<PAGE>
-3-
"Medpartners Funding Commitment" has the meaning specified in
Section 3.5(a) of the California Settlement Agreement, as in effect on
the Amendment No. 7 Effective Date.
"Supplemental Plan Agreement" has the meaning specified in
Section 15.17 of the California Settlement Agreement, as in effect on
the Amendment No. 7 Effective Date."
(b) Section 1.01 of the Credit Agreement is hereby amended to restate
the following definitions set forth therein in their entirety to read as
follows:
"California Transition Plan" means the transition plan for the
orderly sale or other disposition of all of the California Property
and Assets and the resolution of all of the liabilities and
obligations of the Borrower and the California Subsidiaries related
thereto, all as contemplated by the California Settlement Agreement
and the other California Transition Plan Documents; provided, however,
that the California Transition Plan Documents shall include as
conditions to any of the Obligations of the Borrower or any of its
Subsidiaries thereunder:
(a) the agreement of Consenting Plans constituting 95% of
capitation amounts payable to MPN for May 1999 to take back all
of their institutional risk associated with the health care
service providers in the State of California effective as of no
later than July 15, 1999;
(b) the execution by one or more of Aetna U.S. Healthcare,
Foundation Health Systems, Inc. (including Health Net and
Foundation Health), Prudential Health Care Plans, Inc., United
HealthCare of California, Inc. and Wellpoint Health Networks
(including Blue Cross of California and California Care) of
renegotiated contracts as contemplated by the California
Transition Plan effective no later than January 1, 1999 and
incorporating the agreements of such health care plans to pay
retroactive premium adjustments due under such renegotiated
contracts to MPN in an aggregate amount of not less than
$10,000,000;
(c) the execution and delivery of an amendment to the MPN
Management Agreement by the Borrower and MPN that provides, at a
minimum, for the Borrower to receive reimbursement on a monthly
basis of a good faith estimate of the costs and expenses incurred
by it in the performance of its Obligations under the MPN
Management Agreement (such estimate to be made on the basis set
forth in Schedule 3.2 of the California Settlement Agreement) and
for the termination of the MPN Management Agreement upon the
termination or expiration of the California Settlement Agreement
or the California Transition Plan; and
(d) the restoration of all of the property, assets,
operations and management responsibilities of MPN to MPN itself
as the debtor in possession under Chapter 11 of the United States
Bankruptcy Code and to the Borrower (with the Special Monitor-
Examiner (as defined in the California Settlement Agreement)
thereafter having not more than oversight and supervisory
responsibilities therefor).
<PAGE>
-4-
In addition, all of the California Transition Plan Documents not in
effect on the Amendment No. 7 Effective Date that, either individually
or in the aggregate, could reasonably be expected to have a Material
Adverse Effect or to adversely affect the rights or interests of the
Guaranteed Parties shall be in form and substance satisfactory to the
Required Lenders. For purposes of the Loan Documents, the California
Transition Plan shall not be deemed to have been adopted until all of
the following conditions precedent have been satisfied:
(A) the Supplemental Plan Agreement shall have been duly
executed and delivered by all of the Persons intended to be party
thereto and all of the conditions to the effectiveness thereof
shall have been satisfied (other than any requisite approvals of
the Supplemental Plan Agreement by the applicable federal
bankruptcy court);
(B) all of the Governmental Authorizations, and all of the
consents, approvals and authorizations of, notices and filings to
or with, and other actions by, any other Person, necessary for the
effectiveness of the California Settlement Agreement (including,
without limitation, any requisite approvals of the applicable
federal bankruptcy court or state court of the California
Settlement Agreement) shall have been obtained (without the
imposition of any conditions that could reasonably be expected to
adversely affect the rights or interests of the Administrative
Agent or the Guaranteed Parties) and shall remain in full force
and effect;
(C) the Administrative Agent and the Lender Parties shall
have received (1) copies of all of the California Transition Plan
Documents (other than the sale agreements and related
documentation for the disposition of the California Property and
Assets in accordance with the California Settlement Agreement)
entered into or intended to be entered into prior to the
"effective date" of the California Settlement Agreement, in each
case duly executed by the parties thereto, (2) copies of all of
the reports, analyses and opinions being delivered pursuant to the
terms of the California Transition Plan Documents to the Borrower,
the State of California or any of the other Persons consenting to,
bound by or benefitting from the California Transition Plan that
evaluate or analyze all or any portion of the property, assets,
liabilities, businesses or operations of the Borrower or any of
its Subsidiaries or any aspect of the California Transition Plan
(including, without limitation, those reports and opinions
attached as Schedule 4.3 of the California Settlement Agreement),
(3) a certificate of the Borrower, signed on behalf of the
Borrower by a Responsible Officer thereof and dated as of the date
of adoption of the California Transition Plan (the statements made
in which certificate shall be true on and as of such date),
certifying as to:
(w) the absence of any proceedings (either pending or
overtly threatened) for the enjoinment, suspension,
revocation, termination or modification of any aspect of the
California Transition Plan;
<PAGE>
-5-
(x) the accuracy in all material respects of the
representations and warranties made by the Borrower or any
of its Subsidiaries in the Loan Documents to which it is or
is to be a party as though made on and as of such date,
before and after giving effect to the California Transition
Plan and to the transactions contemplated thereby;
(y) the absence of any event occurring and continuing,
or resulting from the adoption of the California Transition
Plan or the consummation of the transactions contemplated
thereby, that would constitute a Default; and
(z) the satisfaction of the conditions precedent to the
adoption of the California Transition Plan set forth in the
California Settlement Agreement and the Supplemental Plan
Agreement (other than any requisite approvals of the
Supplemental Plan Agreement by the applicable federal
bankruptcy court) and in the Loan Documents; and
(4) a favorable opinion of King & Spalding, special counsel for
the Loan Parties, or other special counsel for the Loan Parties
reasonably acceptable to the Administrative Agent, in
substantially the form of Exhibit F-7 hereto, and addressing such
other matters as any of the Lender Parties through the
Administrative Agent may reasonably request; and
(D) the adoption of the California Transition Plan on or
prior to August 31, 1999.
"Caremark Receivables Securitization" means limited recourse
sales and assignments from time to time by Caremark Inc. of its
accounts receivable (including, upon the consummation of the
Incremental CTS Receivables Securitization, the accounts receivable of
the Therapeutic Services Division of Caremark Inc.) to MP Receivables
and by MP Receivables of such accounts receivable or interests therein
to Park Avenue Receivables Corporation and one or more financial
institutions; provided, however, that (a) the aggregate principal
amount paid by Park Avenue Receivables Corporation and such financial
institutions for all such accounts receivable or interests therein and
to be recovered from all such accounts receivable or interests therein
shall not exceed $150,000,000 at any time outstanding, (b) the price
paid for any such accounts receivable shall be as set forth in the
Caremark Receivables Securitization Documents, as in effect on the
Amendment No. 1 Effective Date, or in the case of any such accounts
receivable included in the Incremental CTS Receivables Securitization,
such price as shall be set forth in the amendment and supplement to
the Caremark Receivables Securitization Documents effected to permit
the Incremental CTS Receivables Securitization (but in any event not
less than 15% of the face amount of such accounts receivable), and (c)
each such sale and assignment of such accounts receivable or interests
therein shall otherwise be effected on the terms and conditions set
forth in the Caremark Receivables Securitization Documents."
(c) The definition of "California Major Plans" set forth in Section
1.01 of the Credit Agreement is hereby deleted in its entirety.
<PAGE>
-6-
(d) The definition of "Consolidated Interest Expense" set forth in
Section 1.01 of the Credit Agreement is hereby amended (i) to delete the
parenthetical set forth in clause (f) thereof and to substitute therefor
the following new parenthetical:
"(each as defined in Schedule A to the Caremark Receivables
Securitization Documents or, in the case of the Incremental CTS
Receivables Securitization, if different, as defined in the comparable
provisions of the amendment and supplement to the Caremark Receivables
Securitization Documents effected to permit the Incremental CTS
Receivables Securitization)", and
(ii) to delete the parenthetical set forth in clause (g) thereof and to
substitute therefor the following new parenthetical:
"(as defined in Schedule A to the Caremark Receivables Securitization
Documents or, in the case of the Incremental CTS Receivables
Securitization, if different, as defined in the comparable provisions
of the amendment and supplement to the Caremark Receivables
Securitization Documents effected to permit the Incremental CTS
Receivables Securitization)".
(e) The definition of "Default Termination Notice" set forth in
Section 1.01 of the Credit Agreement is hereby deleted in its entirety.
(f) The definition of "Leverage Ratio" set forth in Section 1.01 of
the Credit Agreement is hereby amended to delete the parenthetical set
forth in subclause (ii)(B) thereof and to substitute therefor the following
new parenthetical:
"(each as defined in Schedule A to the Caremark Receivables
Securitization Documents or, in the case of the Incremental CTS
Receivables Securitization, if different, as defined in the comparable
provisions of the amendment and supplement to the Caremark Receivables
Securitization Documents effected to permit the Incremental CTS
Receivables Securitization)".
(g) The definition of "Permitted Receivables Securitization" set forth
in Section 1.01 of the Credit Agreement is hereby amended to add at the end
of the parenthetical in clause (a) thereof after the phrase "as in effect
on the Amendment No. 1 Effective Date" the following new language:
", or in the case of any such accounts receivable included in the
Incremental CTS Receivables Securitization, such price as shall be set
forth in the amendment and supplement to the Caremark Receivables
Securitization Documents effected to permit the Incremental CTS
Receivables Securitization (but in any event not less than 15% of the
face amount of such accounts receivable)".
(h) The definition of "Related Documents" set forth in Section 1.01 of
the Credit Agreement is hereby amended to add at the end of such definition
the new language "and, except
<PAGE>
-7-
for purposes of Section 4.01(d), the California Settlement Agreement, the
Supplemental Plan Agreement and the other material California Transition
Plan Documents".
(i) Section 2.01(e) of the Credit Agreement is hereby amended (i) to
add in the eighth line thereof after the language "Section 5.02(e)(iii)(C)
or 5.02(e)(iii)(D)" the new language "hereof or, upon adoption of the
California Transition Plan, as required under Section 3.6 of the California
Settlement Agreement, as in effect on the Amendment No. 7 Effective Date,"
and (ii) to delete in its entirety the fifth sentence thereof which reads
as follows:
"In addition, each of the Letters of Credit shall contain a provision
authorizing the Issuing Bank to deliver to the beneficiary of such
Letter of Credit, upon the occurrence and during the continuance of a
Default under Section 6.01(a) or 6.01(f) or an Event of Default, a
notice (a "Default Termination Notice") terminating such Letter of
Credit and giving the beneficiary thereof 15 days from the date of
such Default Termination Notice to draw under such Letter of Credit."
(j) Section 2.05(b) of the Credit Agreement is hereby amended to
delete the date "June 30, 1999" in subclause (vii)(B) thereof and to
substitute therefor the new date "August 31, 1999".
(k) Section 4.01 of the Credit Agreement is hereby amended to add the
following new subsection (dd) thereto:
"(dd) The Borrower has initiated discussions with the
appropriate financial institutions to obtain the Incremental CTS
Receivables Securitization and is working diligently to consummate the
Incremental CTS Receivables Securitization and have the proceeds
thereof available to it as promptly as practicable."
(l) Section 5.02(a) of the Credit Agreement is hereby amended (i) to
delete the word "and" at the end of clause (vii) thereof, (ii) to add the
following new clause (viii) thereto:
"(viii) after the adoption of the California Transition Plan,
(A) the agreements of the Borrower and MPN to deposit the "Net Cash
Proceeds" (as defined in the California Settlement Agreement) from the
sale, lease, transfer or other disposition of the California Property
and Assets into certain deposit accounts to be maintained by the
Borrower and MPN in the State of California in accordance with the
terms of the California Settlement Agreement, as in effect on the
Amendment No. 7 Effective Date, the deposit into such accounts of such
"Net Cash Proceeds", and the application of such "Net Cash Proceeds"
to the Obligations of the Borrower and MPN under the California
Settlement Agreement, all as and when required under the terms of the
California Settlement Agreement, and (B) the obligation of MPN to
deposit its funds into a specified deposit account established and
maintained in accordance with the Plan Stipulation and the Provider
Stipulation (each as defined in the California Settlement Agreement)
and to apply the proceeds of such funds to the satisfaction of the
claims of various health care plans and providers that are parties to
the Plan Stipulation or the Provider Stipulation, and to the payment
of fees and expenses properly payable by MPN, all as and when required
under the terms of the Plan Stipulation and the Provider Stipulation;
and", and
<PAGE>
-8-
(iii) to renumber the existing clause (viii) of Section 5.02(a) of the
Credit Agreement as clause (ix) thereof.
(m) Section 5.02(b) of the Credit Agreement is hereby amended (i) to
add in the eighth line of clause (viii) thereof after the phrase
"outstanding at such time" the following new parenthetical:
"(other than the Letter of Credit issued in favor of the Special
Monitor-Examiner (as defined in the California Settlement Agreement)
in a face amount not to exceed $25,000,000 and otherwise as required
under the California Settlement Agreement, as in effect on the
Amendment No. 7 Effective Date)",
(ii) to delete clause (xvi) thereof in its entirety, (iii) to restate the
existing clause (xvii) thereof in its entirety to read as follows:
"(xvi) at any time after the date of the adoption of the
California Transition Plan, Indebtedness of the Borrower comprised
solely of the MedPartners Funding Commitment; provided, however, that
all Obligations of the Borrower for or in respect of the clinics and
practice groups comprising part of the California Subsidiaries that
are included in the MedPartners Funding Commitment shall have been
created, incurred or assumed thereby in the ordinary course of
business and prior to the earlier of (A) the date on which any such
clinic or practice group is sold, leased, transferred or otherwise
disposed of by the Borrower or its applicable Subsidiaries and (B)
October 15, 1999; and", and
(iv) to renumber the existing clause (xviii) of Section 5.02(b) of the
Credit Agreement as clause (xvii) thereof.
(n) Section 5.02(e) of the Credit Agreement is hereby amended (i) to
delete the phrase "pursuant to Section 5.02(b)(vii), 5.02(b)(viii) or
5.02(b)(xvii)" in subclause (iii)(D)(2)(x) thereof and to substitute
therefor the new phrase "pursuant to Section 5.02(b)(viii)", (ii) to add at
the end of subclause (iii)(D)(2)(y) thereof the following new
parenthetical:
"(other than the Letter of Credit issued in favor of the Special
Monitor-Examiner (as defined in the California Settlement Agreement)
in a face amount not to exceed $25,000,000 and otherwise as required
under the California Settlement Agreement, as in effect on the
Amendment No. 7 Effective Date)", and
(iii) to restate subclause (iii)(E) thereof in its entirety to read as
follows:
"(E) the Borrower in MPN and the other California Subsidiaries
from time to time after the adoption of the California Transition Plan
with the proceeds of payments made by the Borrower under the
MedPartners Funding Commitment or comprised of the issuance of the
Letter of Credit in favor of the Special Monitor-Examiner (as defined
in the California Settlement Agreement) in a face amount not to exceed
$25,000,000 and otherwise as required under the California Settlement
Agreement, as in effect on the Amendment No. 7 Effective Date, or, in
the case of MPN, pursuant to the terms of the MPN Management
Agreement,".
<PAGE>
-9-
(o) Section 5.02(h) of the Credit Agreement is hereby amended (i) to
delete the word "and" at the end of subclause (i)(E) thereof, (ii) to add
at the end of subclause (i)(F) thereof the new word "and", (iii) to add the
following new subclause (i)(G) thereto:
"(G) within five Business Days of January 31, 2000, the deposit
by the Borrower into certain deposit accounts maintained in the State
of California of an amount equal to the estimated remaining amount of
the MedPartners Funding Commitment (as determined by an independent
actuary or financial consultant) to the extent required under Section
3.5(c) of the California Settlement Agreement, as in effect on the
Amendment No. 7 Effective Date;",
(iv) to delete the word "or" at the end of subclause (ii)(B) thereof, (v)
to restate subclause (ii)(C) thereof to read as follows:
"(C) the Caremark Receivables Securitization Documents, except
(1) to the extent necessary to increase the aggregate principal amount
paid by Park Avenue Receivables Corporation and the applicable
financial institutions for all of the accounts receivable of Caremark
Inc. (including, upon the consummation of the Incremental CTS
Receivables Securitization, the accounts receivable of the Therapeutic
Services Division of Caremark Inc.) or the interests therein and to be
recovered from all such accounts receivable or interests therein to
not more than $150,000,000 at any time outstanding, (2) to effect the
Incremental CTS Receivables Securitization on substantially the same
terms and conditions as are set forth in the Caremark Receivables
Securitization Documents on the Amendment No. 7 Effective Date (except
for any modifications to the eligibility criteria for (and the other
provisions included in the Caremark Receivables Securitization
Documents relating to) accounts receivable sold and assigned into the
Caremark Receivables Securitization that are reasonably necessary due
to the ordinary course nature of the accounts receivable of the
Therapeutic Services Division of Caremark Inc.), but solely to the
extent permitted under the terms of the Loan Documents, or (3)
otherwise as, either individually or in the aggregate, is not
reasonably expected to have a Material Adverse Effect or to adversely
affect the rights or interest of the Guaranteed Parties, or", and
(vi) to add the following new subclause (ii)(D) thereto:
"(D) any of the California Transition Plan Documents, except as,
either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect or to adversely affect the
rights or interest of the Guaranteed Parties;".
(p) Section 5.02(i) of the Credit Agreement is hereby amended (i) to
delete the language "to the extent such agreement is on terms no less
favorable to the Borrower or any of its Subsidiaries or to the rights or
interests of the Guaranteed Parties than the terms of the Senior Notes" in
clause (vii) thereof and to substitute therefor the new language "and
applicable solely to the California Property and Assets".
<PAGE>
-10-
(q) Section 5.02(r) of the Credit Agreement is hereby amended (i) to
delete the words "Not to" in the first line thereof and (ii) to delete the
date "July 31, 1999" in clause (ii) thereof and to substitute therefor the
new date "October 15, 1999".
(r) Section 5.03 of the Credit Agreement is hereby amended (i) to add
in the fourth line thereof after the phrase "furnish to the Administrative
Agent and the Lender Parties" the new parenthetical "(or, solely in the
case of clauses (ii), (iii) and (iv) of Section 5.03(u), to the
Administrative Agent)" and (ii) to restate subsection (u) thereof in its
entirety to read as follows:
"(u) California Transition Plan. (i) As soon as possible and in
--------------------------
any event within five Business Days after a Responsible Officer of the
Borrower or any of its Subsidiaries knows or has reason to know of the
occurrence of each default or termination event (or similar event)
under any of the California Transition Plan Documents (including,
without limitation, Section 10.1 or 11.1 of the California Settlement
Agreement) continuing on the date of such statement, a statement of
such Responsible Officer or a Responsible Officer of the Borrower
setting forth the details of such default or termination event (or
similar event) (including, without limitation, the anticipated effect
thereof), the period of time such default or termination event (or
similar event) has existed and been continuing and the actions that
the Borrower and/or any of its Subsidiaries have taken and/or propose
to take with respect thereto;
(ii) Promptly and in any event within 15 days after the end of
each calendar month, a certificate of a Senior Financial Officer, in
form and substance reasonably satisfactory to the Administrative
Agent, setting forth in reasonable detail (A) the number of MPN
Provider Releases and MPPP Releases (each as defined in the California
Settlement Agreement, as in effect on the Amendment No. 7 Effective
Date) received during the immediately preceding month, and all
limitations, qualifications or restrictions set forth therein that
differ in any material respect from the form of such MPN Release or
MPPP Release distributed by MPN or the Borrower, respectively,
pursuant to the California Settlement Agreement, as in effect on the
Amendment No. 7 Effective Date;
(iii) As soon as possible and in any event within three Business
Days after the furnishing or receipt thereof, (A) copies of the plan
of reorganization of MPN filed with the applicable federal bankruptcy
court and the disclosure statement related thereto, the amendment to
the MPN Management Agreement provided for under the terms of the
California Settlement Agreement and each other agreement, instrument
or document (including any agreed orders and court stipulations)
entered into in connection with or related to the California
Transition Plan that, either individually or in the aggregate, could
reasonably be expected to be material to the financial condition,
operations, liabilities or properties of the Borrower or any of its
Subsidiaries (other than the California Subsidiaries), and each
amendment, supplement or modification to, or waiver or consent to the
departure from the terms of, any of the foregoing or any of the
California Transition Plan Documents delivered to the Lender Parties
prior to the adoption of the California Transition Plan in accordance
with the terms of clause (C) of the definition of "California
Transition Plan" set forth in Section 1.01 and (B) each Governmental
Authorization, and each consent, approval and authorization of, notice
and filing to or with, and evidence of each other action by, any other
Person, necessary in connection with the California Transition Plan,
and not
<PAGE>
-11-
delivered to the Lender Parties prior to the Amendment No. 7
Effective Date that, either individually or in the aggregate, could
reasonably be expected to be material to the financial condition,
operations, liabilities or properties of the Borrower or any of its
Subsidiaries (other than the California Subsidiaries) (other than any
such Governmental Authorizations, consents, approvals, authorizations,
notices, filings or actions which are customarily obtained, given or
made (1) in bankruptcy proceedings of similarly situated debtors and
could not reasonably be expected to adversely affect the rights or
interests of the Guaranteed Parties and (2) in connection with the
sale, transfer or other disposition of similar property or assets to
the California Property and Assets being so disposed of pursuant to
the California Transition Plan; and
(iv) As soon as possible and in any event within five Business
Days after the furnishing or receipt thereof, copies of each periodic
and other material statement or material report furnished to or
received from the State of California, the Special Monitor-Examiner
(as defined in the California Settlement Agreement) or any similar
Person, any of the health care plans, hospitals or other health care
providers consenting to, bound by or benefitting from the California
Transition Plan or any applicable federal or state court or other
Governmental Authority, pursuant to the terms of the California
Transition Plan (including, without limitation, each report and notice
delivered to the Special Monitor-Examiner under Sections 2.1(b)(v),
2.2(b)(iv) or 7.1(b) of the California Settlement Agreement, each
notice delivered by the Special Monitor-Examiner under Section 3.8(d)
of the California Settlement Agreement, each notice delivered to the
State of California under Section 3.5(e) of the California Settlement
Agreement and all other notices, pleadings and filings delivered or
received by the Borrower or MPN pursuant to Sections 10 and 11 of the
California Settlement Agreement and not otherwise required to be
furnished to the Administrative Agent and the Lender Parties pursuant
to any other clause of this Section 5.03."
(s) Section 5.04 of the Credit Agreement is hereby amended to restate
subsections (b) and (c) thereof in their entirety to read as follows:
"(b) Fixed Charge Coverage Ratio. Maintain a Fixed Charge
---------------------------
Coverage Ratio as of the last day of each Measurement Period of not
less than the amount set forth below for each Measurement Period set
forth below:
Measurement Period
Ending In Ratio
-------------------- -------
June 1999 1.20:1
September 1999 1.25:1
December 1999 1.25:1
March 2000 1.30:1
June 2000 1.30:1
<PAGE>
-12-
Measurement Period
Ending In Ratio
-------------------- ------
September 2000 1.35:1
December 2000 and 1.50:1
thereafter
(c) Interest Coverage Ratio. Maintain an Interest Coverage Ratio
-----------------------
as of the last day of each Measurement Period of not less than the
amount set forth below for each Measurement Period set forth below:
Measurement Period
Ending In Ratio
-------------------- -------
June 1999 1.25:1
September 1999 1.30:1
December 1999 1.40:1
March 2000 1.50:1
June 2000 1.60:1
September 2000 1.75:1
December 2000 and 2.00:1"
thereafter
(t) Section 6.01 of the Credit Agreement is hereby amended (i) to
restate subsection (s) thereof in its entirety to read as follows:
"(s) be continuing under any of the California Transition Plan
Documents and, in all cases other than a default under Section 10.1(a)
of the California Settlement Agreement resulting from the failure of
the Borrower to pay the amount of an arbitration award rendered
against it under Section 12 of the California Settlement Agreement
within five Business Days of such award or a default under Section
10.1(c) of the California Settlement Agreement, such default or
termination event shall continue after the applicable grace period, if
any, specified any default or termination event (or similar event)
shall have occurred and in any such California Transition Plan
Document; or",
(ii) to add the following new subsection (t) thereto:
"(t) all amendments, supplements and other modifications to the
Caremark Receivables Securitization Documents necessary to consummate
the Incremental CTS Receivables Securitization shall not be in full
force and effect, or all conditions precedent to the sale and
assignment of accounts receivable of the Therapeutic Services Division
of
<PAGE>
-13-
Caremark Inc. (or the interests therein) into the Caremark
Receivables Securitization, as so amended, supplemented and otherwise
modified, shall not have been satisfied, on or prior to October 31,
1999;",
(iii) to delete the punctuation "," in the fifteenth line from the end of
Section 6.01 after the phrase "waived by the Borrower" and to substitute
therefor the new word "and" and (iv) to delete subclause (C) from the last
paragraph of Section 6.01 in its entirety which reads as follows:
"(C) by notice to the Issuing Bank, direct the Issuing Bank to
deliver a Default Termination Notice to the beneficiary of each
Letter of Credit issued by it (and, upon receipt of such direction,
the Issuing Bank shall deliver all such Default Termination
Notices)".
(u) The Credit Agreement is hereby further amended to add the new
Exhibit F-7 to the Credit Agreement attached hereto as Annex A.
(v) All cross-references in the Credit Agreement to the existing
Sections 5.02(a)(viii), 5.02(b)(xvii) or 5.02(b)(xviii) thereof are, upon
the occurrence of the Amendment Effective Date, hereby deleted in their
entirety and replaced with new references to Sections 5.02(a)(ix),
5.02(b)(xvi) and 5.02(b)(xvii) thereof, respectively.
SECTION 2. Conditions Precedent to the Effectiveness of This
-------------------------------------------------
Amendment. This Amendment shall become effective as of the first date (the
- ---------
"AMENDMENT EFFECTIVE DATE") on which, and only if, each of the following
conditions precedent shall have been satisfied:
(a) The Administrative Agent shall have received (i) counterparts of
this Amendment executed by the Borrower and the Required Lenders or, as to
any of the Lender Parties, advice satisfactory to the Administrative Agent
that such Lender Party has executed this Amendment and (ii) the Consent
attached hereto shall have been executed and delivered by each of the Loan
Parties (other than the Borrower).
(b) The Lender Parties shall have received true and complete copies,
certified by a Responsible Officer of the Borrower, of (i) the California
Settlement Agreement, the Plan Stipulation and the Provider Stipulation
(each as defined in the California Settlement Agreement) and (ii) all of
the other California Transition Plan Documents (other than the sale
agreements and related documentation for the disposition of the California
Property and Assets in accordance with the California Settlement Agreement)
that have been executed and delivered on or prior to the Amendment
Effective Date.
(c) The representations and warranties set forth in each of the Loan
Documents shall be correct in all material respects on and as of the
Amendment Effective Date, before and after giving effect to this Amendment,
as though made on and as of such date (except (i) for any such
representation and warranty that, by its terms, refers to a specific date
other than the Amendment Effective Date, in which case as of such specific
date, (ii) that the Consolidated financial statements of the Borrower and
its Subsidiaries referred to in Sections 4.01(f) and 4.01(g) of the Credit
Agreement shall be deemed to refer to the Consolidated financial statements
of the Borrower and its Subsidiaries comprising part of the Required
Financial Information most recently delivered to the Administrative Agent
and the Lender Parties pursuant to Sections 5.03(b) and 5.03(c),
<PAGE>
-14-
respectively, on or prior to the Amendment Effective Date and (iii) that
the forecasted Consolidated financial statements of the Borrower and its
Subsidiaries referred to in Section 4.01(h) of the Credit Agreement shall
be deemed to refer to the forecasted Consolidated financial statements of
the Borrower and its Subsidiaries most recently delivered to the
Administrative Agent and the Lender Parties prior to the Amendment
Effective Date).
(d) No event shall have occurred and be continuing, or shall result
from the effectiveness of this Amendment, that constitutes a Default.
(e) All of the reasonable fees and expenses of the Administrative
Agent and the Arranger (including the reasonable fees and expenses of
counsel for the Administrative Agent) due and payable on the Amendment
Effective Date shall have been paid in full.
The effectiveness of this Amendment is further conditioned upon the accuracy of
all of the factual matters described herein. This Amendment is subject to the
provisions of Section 8.01 of the Credit Agreement.
SECTION 3. Reference to and Effect on the Loan Documents. (a) On and
---------------------------------------------
after the Amendment Effective Date, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the Notes and each of the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as amended by the amendments specifically provided above in Section
1, are and shall continue to be in full force and effect and are hereby in all
respects ratified and confirmed. The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any of the Guaranteed Parties or the
Administrative Agent under any of the Loan Documents, or constitute a waiver of
any provision of any of the Loan Documents.
SECTION 4. Costs and Expenses. The Borrower hereby agrees to pay,
------------------
upon demand, all of the reasonable costs and expenses of the Administrative
Agent and the Arranger (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent) in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Amendment and all of the agreements, instruments and other documents
delivered or to be delivered in connection herewith, all in accordance with the
terms of Section 8.04 of the Credit Agreement.
SECTION 5. Execution in Counterparts. This Amendment may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 6. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
<PAGE>
-15-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers, thereunto duly authorized, as of the
date first written above.
THE BORROWER
MEDPARTNERS, INC.
By /s/ Peter Clemens
-------------------------------------
Name: Peter Clemens
Title: Treasurer
THE ADMINISTRATIVE AGENT
NATIONSBANK, N.A.
By /s/ Philip Durand
-------------------------------------
Name: Philip Durand
Title: Vice President
THE LENDER PARTIES
NATIONSBANK, N.A., as a Lender,
the Swing Line Bank and the Issuing Bank
By /s/ Philip Durand
-------------------------------------
Name: Philip Durand
Title: Vice President
AMSOUTH BANK
By /s/ Allison J. Sanders
-------------------------------------
Name: Allison J. Sanders
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Philip Durand
-------------------------------------
Name: Philip Durand
Title: Vice President
<PAGE>
-16-
THE CHASE MANHATTAN BANK
By ______________________________________
Name:
Title:
CITIBANK, N.A.
By /s/ Townsend V. Weeks, Jr.
-------------------------------------
Name: Townsend V. Weeks, Jr.
Title: Attorney-In-Fact
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Henry Reukauf
-------------------------------------
Name: Henry Reukauf
Title: Vice President
DEBT STRATEGIES FUND, INC.
By ______________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ L. Richard Schiller
-------------------------------------
Name: L. Richard Schiller
Title: Vice President
<PAGE>
-17-
FIRST UNION NATIONAL BANK
By /s/ Marijane Boyle
-------------------------------------
Name: Marijane Boyle
Title: Senior Vice President
FLOATING RATE PORTFOLIO
BY: INVESCO Senior Secured Management,
Inc., as attorney in fact
By /s/ Kathleen A. Lenarcic
-------------------------------------
Name: Kathleen A. Lenarcic
Title: Authorized Signatory
KZH HIGHLAND-2 LLC
By ______________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Neil Brisson
-------------------------------------
Name: Neil Brisson
Title: Director
MERRILL LYNCH DEBT STRATEGIES PORTFOLIO,
INC.
BY: MERRILL LYNCH ASSET
MANAGEMENT L.P., as Investment Advisor
By ______________________________________
Name:
Title:
<PAGE>
-18-
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
BY: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment Advisor
By ______________________________________
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE FUND,
INC.
By ______________________________________
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
BY: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment Advisor
By ______________________________________
Name:
Title:
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By /s/ Robert L. Wilson
-------------------------------------
Name: Robert L. Wilson
Title: Vice President
<PAGE>
-19-
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By /s/ Robert L. Wilson
----------------------------------------
Name: Robert L. Wilson
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /s/ Anna Marie Fallon
----------------------------------------
Name: Anna Marie Fallon
Title: Vice President
PAM CAPITAL FUNDING, LP
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By ______________________________________
Name:
Title:
PAMCO CAYMAN, LTD.
BY: HIGHLAND CAPITAL MANAGEMENT, L.P.,
as Collateral Manager
By ______________________________________
Name:
Title:
PILGRIM PRIME RATE TRUST
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By /s/ Charles E. LeMieux, CFA
----------------------------------------
Name: Charles E. LeMieux, CFA
Title: Assistant Vice President
<PAGE>
-20-
SCOTIABANC INC.
By /s/ Dana Maloney
----------------------------------------
Name: Dana Maloney
Title: Relationship Manager
SRV-HIGHLAND, INC.
By ______________________________________
Name:
Title:
STEIN ROE & FARNHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By /s/ Brian W. Good
----------------------------------------
Name: Brian W. Good
Title: Vice President & Portfolio Manager
TORONTO DOMINION (TEXAS), INC.
By /s/ Sonja R. Jordan
----------------------------------------
Name: Sonja R. Jordan
Title: Vice President
TRANSAMERICA LIFE INSURANCE AND
ANNUITY CO.
By /s/ John M. Casparian
----------------------------------------
Name: John M. Casparian
Title: Investment Officer
<PAGE>
-21-
TRANSAMERICA PREMIER HIGH YIELD FUND
By /s/ Heather E. Creeden
----------------------------------------
Name: Heather E. Creeden
Title: Investment Officer
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/ Lisa M. Mincheski
----------------------------------------
Name: Lisa M. Mancheski
Title: Vice President
VAN KAMPEN SENIOR INCOME TRUST
By /s/ Jeffrey W. Maillet
----------------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By /s/ Jeffrey W. Maillet
----------------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
WACHOVIA BANK, N.A.
By /s/ John C. Conty
----------------------------------------
Name: John C. Conty
Title: Assistant Vice President
<PAGE>
Consent to Amendment No. 7
to the Loan Documents
As of June 29, 1999
Reference is made to Amendment No. 7 to the Loan Documents dated as of
June 29, 1999 (the "AMENDMENT") to the Amended and Restated Credit Agreement
dated as of June 9, 1998 (as amended and otherwise modified by Amendment No. 1
to the Loan Documents dated as of December 4, 1998, Amendment No. 2 to the Loan
Documents dated as of January 13, 1999, Amendment No. 3 to the Loan Documents
dated as of February 9, 1999, Amendment and Waiver No. 4 to the Loan Documents
dated as of March 18, 1999, Amendment and Waiver No. 5 to the Loan Documents
dated as of April 1, 1999 and Amendment No. 6 to the Loan Documents dated as of
April 14, 1999, the "CREDIT AGREEMENT") among MedPartners, Inc., a Delaware
corporation, the Lenders party thereto, NationsBank, N.A., as the Initial
Issuing Bank and Swing Line Bank thereunder, Credit Lyonnais New York Branch,
The First National Bank of Chicago and Morgan Guaranty Trust Company of New
York, as the Syndication Agents therefor, Banc of America Securities LLC
(formerly NationsBanc Montgomery Securities LLC), as Arranger therefor, and
NationsBank, N.A., as the Administrative Agent for the Lender Parties
thereunder. Capitalized terms not otherwise defined herein shall have the same
meanings as specified therefor in the Credit Agreement.
Each of the undersigned, as a guarantor under the Subsidiaries
Guarantee dated as of June 9, 1998 (as modified to the date hereof, the
"SUBSIDIARIES GUARANTEE") in favor of the Guaranteed Parties, hereby consents to
the execution and delivery of the Amendment and the performance of the Credit
Agreement, as amended thereby, and hereby confirms and agrees that,
notwithstanding the effectiveness of the Amendment, the Subsidiaries Guarantee
is, and shall continue to be, in full force and effect and is hereby in all
respects ratified and confirmed, except that each reference in the Subsidiaries
Guarantee to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a reference to the
Credit Agreement, as amended by the Amendment.
This Consent may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Consent. Delivery of an executed counterpart of a
signature page to this Consent by telecopier shall be effective as delivery of a
manually executed counterpart of this Consent.
This Consent shall be governed by, and construed in accordance with,
the laws of the State of New York.
MEDGP, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
<PAGE>
-2-
MEDPARTNERS ACQUISITION CORPORATION
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS AVIATION, INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS EAST, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
GEORGIA MEDPARTNERS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS INTEGRATED NETWORK-CHANDLER,
INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-3-
MEDPARTNERS PROFESSIONAL
MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
ADS HEALTH MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTHWAYS, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
BAY AREA PRACTICE MANAGEMENT GROUP, INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
<PAGE>
-4-
CHS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INTERNATIONAL INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ Leisa Kizer
------------------------------------
Name: Leisa Kizer
Title: Treasurer
CAREMARK PHYSICIAN SERVICES OF TEXAS
INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PRESCRIPTION HEALTH SERVICES, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-5-
STRATEGIC HEALTHCARE MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CAREMARK INTERNATIONAL HOLDINGS INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PHYSICIAN SERVICES INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CAREMARK RESOURCES CORPORATION
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
FRIENDLY HILLS HEALTHCARE NETWORK INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-6-
MEDPARTNERS NSC LTD.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATIVE SERVICES,
INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS MANAGED CARE, INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
ACUTE CARE MEDICAL MANAGEMENT, INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
BGS HEALTHCARE, INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-7-
HOME HEALTH AGENCY OF GREATER MIAMI,
INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS MANAGED CARE OF SOUTH
BROWARD, INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS MEDICAL MANAGEMENT OF OHIO,
INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
LFMG, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PACIFIC MEDICAL GROUP, INC.
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-8-
PACIFIC PHYSICIAN SERVICES, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS EAST, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS NORTH CAROLINA MEDICAL MANAGEMENT,
INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS RIVERSIDE DIVISION ACQUISITION AND
MANAGEMENT CORP. I
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS VALLEY MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-9-
PPS INDEMNITY, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES ARIZONA, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES NEVADA, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PHYSICIANS' HOSPITAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
RELIANT HEALTHCARE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
<PAGE>
-10-
MEDPARTNERS/TALBERT MEDICAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT MEDICAL MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT HEALTH SERVICES CORPORATION
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATION, L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedGP, Inc.
MEDPARTNERS PHYSICIAN MANAGEMENT, L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedGP, Inc.
<PAGE>
-11-
MEDOHIO, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition
Corporation
MEDTEN, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition
Corporation
MEDTEX, L.P.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedPartners Acquisition
Corporation
MEDPARTNERS PHYSICIAN SERVICES OF
ILLINOIS L.L.C.
By /s/ James H. Dickerson, Jr.
------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
North Suburban Clinic, Ltd.
<PAGE>
-12-
CERRITOS INVESTMENT GROUP
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President &
Chief Financial Officer of
MedPartners, Inc.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
CERRITOS INVESTMENT GROUP II
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President &
Chief Financial Officer of
MedPartners, Inc.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
FAMILY MEDICAL CENTER
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary of
Pacific Medical Group, Inc.
<PAGE>
-13-
5000 AIRPORT PLAZA, L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President &
Chief Financial Officer of
MedPartners, Inc.
By /s/ Sara J. Finley
-------------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc.
KS-PSI OF TEXAS L.P.
By /s/ James H. Dickerson, Jr.
-------------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
Caremark Physician Services
of Texas, Inc.
<PAGE>
AMENDMENT NO. 8 TO THE LOAN DOCUMENTS
AMENDMENT dated as of August 2, 1999 to the Amended and Restated
Credit Agreement dated as of June 9, 1998 (as amended and otherwise modified by
Amendment and Waiver No. 1 to the Loan Documents dated as of December 4, 1998,
Amendment No. 2 to the Loan Documents dated as of January 13, 1999, Amendment
No. 3 to the Loan Documents dated as of February 9, 1999, Amendment and Waiver
No. 4 to the Loan Documents dated as of March 18, 1999, Amendment and Waiver No.
5 to the Loan Documents dated as of April 1, 1999, Amendment No. 6 to the Loan
Documents dated as of April 14, 1999 and Amendment No. 7 to the Loan Documents
dated as of June 29, 1999, the "Credit Agreement") among MedPartners, Inc., a
Delaware corporation (the "Borrower"), the Lenders party thereto, Bank of
America, N.A. (f/k/a NationsBank, N.A.), as the Initial Issuing Bank and the
Swing Line Bank thereunder, Credit Lyonnais New York Branch, The First National
Bank of Chicago and Morgan Guaranty Trust Company of New York, as the
Syndication Agents therefor, Banc of America Securities LLC (formerly
NationsBanc Montgomery Securities LLC), as the Arranger therefor, and Bank of
America, N.A. (f/k/a NationsBank, N.A.), as the Administrative Agent for the
Lender Parties thereunder. Capitalized terms not otherwise defined in this
Amendment have the same meanings as specified therefor in the Credit Agreement.
PRELIMINARY STATEMENTS
(1) The Borrower has requested that the Lender Parties agree to amend
the Credit Agreement in order to (a) increase the aggregate amount of cash and
noncash charges that are permitted to be excluded from the determination of the
Consolidated EBITDA of the Borrower and its Subsidiaries for all Fiscal Quarters
ending on or after December 31, 1998 as a result of the reclassification of the
physician practice management businesses of the Borrower and its Subsidiaries as
"discontinued operations," (b) provide for the retention by the Borrower of
certain Net Cash Proceeds of asset dispositions as set forth herein, (c)
eliminate the Event of Default provision relating to the Incremental CTS
Receivables Securitization and (d) provide for certain loans by and to the
Borrower in connection with the sale of certain of the California Property and
Assets (as defined in the California Settlement Agreement).
(2) The Required Lenders have indicated their willingness to agree to
amend the terms and conditions of the Credit Agreement described above in
Preliminary Statement (1) on the terms and subject to the satisfaction of the
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein and in the Loan Documents, the parties
hereto hereby agree as follows:
SECTION 1. Amendments of Certain Provisions of the Credit Agreement.
--------------------------------------------------------
The Credit Agreement is, upon the satisfaction of the conditions set forth in
Section 2 hereof, hereby amended as of the date hereof as follows:
<PAGE>
(a) Section 1.01 of the Credit Agreement is hereby amended to add the
following new definitions in their appropriate alphabetical order:
"Amendment No. 8 Net Cash Proceeds" has the meaning specified therefor
in the last sentence of Section 5.02(d)."
"Amendment No. 8 Net Cash Proceeds Reserve" means the aggregate amount
of Amendment No. 8 Net Cash Proceeds in excess of $20,000,000."
"Required Lenders' Proceeds Reserve Application Notice" means a notice
to the Borrower from the Administrative Agent on behalf of the Required
Lenders, that the Amendment No. 8 Net Cash Proceeds Reserve is eliminated
and all amounts therein have been applied as provided in Sections
2.01(c)(iii), 2.05(b)(vi) and 2.06(b)."
"Required Lenders' Proceeds Reserve Elimination Notice" means a notice
to the Borrower from the Administrative Agent, on behalf of the Required
Lenders, that the Amendment No. 8 Net Cash Proceeds Reserve is eliminated."
(b) The definition of "Unused Revolving Credit Commitment" in Section 1.01
is amended to delete subclause (b)(ii)(D)(2) thereof and to substitute for such
clause the following clause: "(2) the aggregate amount of the Amendment No. 8
Net Cash Proceeds Reserve, to the extent it has not been eliminated as provided
in Section 2.01(c)(iii)."
(c) Section 2.01(c) of the Credit Agreement is hereby amended to (i)
delete the parenthetical phrase in the fourth sentence of subparagraph (i)
thereof and substitute for such parenthetical phrase the following: "(other than
as expressly provided for in subparagraph (ii) or (iii) of this Section
2.01(c))" and (ii) add a new subparagraph (iii) immediately following
subparagraph (ii) thereof to read as follows:
"(iii) Amendment No. 8 Net Cash Proceeds Reserve. The Revolving
-----------------------------------------
Credit Commitment of the each Revolving Credit Lender shall be deemed
utilized at any time and from time to time by such Lender's Pro Rata Share
of the aggregate amount of the Amendment No. 8 Net Cash Proceeds Reserve;
provided, however, that the Amendment No. 8 Net Cash Proceeds Reserve may
not be established at any time in an amount that exceeds the aggregate
Unused Revolving Credit Commitments of the Revolving Credit Lenders at such
time. Effective as of the earlier of (x) the date of the Required Lenders'
Proceeds Reserve Application Notice and (y) August 31, 1999, (the earlier
of such dates being the 'Application Date'), the Amendment No. 8 Net Cash
Proceeds Reserve shall be eliminated in full, and, notwithstanding any
other provisions of this Agreement, the aggregate amount in the Amendment
No. 8 Net Cash Proceeds Reserve at such date shall be
<PAGE>
deemed to constitute a Revolving Credit Borrowing on such date in such
aggregate amount and the Borrower irrevocably hereby authorizes the
Administrative Agent on such date to reduce the Term Commitments in the
amount of such Revolving Credit Borrowing in accordance with, and to the
extent required under, Section 2.05(b)(vi) and to prepay the Term Advances
outstanding at such time in accordance with, and to the extent required
under, Section 2.06(b); provided, however that if prior to the Application
Date, the Required Lenders' Proceeds Reserve Elimination Notice is
delivered to the Borrower, the Amendment No. 8 Net Cash Proceeds Reserve
shall be eliminated, effective as of the date of such Notice, without any
such requirement to so reduce the Term Commitments."
(d) Section 4.01 is amended to delete subsection (dd) therein.
(e) Section 5.02(b) is amended to delete the period of the end of
subsection (xvii) thereof and to substitute therefor "; and" and to add a new
subsection (xviii) at the end of such Section to read as follows:
"(xviii) Indebtedness in an aggregate principal amount not in excess of
$12,000,000 (and which matures not earlier than two years after the date
such Indebtedness is incurred) of the Borrower to one or more Plans (as
defined in the California Settlement Agreement), the proceeds of which will
be loaned to one or more buyers to finance in part the acquisition of
certain California Property and Assets (as defined in the California
Settlement Agreement), provided that not more than 50% of such Indebtedness
shall be recourse to the Borrower."
(f) Section 5.02(d) of the Credit Agreement is hereby amended to
delete the last paragraph thereof immediately following subsection (xiii)
therein and to substitute therefor the following paragraph:
"Notwithstanding any of the provisions of this Section 5.02(d), the
Borrower and its Subsidiaries may retain (A) Net Cash Proceeds as provided
in the Credit Agreement as in effect prior to the date of Amendment No. 8
to the Loan Documents and (B) up to 100% of the Net Cash Proceeds received
from time to time on or after July 1, 1999 from one or more sales, leases,
transfers or other dispositions expressly permitted under clause (vii),
(viii) or (xi) of this Section 5.02(d), in each case for use in their
business and operations in the ordinary course, so long as the aggregate
amount of all such Net Cash Proceeds referred to in subclause (B) so
retained by the Borrower and its Subsidiaries does not exceed $93,000,000
(such Net Cash Proceeds referred to in subclause (B) being the 'Amendment
No. 8 Net Cash Proceeds'); provided, however, that all Amendment No. 8 Net
Cash Proceeds received after the date of the Required Lenders' Proceeds
Reserve Application Notice shall be applied immediately upon receipt
3
<PAGE>
thereof to reduce the Term Commitments in accordance with, and to the
extent required under, Section 2.05(b)(vi) and to prepay the Term Advances
outstanding at such time in accordance with, and to the extent required
under, Section 2.06(b)."
(g) Section 5.02(e) is amended to delete the period at the end of
subsection (vii) thereof and to substitute therefor "; and" and to add a new
subsection (viii) at the end of such Section to read as follows:
"(viii) Investments by the Borrower in the form of loans in an
aggregate principal amount not in excess of $12,00,000 to KPC Acquisition
Corporation, the proceeds of which will finance in part the purchase of
certain California Property and Assets (as defined in the California
Settlement Agreement)."
(h) Section 5.03(r) is amended to add the following sentence at the
end thereof:
"In addition, as soon as possible and in any event within two Business Days
after the consummation of each sale, lease, transfer or other disposition
of any property or assets of the Borrower or any of its Subsidiaries the
Net Cash Proceeds of which constitute Amendment No. 8 Net Cash Proceeds, a
certificate of a Responsible Officer of the Borrower, in form and substance
reasonably satisfactory to the Administrative Agent, setting forth in
reasonable detail the information referred to in subclauses (A), (B) and
(C) of the preceding sentence in respect of such sale, lease, transfer or
other disposition."
(i) Section 5.03 is amended to reletter subsection (v) thereof as
subsection "(z)" and to add after subsection (u) thereof the following:
"(v) Monthly Financials. As soon as available and in any event
------------------
within 25 days after the end of each month (commencing with respect to the
month of August 1999), a Consolidated and consolidating balance sheet of
the Borrower and its Subsidiaries as of the end of such month and
Consolidated and consolidating statements of operations, stockholders'
equity and cash flows of the Borrower and its Subsidiaries for such month
and for the period commencing at the end of the previous Fiscal Year and
ending with the end of such month, setting forth in comparative form, in
the case of each such Consolidated and consolidating balance sheet, the
corresponding figures as of the last day of the corresponding month in the
immediately preceding Fiscal Year and, in the case of each such
Consolidated and consolidating statement of operations, stockholders'
equity and cash flows, the corresponding figures for the corresponding
month in the immediately preceding Fiscal Year, all in reasonable detail.
4
<PAGE>
(w) Cash on Hand. As soon as available and in any event by the
------------
second Business Day of each week (commencing with the first full week
in September 1999), a certificate of a Responsible Officer of the
Borrower as to the aggregate amount of cash and Cash Equivalents
maintained as of the last Business Day of the immediately preceding
week by the Borrower and its Subsidiaries.
(x) Cash Flow Projections. As soon as available and in any event
---------------------
by the Second Business Day of each week (commencing with the first
full week in September 1999), a certificate of a Responsible Officer
of the Borrower as to the cash flows of the Borrower and its
Subsidiaries, separated among discontinued operations in California,
non-California discontinued operations and each of the business
operations of Caremark (i.e. prescription services division and
therapeutic services division) with corporate overhead not
specifically allocated but only reported as a separate line item, on a
weekly basis for each of the immediately succeeding six weeks
commencing with such week, all in reasonable detail.
(y) Asset Sales. As soon as available and in any event by the
-----------
second Business Day of each week (commencing with the first full week
in September 1999), a certificate of a Responsible Officer of the
Borrower as to the projected dispositions of property of the Borrower
or any of its Subsidiaries in each month for the remainder of the
respective Fiscal Year or the immediately succeeding six-month period,
whichever is longer, including the Net Cash Proceeds expected from
each such disposition, all in reasonable detail."
(j) Section 6.01 of the Credit Agreement is hereby amended (i) to
delete the word "or" at the end of subsection (s) thereof and (ii) to
delete subsection (t) thereof in its entirety.
(k) Paragraph (1) of Schedule II to the Credit Agreement is hereby
amended (i) to delete the figure "$220,000,000" in the ninth line thereof
and to substitute therefor the figure "$233,453,000" and (ii) to delete the
figure "$1,350,000,000" in the last line thereof and to substitute therefor
the figure "$1,351,490,000."
SECTION 2. Conditions Precedent to the Effectiveness of This
-------------------------------------------------
Amendment. This Amendment shall become effective as of the date hereof if on or
- ---------
before August 5, 1999 each of the following conditions shall have been satisfied
(such date when the conditions are satisfied being the "Amendment Effective
Date"):
(a) The Administrative Agent shall have received (i) on or before
3:00 p.m. (Charlotte time) on August 5, 1999, counterparts of this
Amendment executed by the Borrower and the Required Lenders or, as to any
of the Lender Parties, advice satisfactory to the Administrative Agent that
such Lender Party has executed this
5
<PAGE>
Amendment, (ii) the Consent attached hereto shall have been executed and
delivered by each of the Loan Parties (other than the Borrower) and (iii)
for the benefit of each Lender Party that has executed this Amendment on or
before 3:00 p.m. (Charlotte time) on August 5, 1999, a fee from the
Borrower in an amount equal to 0.125% of the aggregate Commitment of such
Lender Party, in each case as of the Business Day immediately preceding the
Amendment Effective Date, which amount will be distributed to the
respective Lender Party no later than the Business Day immediately
succeeding the Amendment Effective Date.
(b) The representations and warranties set forth in each of the Loan
Documents shall be correct in all material respects on and as of the
Amendment Effective Date, after giving effect to this Amendment, as though
made on and as of such date (except (i) for any such representation and
warranty that, by its terms, refers to a specific date other than the
Amendment Effective Date, in which case as of such specific date, (ii) that
the Consolidated financial statements of the Borrower and its Subsidiaries
referred to in Sections 4.01(f) and 4.01(g) of the Credit Agreement shall
be deemed to refer to the Consolidated financial statements of the Borrower
and its Subsidiaries comprising part of the Required Financial Information
most recently delivered to the Administrative Agent and the Lender Parties
pursuant to Sections 5.03(b) and 5.03(c), respectively, on or prior to the
Amendment Effective Date and (iii) that the forecasted Consolidated
financial statements of the Borrower and its Subsidiaries referred to in
Section 4.01(h) of the Credit Agreement shall be deemed to refer to the
forecasted Consolidated financial statements of the Borrower and its
Subsidiaries most recently delivered to the Administrative Agent and the
Lender Parties prior to the Amendment Effective Date).
(c) No event shall have occurred and be continuing (after giving
effect to this Amendment) that constitutes a Default.
(d) All of the reasonable fees and expenses of the Administrative
Agent and the Arranger (including the reasonable fees and expenses of
counsel for the Administrative Agent) due and payable on the Amendment
Effective Date shall have been paid in full.
The effectiveness of this Amendment is further conditioned upon the accuracy of
all of the factual matters described herein. This Amendment is subject to the
provisions of Section 8.01 of the Credit Agreement.
SECTION 3. Fee. In the event the Required Lenders' Proceeds Reserve
---
Elimination Notice is delivered prior to the Application Date pursuant to
Section 2.01(c)(iii) of the Credit Agreement, the Borrower shall pay on the date
of such delivery, and as a condition to such delivery, to the Administrative
Agent, for the benefit of each Lender Party that has approved the delivery of
the Required Lenders' Proceeds Elimination Notice prior to the delivery thereof,
a fee in an amount equal to 0.125% of the aggregate Commitment of such Lender
Party,
6
<PAGE>
in each case as of the Business Day immediately preceding the Amendment
Effective Date, which amount will be distributed to the respective Lender Party
no later than the Business Day immediately succeeding the day of receipt thereof
by the Administrative Agent.
SECTION 4. Reference to and Effect on the Loan Documents. (a) On
---------------------------------------------
and after the Amendment Effective Date, each reference in the Credit Agreement
to "this Agreement", "hereunder", "hereof" or words of like import referring to
the Credit Agreement, and each reference in the Notes and each of the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, the Notes and each of the other Loan
Documents, as amended by the amendments specifically provided above in Section
1, are and shall continue to be in full force and effect and are hereby in all
respects ratified and confirmed. The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any of the Guaranteed Parties or the
Administrative Agent under any of the Loan Documents, or constitute a waiver of
any provision of any of the Loan Documents.
SECTION 5. Costs and Expenses. (a) The Borrower hereby agrees to
------------------
pay, upon demand, all of the reasonable costs and expenses of the Administrative
Agent and the Arranger (including, without limitation, the reasonable fees and
expenses of counsel for the Administrative Agent) in connection with the
preparation, execution, delivery, administration, modification and amendment of
this Amendment and all of the agreements, instruments and other documents
delivered or to be delivered in connection herewith, all in accordance with the
terms of Section 8.04 of the Credit Agreement.
(b) In addition and without limiting any obligations of the Borrower
as provided in the Credit Agreement, the Borrower hereby agrees to pay, upon
demand, all of the reasonable costs and expenses of Sugarman & Company in
connection with its review of the business, affairs, properties, books and
records, operations and prospects of the Borrower and its Subsidiaries,
including discussions with the Administrative Agent and the Lender Parties with
respect thereto.
SECTION 6. Execution in Counterparts. This Amendment may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 7. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers, thereunto duly authorized, as of the
date first written above.
THE BORROWER
MEDPARTNERS, INC.
By /s/ Peter Clemens
--------------------------
Name: Peter Clemens
Title: Treasurer
S-2
<PAGE>
THE ADMINISTRATIVE AGENT
BANK OF AMERICA, N.A. (f/k/a NATIONSBANK, N.A.)
By /s/ Philips S. Durand
---------------------------
Name: Philips S. Durand
Title: Principal
S-3
<PAGE>
THE LENDER PARTIES
BANK OF AMERICA, N.A. (f/k/a
NATIONSBANK, N.A.), as a Lender,
the Swing Line Bank and the Issuing Bank
By /s/ Philips S. Durand
----------------------------
Name: Philips S. Durand
Title: Principal
S-4
<PAGE>
AMSOUTH BANK
By /s/ Allison J. Sanders
-----------------------------
Name: Allison J. Sanders
Title: Vice President
S-5
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Philip D. Durand
-----------------------------
Name: Philip D. Durand
Title: Principal
S-6
<PAGE>
THE CHASE MANHATTAN BANK
By /s/ Dawn Lee Lum
-----------------------------
Name: Dawn Lee Lum
Title: Vice President
S-7
<PAGE>
CITIBANK, N.A.
By ________________________________
Name:
Title:
S-8
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Henry J. Reukauf
-----------------------------
Name: Henry J. Reukauf
Title: Vice President
S-9
<PAGE>
DEBT STRATEGIES FUND, INC.
By ________________________________
Name:
Title:
S-10
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ L. Richard Schiller
--------------------------------
Name: L. Richard Schiller
Title: Vice President
S-11
<PAGE>
FIRST UNION NATIONAL BANK
By /s/ Richard Davis
-------------------------
Name: Richard Davis
Title: Vice President
S-12
<PAGE>
FLOATING RATE PORTFOLIO
BY: INVESCO Senior Secured
Management Inc., as attorney in fact
By /s/ Anne M. McCarthy
---------------------------------
Name: Anne M. McCarthy
Title: Authorized Signatory
S-13
<PAGE>
KZH HIGHLAND-2 LLC
By /s/ Peter Chin
----------------------------
Name: Peter Chin
Title: Authorized Agent
S-14
<PAGE>
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By /s/ Neil Brisson
-------------------------
Name: Neil Brisson
Title: Director
S-15
<PAGE>
MERRILL LYNCH DEBT STRATEGIES
PORTFOLIO, INC.
BY: MERRILL LYNCH ASSET
MANAGEMENT L.P., as Investment Advisor
By _________________________________
Name:
Title:
S-16
<PAGE>
MERRILL LYNCH GLOBAL INVESTMENT
SERIES: INCOME STRATEGIES PORTFOLIO
BY: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment
Advisor
By ________________________________
Name:
Title:
S-17
<PAGE>
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By ________________________________
Name:
Title:
S-18
<PAGE>
MERRILL LYNCH PRIME RATE PORTFOLIO
BY: MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment
Advisor
By __________________________________
Name:
Title:
S-19
<PAGE>
ML CBO IV (CAYMAN) LTD.
BY: HIGHLAND CAPITAL MANAGEMENT,
L.P., as Collateral Manager
By /s/ Mark K. Okada CFA
--------------------------------
Name: Mark K. Okada CFA
Title: Executive Vice President
S-20
<PAGE>
ML CLO XX PILGRIM AMERICA
(CAYMAN) LTD.
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By /s/ Jeffrey A. Bakalar
------------------------------
Name: Jeffrey A. Bakalar
Title: Vice President
S-21
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Anna Marie Fallon
----------------------------------
Name: Anna Marie Fallon
Title: Vice President
S-22
<PAGE>
PAM CAPITAL FUNDING, LP
BY: HIGHLAND CAPITAL MANAGEMENT,
L.P., as Collateral Manager
By /s/ Mark K. Okada CFA
--------------------------------
Name: Mark K. Okada CFA
Title: Executive Vice President
S-23
<PAGE>
PAMCO CAYMAN, LTD.
BY: HIGHLAND CAPITAL MANAGEMENT,
L.P., as Collateral Manager
By /s/ Mark K. Okada CFA
------------------------------
Name: Mark K. Okada CFA
Title: Executive Vice President
S-24
<PAGE>
PILGRIM PRIME RATE TRUST
BY: PILGRIM INVESTMENTS, INC.,
as Investment Manager
By /s/ Jeffrey A. Bakalar
------------------------------
Name: Jeffrey A. Bakalar
Title: Vice President
S-25
<PAGE>
SCOTIABANC INC.
By /s/ Dana Maloney
--------------------------------
Name: Dana Maloney
Title: Relationship Manager
S-26
<PAGE>
SRV-HIGHLAND, INC.
By /s/ Kelly C. Walker
-----------------------------
Name: Kelly C. Walker
Title: Vice President
S-27
<PAGE>
STEIN ROE & FARNHAM INCORPORATED,
as Agent for KEYPORT LIFE INSURANCE
COMPANY
By /s/ Brian W. Wood
--------------------------------
Name: Brian W. Wood
Title: Vice President & Portfolio Manager
S-28
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By /s/ Sonja R. Jordan
-----------------------------------
Name: Sonja R. Jordan
Title: Vice President
S-29
<PAGE>
TRANSAMERICA LIFE INSURANCE AND
ANNUITY CO.
By /s/ John M. Casparian
--------------------------------
Name: John M. Casparian
Title: Investment Officer
S-30
<PAGE>
TRANSAMERICA PREMIER HIGH YIELD
FUND
By /s/ Heather Creeden
----------------------------------
Name: Heather Creeden
Title: Investment Officer
S-31
<PAGE>
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/ Bradley S. Marcus
-----------------------------
Name: Bradley S. Marcus
Title: Senior Vice President
S-32
<PAGE>
VAN KAMPEN SENIOR INCOME TRUST
By __________________________________
Name:
Title:
S-33
<PAGE>
VAN KAMPEN CLO II, LIMITED
BY: VAN KAMPEN MANAGEMENT, INC.,
as Collateral Manager
By ____________________________________
Name:
Title:
S-34
<PAGE>
WACHOVIA BANK, N.A.
By /s/ Bradley S. Marcus
--------------------------------
Name: Bradley S. Marcus
Title: Senior Vice President
S-35
<PAGE>
Consent to Amendment No. 8
to the Loan Documents
As of August 2, 1999
Reference is made to Amendment No. 8 to the Loan Documents dated as of
August 2, 1999 (the "Amendment") to the Amended and Restated Credit Agreement
dated as of June 9, 1998 (as amended and otherwise modified by Amendment No. 1
to the Loan Documents dated as of December 4, 1998, Amendment No. 2 to the Loan
Documents dated as of January 13, 1999, Amendment No. 3 to the Loan Documents
dated as of February 9, 1999, Amendment and Waiver No. 4 to the Loan Documents
dated as of March 18, 1999, Amendment and Waiver No. 5 to the Loan Documents
dated as of April 1, 1999, Amendment No. 6 to the Loan Documents dated as of
April 14, 1999 and Amendment No. 7 to the Loan Documents dated as of June 29,
1999, the "Credit Agreement") among MedPartners, Inc., a Delaware corporation,
the Lenders party thereto, Bank of America, N.A. (f/k/a NationsBank, N.A.), as
the Initial Issuing Bank and Swing Line Bank thereunder, Credit Lyonnais New
York Branch, The First National Bank of Chicago and Morgan Guaranty Trust
Company of New York, as the Syndication Agents therefor, Banc of America
Securities LLC (formerly NationsBanc Montgomery Securities LLC), as Arranger
therefor, and Bank of America, N.A. (f/k/a NationsBank, N.A.), as the
Administrative Agent for the Lender Parties thereunder. Capitalized terms not
otherwise defined herein shall have the same meanings as specified therefor in
the Credit Agreement.
Each of the undersigned, as a guarantor under the Subsidiaries
Guarantee dated as of June 9, 1998 (as modified to the date hereof, the
"Subsidiaries Guarantee") in favor of the Guaranteed Parties, hereby consents to
the execution and delivery of the Amendment and the performance of the Credit
Agreement, as amended thereby, and hereby confirms and agrees that,
notwithstanding the effectiveness of the Amendment, the Subsidiaries Guarantee
is, and shall continue to be, in full force and effect and is hereby in all
respects ratified and confirmed, except that each reference in the Subsidiaries
Guarantee to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and be a reference to the
Credit Agreement, as amended by the Amendment.
This Consent may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Consent. Delivery of an executed counterpart of a
signature page to this Consent by telecopier shall be effective as delivery of a
manually executed counterpart of this Consent.
<PAGE>
This Consent shall be governed by, and construed in accordance with,
the laws of the State of New York.
MEDGP, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS ACQUISITION CORPORATION
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDPARTNERS AVIATION, INC.
By /s/ Sara J. Finley
--------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS EAST, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
GEORGIA MEDPARTNERS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
--------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
2
<PAGE>
MEDPARTNERS INTEGRATED
NETWORK-CHANDLER, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS PROFESSIONAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
ADS HEALTH MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HEALTHWAYS, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
3
<PAGE>
BAY AREA PRACTICE MANAGEMENT GROUP,
INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CHS MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INTERNATIONAL INC.
By /s/ James H. Dickerson, Jr.
---------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
CAREMARK INC.
By /s/ Sara J. Finley
---------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
By /s/ Leisa Kizer
---------------------------------
Name: Leisa Kizer
Title: Treasurer
4
<PAGE>
CAREMARK PHYSICIAN SERVICES OF
TEXAS INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PRESCRIPTION HEALTH SERVICES, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
STRATEGIC HEALTHCARE MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
CAREMARK INTERNATIONAL HOLDINGS INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
5
<PAGE>
MEDPARTNERS PHYSICIAN SERVICES INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
CAREMARK RESOURCES CORPORATION
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
FRIENDLY HILLS HEALTHCARE NETWORK
INC.
By /s/ Sara J. Finley
----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS NSC LTD.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATIVE SERVICES,
INC.
By /s/ James H. Dickerson, Jr.
----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
6
<PAGE>
MEDPARTNERS MANAGED CARE, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
ACUTE CARE MEDICAL MANAGEMENT, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
BGS HEALTHCARE, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
HOME HEALTH AGENCY OF GREATER
MIAMI, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
MEDPARTNERS MANAGED CARE OF SOUTH
BROWARD, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
7
<PAGE>
MEDPARTNERS MEDICAL MANAGEMENT OF
OHIO, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
LFMG, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
PACIFIC MEDICAL GROUP, INC.
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PACIFIC PHYSICIAN SERVICES, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS EAST, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
8
<PAGE>
PPS NORTH CAROLINA MEDICAL MANAGEMENT,
INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS RIVERSIDE DIVISION ACQUISITION
AND MANAGEMENT CORP. I
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PPS VALLEY MANAGEMENT, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
PPS INDEMNITY, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
9
<PAGE>
PACIFIC PHYSICIAN SERVICES ARIZONA,
INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PACIFIC PHYSICIAN SERVICES NEVADA,
INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
PHYSICIANS' HOSPITAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
RELIANT HEALTHCARE SYSTEMS, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary
10
<PAGE>
MEDPARTNERS/TALBERT MEDICAL MANAGEMENT
CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT MEDICAL MANAGEMENT CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
TALBERT HEALTH SERVICES CORPORATION
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer
MEDPARTNERS ADMINISTRATION, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President of
MedPartners, Inc.,
the General Partner
11
<PAGE>
MEDPARTNERS PHYSICIAN MANAGEMENT, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President of
MedPartners, Inc.,
the General Partner
MEDOHIO, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedGP, Inc.,
the General Partner
MED TENNESSEE, INC.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer
MEDTEX, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: President & Treasurer of
MedGP, Inc.,
the General Partner
12
<PAGE>
MEDPARTNERS PHYSICIAN SERVICES
OF ILLINOIS L.L.C.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
North Suburban Clinic, Ltd.,
a Member
CERRITOS INVESTMENT GROUP
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President &
Chief Financial Officer of
MedPartners, Inc., a Partner
By /s/ Sara J. Finley
-----------------------------------
Name:Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc., a Partner
CERRITOS INVESTMENT GROUP II
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President &
Chief Financial Officer of
MedPartners, Inc., a Partner
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc., a Partner
13
<PAGE>
FAMILY MEDICAL CENTER
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Vice President & Secretary of
Pacific Medical Group, Inc.,
a Partner
5000 AIRPORT PLAZA, L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Executive Vice President &
Chief Financial Officer of
MedPartners, Inc., the
General Partner
By /s/ Sara J. Finley
-----------------------------------
Name: Sara J. Finley
Title: Corporate Secretary of
MedPartners, Inc., the
General Partner
KS-PSI OF TEXAS L.P.
By /s/ James H. Dickerson, Jr.
-----------------------------------
Name: James H. Dickerson, Jr.
Title: Vice President & Treasurer of
MedPartners Physician
Services Inc., the General
Partner
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,639
<SECURITIES> 0
<RECEIVABLES> 189,205
<ALLOWANCES> 11,841
<INVENTORY> 137,612
<CURRENT-ASSETS> 600,637
<PP&E> 108,167
<DEPRECIATION> 0
<TOTAL-ASSETS> 906,659
<CURRENT-LIABILITIES> 806,690
<BONDS> 1,334,887
0
0
<COMMON> 199
<OTHER-SE> (1,317,275)
<TOTAL-LIABILITY-AND-EQUITY> 906,659
<SALES> 0
<TOTAL-REVENUES> 1,581,265
<CGS> 1,440,952
<TOTAL-COSTS> 58,315
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,560
<INCOME-PRETAX> 24,438
<INCOME-TAX> 1,908
<INCOME-CONTINUING> 22,530
<DISCONTINUED> (199,310)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,780)
<EPS-BASIC> (0.93)
<EPS-DILUTED> (0.91)
</TABLE>
