<PAGE> 1
EXHIBIT 2.1
================================================================================
SECOND AMENDED AND RESTATED
OPERATIONS AND SETTLEMENT AGREEMENT
DATED SEPTEMBER 14, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION. 3
1.1 DEFINITIONS..................................................................... 3
1.2 ACCOUNTING TERMS................................................................ 10
1.3 CONSTRUCTION.................................................................... 10
1.4 SCHEDULES AND EXHIBITS.......................................................... 10
1.5 REFERENCES TO COMMISSIONER AND DOC.............................................. 10
2. SPECIAL MONITOR ROLE. 11
2.1 ROLE OF SPECIAL MONITOR-EXAMINER ON AMENDED AGREEMENT DATE...................... 11
2.2 ROLE OF SPECIAL MONITOR-EXAMINER ON EFFECTIVE DATE.............................. 12
2.3 APPLICATION OF DOC REGULATIONS PERTAINING TO TANGIBLE NET EQUITY REQUIREMENTS... 13
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.................... 13
2.5 ROLE OF SPECIAL MONITOR AFTER CONFIRMATION OF PLAN OF REORGANIZATION;
RECONSTITUTED CREDITORS' COMMITTEE.............................................. 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........................................ 15
3.5 PAYMENT OF CLAIMS............................................................... 15
3.6 INTENTIONALLY LEFT BLANK........................................................ 20
3.7 NEGATIVE ASSURANCES............................................................. 20
PROCEDURES FOR PROVIDER CLAIMS........................................................... 21
3.9 RELINQUISHMENT OF LICENSE OF MPN................................................ 22
4. REPRESENTATIONS AND WARRANTIES OF MEDPARTNERS 22
4.1 ORGANIZATION.................................................................... 22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
4.2 DUE AUTHORIZATION: NO CONFLICT ................................ 23
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
6.3 SUCCESSOR IN INTEREST ......................................... 24
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. 27
9.1 STATE COURT ACTIONS ........................................... 27
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 ............................................. 29
10.3 APPLICATION TO STATE COURT .................................... 29
10.4 REMEDIES ...................................................... 29
11. DEFAULT BY THE STATE. 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
11.1 DEFAULT ....................................................... 29
11.2 NOTICE OF DEFAULT ............................................. 29
11.3 APPLICATION TO STATE COURT .................................... 30
11.4 REMEDIES ...................................................... 30
12. ALTERNATIVE DISPUTE RESOLUTION. 30
12.1 DISPUTES ...................................................... 30
12.2 INITIATION OF ARBITRATION ..................................... 30
12.3 ARBITRATOR .................................................... 31
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 ............................................. 32
13. CONDITIONS PRECEDENT TO EFFECTIVENESS. 32
14. TERMINATION. 33
14.1 TERMINATION EVENTS ............................................ 33
14.2 SURVIVAL OF CERTAIN PROVISIONS ................................ 33
15. NOTICES. 34
16. GENERAL PROVISIONS. 36
16.1 TIME OF THE ESSENCE ........................................... 36
16.2 CHOICE OF LAW ................................................. 36
16.3 SUCCESSORS AND ASSIGNS ........................................ 36
16.4 SECTION HEADINGS .............................................. 36
16.5 SEVERABILITY OF PROVISIONS .................................... 36
16.6 AMENDMENTS IN WRITING ......................................... 36
16.7 COUNTERPARTS; TELEFACSIMILE EXECUTION ......................... 37
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
16.8 INTEGRATION .................................................... 37
16.9 CONFIDENTIALLY ................................................. 37
16.10 PRESS RELEASES ................................................. 38
16.11 ACTIONS BY THE STATE ........................................... 38
16.12 CONSENT TO JURISDICTION ........................................ 38
16.13 PLAN AND PROVIDER STIPULATIONS ................................. 39
16.14 THIRD PARTY BENEFICIARIES ...................................... 39
16.15 EXHIBITS OR SCHEDULES .......................................... 40
16.16 ATTORNEYS' FEES ................................................ 40
16.17 RELATED AGREEMENTS ............................................. 40
16.18 REPRESENTATION BY COUNSEL; DRAFTS; INTERPRETATION .............. 46
16.19 WAIVER OF DEFENSES ............................................. 46
16.20 FURTHER ASSURANCES ............................................. 46
17. RELEASE. 46
17.1 RELEASE......................................................... 46
17.2 WAIVER ......................................................... 46
</TABLE>
iv
<PAGE> 6
SECOND AMENDED AND RESTATED
OPERATIONS AND SETTLEMENT AGREEMENT
THE OPERATIONS AND SETTLEMENT AGREEMENT entered into as of June 9,
1999, and which was first amended and restated as of June 16, 1999, is hereby
further amended and restated and the Second Amended and Restated Operations and
Settlement Agreement entered into as of September 14, 2000 (this "Agreement"),
among the Director of the Department of Managed Care of the State of California
(the "Director"), as successor in interest to the Commissioner (as defined
below) and Department of Managed Care of the State of California, as successor
in interest to the DOC (as defined below) (collectively, the "DMC" or the
"State"), J. Mark Abernathy, as Special Monitor-Examiner, Caremark Rx, Inc., a
Delaware corporation f/k/a MedPartners, Inc., 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 (as defined
below). 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 ss. 1393(b) and a Demand for and Order Appointing Conservator Pursuant to
Health & Safety Code ss. 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 ss. 526); Complaint for Declaratory
Relief (CCP ss. 1060) and Application for Order to Show Cause (HSC ss. 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 ss. 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;
<PAGE> 7
WHEREAS, on May 10, 1999, Commissioner in the exercise of his
regulatory power issued a Stay of the Conservatorship Order (the "Stay");
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, 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;
WHEREAS, the parties have determined to settle the State Court Actions
as provided herein;
WHEREAS, the parties entered into the Amended and Restated Operations
and Settlement Agreement as of June 16, 1999 (the "First Amended and Restated
Agreement");
WHEREAS, the parties have previously entered into Amendments Nos. 1
through 19 to the First Amended and Restated Agreement;
2
<PAGE> 8
WHEREAS, MPN has filed an amendment to the Plan of Reorganization (as
defined below) which requires modifications to the First Amended and Restated
Agreement;
WHEREAS, the parties further desire to amend the First Amended and
Restated Agreement to allow for the present effectiveness of certain provisions
of the Agreement, subject to certain termination events; and
WHEREAS, the parties acknowledge that the conditions precedent set
forth in Sections 13(b), 13(c), and 13(d) of the Agreement have been satisfied
or waived.
WHEREAS, pursuant to recent amendments to applicable California law,
the Director and the DMC have succeeded to certain rights, duties, obligations
and liabilities of the Commissioner and the DOC, respectively, including,
without limitation the rights and duties of the Commissioner and the DOC under
this Agreement and the transactions contemplated hereby.
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:
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 Second Amended and Restated Agreement dated as of
__________ ,2000.
"Agreement Date" means June 9, 1999.
"Allowed MPN Claim" shall have the meaning set forth in the Plan of
Reorganization.
"Amended Agreement Date" means June 16, 1999, the date on which the
First Amended and Restated Operations and Settlement Agreement was 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.
3
<PAGE> 9
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C.ss.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 16.14.
"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 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 PricewaterhouseCoopers LLP.
"Commissioner" means the Commissioner of the Department of Corporations
of the State of California.
4
<PAGE> 10
"Confidential Information" has the meaning set forth in Section
16.9(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.
"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.
"Director" has the meaning set forth in the preamble hereto.
"DOC" means the Department of Corporations of the State of California.
"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.
"DMC" has the meaning set forth in the preamble hereto.
"Effective Date" has the meaning set forth in Section 13.
"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
5
<PAGE> 11
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.
"First Amended and Restated Agreement" has the meaning set forth in the
recitals hereto.
"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.
"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 ss. 1340, et seq.), as amended.
"Lender" has the meaning set forth in Section 3.5(c) hereof.
"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 Plan Release" is the release with respect
to a Consenting Plan's Managed Physician Practice Provider Claims referred to in
Section 16.17(c) hereof and Section 10.2 of the Supplemental Plan Agreement.
"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
6
<PAGE> 12
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 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 ss. 526); Complaint for Declaratory Relief (CCP ss. 1060) and Application
for Order to Show Cause (HSC ss. 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 Letter of Credit" has the meaning set forth in Section 3-5(c)
hereof.
"MPN Plan Release" is the release with respect to a Consenting Plan's
MPN Provider Claims referred to in Section 16.17(c) hereof and Section 10.2 of
the Supplemental Plan Agreement.
"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,
7
<PAGE> 13
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 the release by a Provider that is
included in Article 9 of the Plan of Reorganization and that is agreed to and
granted by a Provider pursuant to the mechanism included in the Plan of
Reorganization or otherwise, whereby a Consenting MPN Provider agrees to release
MedPartners and the Consenting Plans as set forth therein.
"MPP Letter of Credit" has the meaning set forth in Section 3.5(c)
hereof.
"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 16.17.
"MPPP Release" means a release by a Provider substantially in the form
set forth on Schedule A hereto, whereby a Consenting Managed Physician Practice
Provider agrees to release MedPartners, the Consenting Plans and the applicable
Managed Physician Practice, as set forth therein.
"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" means the plan of reorganization filed by MPN
in the Bankruptcy Case that is supported by MedPartners and that is consistent
with this Agreement.
"Plan of Reorganization Effective Date" means the date that the Plan of
Reorganization is effective as provided in the definition of "Effective Date" in
the Plan of Reorganization.
"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
8
<PAGE> 14
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.
"Reconstituted Committee" has the meaning set forth in the Plan of
Reorganization.
"Records" has the meaning set forth in Section 2.1(b)(iii) of this
Agreement.
"Representatives" has the meaning set forth in Section 16.14(b) 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.
"Special Monitor Order" has the meaning set forth in the Recitals.
9
<PAGE> 15
"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
16.17.
"Supplemental Plan Agreement Party" has the meaning set forth in
Section 16.17.
"Term" means the term commencing on the Agreement Date and ending in
accordance with Section 14.
"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.
1.5 REFERENCES TO COMMISSIONER AND DOC. From the date hereof, all
references in this Agreement to the Commissioner shall refer to the Director and
all references to the DOC shall refer to the DMC, unless the context otherwise
clearly indicates.
10
<PAGE> 16
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, or such other location reasonably
acceptable to the parties and 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
11
<PAGE> 17
Monitor-Examiner or his staff shall either approve or disapprove such payment or
transfer and 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 until
terminated as set forth in Section 2.5 below, 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, or such other location reasonably
12
<PAGE> 18
acceptable to the parties and 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 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. ss. 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
13
<PAGE> 19
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.
(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) Subject to the limitations set forth in Section
2.4(g) below, 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) MPN shall pay the reasonable fees and expenses of
counsel to the Reconstituted Committee and Crossroads, LLC, in accordance with
the terms and conditions of the Plan of Reorganization.
(h) MedPartners shall cause to be funded the expenses of
MPN set forth in Sections 2.4(b)-(d) and (g) hereof; provided, however, that
MedPartners shall not cause to be funded any claims under Section 503(b)(3) or
(4) of the Bankruptcy Code.
(i) Except as set forth in Section 2.4, Section 12.4 and
Section 16.16 of this Agreement, MedPartners shall not be liable for any fees or
expenses of the State or the Agency.
2.5 ROLE OF SPECIAL MONITOR AFTER CONFIRMATION OF PLAN OF
REORGANIZATION; RECONSTITUTED CREDITORS' COMMITTEE. Upon the Plan of
Reorganization Effective Date, the role of the Special Monitor-Examiner of MPN
and the California Operations as to MTN Provider Claims shall automatically
terminate without any further acts by any Person. As of such date, the Special
Monitor-Examiner shall cease to perform the functions described in Section 2.2
hereof. Upon the Plan of Reorganization Effective Date, the Committee shall be
reconstituted as the Reconstituted Committee as provided for in the Plan of
Reorganization and shall have such rights and duties as provided in the Plan of
Reorganization in addition to the rights and duties of
14
<PAGE> 20
the Creditors' Committee hereunder. Each Consenting Plan shall be entitled to
exercise any right of enforcement that it may have under Section 16.14,
notwithstanding any provision of this Agreement providing for notice to or
action by the Special Monitor-Examiner. Without limiting the generality of the
foregoing, nothing in Section 3.8(d) hereof or any other provision concerning
the rights and powers of the Special Monitor-Examiner shall affect or impede any
Consenting Plan's right to enforce this Agreement under Section 16.14.
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 as of the Amended Agreement
Date 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.
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 between the California Accounts in accordance with the terms of the
stipulation entered into in the Bankruptcy Case with respect to the allocation
to MPN.
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,
15
<PAGE> 21
or by causing to be paid) the following Provider Claims and Plan Preserved
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 Consenting Plans who have executed
an MPN Plan 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 Consenting Plans who have executed a Managed Physician Practice Plan
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:
(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 and Plan Preserved 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 and Plan Preserved Claims.
(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(h); 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.
16
<PAGE> 22
(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 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 ss. 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 three Business Days after MedPartners receives the
approval by the Creditors Committee of the form of the MPPP Release.
(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 and the Plan of Reorganization upon receipt by MedPartners
and MPN of the MPN Provider Release; and
(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.
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.
(1) As a part of the MedPartners Funding
Commitment, as soon as possible following the Plan of Reorganization Effective
Date, MedPartners shall cause Bank of America (the "Lender") to issue an
irrevocable letter of credit in the amount of $38 million in favor of MPN, which
shall substantially be in the form attached hereto as Schedule 3.5(c-1) (the
"MPN Letter of Credit"). If the Lender fails to provide notice of renewal of the
MPN Letter of Credit on or before the tenth business day prior to the then
current Stated Expiration Date (as defined in the MPN Letter of Credit),
MedPartners shall have the right to replace the MPN Letter of Credit with a new
letter of credit issued by a lender reasonably acceptable to the Reconstituted
Committee. If this Agreement terminates, MPN agrees to provide notice of such
termination to the Lender pursuant to the terms of the MPN Letter of Credit
within five (5) Business Days of such termination. MPN also agrees to provide
the
17
<PAGE> 23
Lender with any other certification or documentation reasonably required
pursuant to the terms of the MPN Letter of Credit or any replacement or renewal
letter of credit. The funds made available to MPN under the MPN Letter of Credit
shall be used to pay MPN Provider Claims of Consenting Providers and Consenting
Plans and Plan Preserved Claims of Consenting Plans that become Allowed MPN
Claims and are subject to the MedPartners Funding Commitment as they become
payable after giving effect to all valid offsets and recoupments. To the extent
MPN Provider Claims held by Consenting Providers are not paid from the MPN
Letter of Credit, MedPartners shall fulfill the MedPartners Funding Commitment
with respect to such MPN Provider Claims in accordance with Section 3.5(b) above
and the Plan of Reorganization. To the extent MPN Provider Claims and MPN Plan
Preserved Claims held by Consenting Plans that are payable in accordance with
this Agreement and the Supplemental Plan Agreement are not paid from the
proceeds of the MPN Letter of Credit, they shall be payable as provided in
Section 3.5(f) below and the Plan of Reorganization. All allowed Plan Preserved
Claims and allowed MPN Provider Claims held by Consenting Plans that execute the
MPN Plan Release and that are not paid after exhaustion of the proceeds of the
MPN Letter of Credit shall be subject to the MedPartners Funding Commitment and
shall be paid in accordance with and subject to the Plan of Reorganization and
the Supplemental Plan Agreement, as modified by any other agreement between MPN
and a Consenting Plan that has been approved by final order of the Bankruptcy
Court.
(2) As part of the MedPartners Funding
Commitment, as soon as possible following the Plan of Reorganization Effective
Date, MedPartners shall cause the Lender to issue an irrevocable letter of
credit in the amount of $2 million, which shall be substantially in the form
attached hereto as Schedule 3.5(c-2) (the "MPP Letter of Credit"). MedPartners
agrees to replace the MPP Letter of Credit on or before its stated expiration
date with a replacement letter of credit in the then current stated amount which
shall have substantially similar drawing terms and conditions and a stated
expiration date which is the date one year from the Plan of Reorganization
Effective Date. The funds made available under the MPP Letter of Credit shall be
used to pay Managed Physician Practice Provider Claims of Consenting Providers
and Consenting Plans that execute a Managed Physician Practice Plan Release and
Managed Physician Practice Plan Preserved Claims of Consenting Plans and that
are subject to the MedPartners Funding Commitment.
(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
18
<PAGE> 24
(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 Provider Claims and Plan Preserved
Claims, and there are excess funds in either of the California Accounts any such
excess shall not be subject to withdrawal as excess funds and shall be used to
satisfy Provider Claims and Plan Preserved 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 and
Plan Preserved Claims against MPN 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 and Plan Preserved Claims against the Managed
Physician Practices has been fully satisfied.
(4) For purposes of this Section 3.5(d):
(A) The MedPartners Funding Commitment
with respect to MPN Provider Claims and Plan Preserved Claims against MPN 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 and Plan
Preserved Claims against Managed Physician Practices 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
19
<PAGE> 25
their enrollees to unaffiliated networks with capacity sufficient to provide
uninterrupted Health 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.
(f) Timing of Payment of Plan Preserved Claims. With
respect to each Consenting Plan and pursuant to the MedPartners Funding
Commitment, MedPartners shall cause Plan Preserved Claims and Provider Claims
that are subject to the MedPartners Funding Commitment held by Consenting Plans
to be paid in accordance with the Supplemental Plan Agreement, as amended or
supplemented from time to time or the terms and conditions of any agreement
between MedPartners and such Consenting Plan that modifies the Supplemental Plan
Agreement as to those parties or between MPN and such Consenting Plan that
modifies the Supplemental Plan Agreement as to those parties and has been
approved by Final Order of the Bankruptcy Court.
3.6 INTENTIONALLY LEFT BLANK.
3.7 NEGATIVE ASSURANCES.
(a) No Liens. Nothing herein is intended, or shall be
construed, to 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
20
<PAGE> 26
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.
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 pre-petition Claims, other than any pre-petition Claim (1)
asserted by any Plan, or (2) that is the subject of a settlement agreement
agreed to by the claimant, shall be filed by May 1, 2000; provided, however,
that the Creditors Committee shall have the right to file objections to
pre-petition Claims through the Plan of Reorganization Effective Date or such
other date as is provided for in the Plan of Reorganization once confirmed. 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.
21
<PAGE> 27
(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 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
16.14 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 ss. 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.
22
<PAGE> 28
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, 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
23
<PAGE> 29
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, 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.
6. REPRESENTATIONS AND WARRANTIES OF THE STATE.
The DMC represents and warrants as follows:
6.1 ORGANIZATION. The DMC is a department of the Agency. The DMC
is duly formed and validly existing under the laws of the State of California.
The Director is the duly appointed director of the DMC.
6.2 DUE AUTHORIZATION. The execution, delivery and performance by
the DMC has been duly authorized by all necessary action.
6.3 SUCCESSOR IN INTEREST. By operation of law, the Director and
the DMC are the successors in interest to the Commissioner and the DOC,
respectively, with respect to the rights, duties and obligations of the
Commissioner and the DOC under this Agreement and the agreements and transaction
contemplated by this Agreement.
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.
24
<PAGE> 30
(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.
(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 the Plan of Reorganization and disclosure statement consistent
with this Agreement, except as provided in Section 16.14(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.
25
<PAGE> 31
(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) Existing Letters of Credit. The Special
Monitor-Examiner agrees to deliver those certain Irrevocable Standby Letters of
Credit, Nos. 3022981 and 3022982 to Bank of America or its designee on the
Effective Date or such other date as may be requested by MedPartners, MPN and
the Creditors Committee in exchange for the issuance of the MPN Letter of Credit
and of the MPP Letter of Credit.
(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 15 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
26
<PAGE> 32
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 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
27
<PAGE> 33
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.
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 (1) 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 16.14) by reason of such
determination or arbitration within five Business Days of such award; or (2) the
nonpayment of (i) a Final Preserved Claim in favor of a Consenting Plan in
accordance with the provisions of the Supplemental Plan Agreement and the Plan
of Reorganization or (ii) with respect to a Claim covered by the MedPartners
Funding Commitment held by a Consenting Plan that may be entitled to any
distribution pursuant to, and in accordance with, the terms and conditions of
any agreement between MedPartners and such Consenting Plan that modifies the
Supplemental Plan Agreement as to those parties or between MPN and such
Consenting Plan that modifies the Supplemental Plan Agreement as to those
parties and has been approved by Final Order of the Bankruptcy Court, 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 or Plan Preserved 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.
28
<PAGE> 34
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 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
29
<PAGE> 35
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-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 other than disputes which are (a) subject to arbitration under the
terms of the Plan of Reorganization or (b) excluded from arbitration pursuant to
Section 20.18 of the Supplemental Plan 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 or, in accordance with
Section 16.14(b), a Representative may initiate arbitration by giving the other
party a written demand for arbitration pursuant to the notice requirements of
Section 15; 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
30
<PAGE> 36
demanding party in accordance with Section 15. 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.
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.
31
<PAGE> 37
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. CONDITIONS PRECEDENT TO EFFECTIVENESS. Except as otherwise provided herein,
the Agreement shall become effective upon the satisfaction or waiver in writing
by each of the parties of all of the following conditions (the "Effective
Date"):
(a) Approval of the Agreement and the transactions
contemplated thereby by the requisite lenders under the Credit Agreement;
(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, 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 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;
32
<PAGE> 38
(f) Entry of an order of the Bankruptcy Court approving
the Second Amended Agreement;
(g) Satisfaction or waiver of all the conditions
precedent to the SPA Effective Date (as defined in) the Supplemental Plan
Agreement;
(h) The Plan of Reorganization Effective Date shall
occur; and
(i) No proceeding is pending for the enjoinment,
suspension, revocation or termination of this Agreement as of the SPA Effective
Date and the Plan Effective Date.
14. TERMINATION.
14.1 TERMINATION EVENTS. This Agreement shall automatically
terminate and be of no further force and effect upon the occurrence of any of
the following events:
(a) MedPartners satisfaction of the MedPartners Funding
Commitment;
(b) Termination of the Supplemental Plan Agreement
pursuant to Section 12.4.1 of the Supplemental Plan Agreement other than Section
12.4.1(c) thereof;
(c) Failure of the Bankruptcy Court to enter an order
confirming the Plan of Reorganization by September 15, 2000;
(d) Entry of an order of the Bankruptcy Court denying
confirmation of the Plan of Reorganization;
(e) Approval by the Bankruptcy Court of a disclosure
statement relating to a plan of reorganization for MPN that is not supported by
MedPartners;
(f) Failure of the Effective Date of the Plan of
Reorganization to occur within 45 days after confirmation of the Plan of
Reorganization by the Bankruptcy Court;
(g) MedPartners obtains a finding from the Bankruptcy
Court, based upon written declarations of MPN Providers, that any of the MPN
Provider thresholds described in Sections 12.2.5 and 12.2.6 of the Supplemental
Plan Agreement will not be met or has not been waived pursuant to the terms of
the Supplemental Plan Agreement; or
(h) Conversion of the Bankruptcy Case to a case under
Chapter 7 of the Bankruptcy Code or an appointment of a trustee over MPN prior
to the Plan of Reorganization Effective Date.
14.2 SURVIVAL OF CERTAIN PROVISIONS. Notwithstanding the provisions
of Section 14.1 hereof, the provisions of Section 17 hereof shall survive
termination of this Agreement pursuant to Section 14.1(a) hereof, provided that
MedPartners has satisfied the MedPartners Funding Commitment.
33
<PAGE> 39
15. 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: CAREMARK RX, 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 PROVIDER NETWORK, INC.
5000 Airport Plaza Drive
Long Beach, California 90815
Attn: Bradley Karro
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
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
34
<PAGE> 40
WITH COPIES TO DANNING, GILL, DIAMOND
& KOLLITZ, A LIMITED LIABILITY PARTNERSHIP
2029 Century Park East, Third Floor
Los Angeles, California 90067-2904
Attn: Richard K. Diamond, Esq.
Fax No.: (310) 277-5735
IF TO THE DIRECTOR: DIRECTOR OF THE DEPARTMENT
OF MANAGED CARE
980 9th Street, Suite 500
Sacramento, California 95814-2725
Attn:
-------------------------------------
Director
Fax No.: (916) 322-5875
IF TO THE DMC: DEPARTMENT OF MANAGED CARE
980 9th Street, Suite 500
Sacramento, California 95814-2725
Attn: Lewis Chartrand, 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
35
<PAGE> 41
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 15,
shall be deemed received on the earlier of the date of actual receipt or three
days after the deposit thereof in the mail. Any notice required to be sent to
the Special Monitor-Examiner after such role terminates pursuant to Section 2.5
shall be sent instead to all the other parties to the Agreement.
16. GENERAL PROVISIONS.
16.1 TIME OF THE ESSENCE. Time is of the essence with respect to
the performance of each of the parties' obligations hereunder.
16.2 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.
16.3 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties.
16.4 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.
16.5 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.
16.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by all of the parties, subject to Section 16.11; provided that
any amendment or modification of this Agreement in a manner that is materially
adverse to the Consenting Plans shall be effective only with (i) the written
consent of Consenting Plans that satisfy the Consenting Plan Threshold Amount
(as such term is defined in the Supplemental Plan Agreement) and (ii) to the
extent required, entry of an order of the Bankruptcy Court approving such
amendment or modification.
36
<PAGE> 42
16.7 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 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.
16.8 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.
16.9 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 16.9, "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 16.9 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
37
<PAGE> 43
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.
(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 nonconfidential 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 16.9(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).
16.10 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.
16.11 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.
16.12 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,
38
<PAGE> 44
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.
16.13 PLAN AND PROVIDER STIPULATIONS. This Agreement shall not in
any manner modify or amend or affect the Provider Stipulation or Plan
Stipulation.
16.14 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 including without
limitation the payment of Plan Preserved Claims or Provider Claims held by a
Consenting Plan; 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 16.14 against MedPartners for breach of this Agreement 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 MTN
Provider Claims, a subcommittee of the Creditors Committee representing such
Beneficiaries, (vi) the Creditors Committee, or (vii) a Plan acting on its own
behalf or otherwise with respect to its rights under Section 16.14(a)(3) (each,
a "Representative").
(c) Threshold for Enforcement. An action to enforce any
right granted to a Beneficiary pursuant to this Section may be commenced only by
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
39
<PAGE> 45
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; or (v) any Plan with respect to its rights under Section
16.14(a)(3). Notwithstanding the foregoing, with respect to eligible
Beneficiaries who hold pre-petition MPN Provider Claims, no such enforcement
action may be commenced or maintained until the Plan of Reorganization Effective
Date.
(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 Plan Preserved 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 or Plan Preserved Claim 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 16.14 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 Providers holding MPN Provider Claims pursuant to this Section
16.14, such rights and benefits may be modified, waived, terminated or released
pursuant to the confirmed and effective Plan of Reorganization, and with respect
to the MPN Provider Claims held by a Consenting Plan, the Supplemental Plan
Agreement, and any other agreement between MPN and a Consenting Plan that (a)
modifies the Supplemental Plan Agreement as to those parties and (b) has been
approved by Final Order of the Bankruptcy Court.
(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 16.14 unless the Beneficiary is acting as the assignee or designee of
the State.
16.15 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.
16.16 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.
16.17 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
40
<PAGE> 46
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 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 16.17 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 16.17(a) shall be
subject to such Plan's fiduciary duties as such a member, exercised reasonably
and in good faith;
(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 August 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
41
<PAGE> 47
of Reorganization or the Supplemental Plan Agreement are waived, 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
42
<PAGE> 48
Plan Preserved Claims arising from Health Care Services arranged for by MPN and
rendered 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 16.17(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 including, without
43
<PAGE> 49
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
44
<PAGE> 50
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 16.17. 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.
Upon the occurrence of the Supplemental Plan Agreement Effective Date
(as defined in the Supplement Plan Agreement), the provisions of Section 16.17
of the Agreement shall be amended and superseded by the Supplemental Plan
Agreement; provided, however, that if the Supplemental Plan Agreement terminates
pursuant to Section 12.4.1 of the Supplemental Plan Agreement (other than
Section 12.4.1(c) thereof) then Section 16.17 shall be reinstated.
45
<PAGE> 51
16.18 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 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.
16.19 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.
16.20 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.
17. RELEASE.
17.1 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.
17.2 WAIVER. The parties hereto acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code ss. 1542, which provides:
46
<PAGE> 52
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 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 ss. 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.
CAREMARK RX, INC.,
a Delaware corporation
By /s/ James H. Dickerson
------------------------------------------------
Title: President & Chief Operating Officer
--------------------------------------------
MEDPARTNERS PROVIDER NETWORK, INC.,
a California corporation
By /s/ Mark Pickett
------------------------------------------------
Title: Vice President Caremark Rx, Inc.
--------------------------------------------
DIRECTOR THE DEPARTMENT OF MANAGED
CARE, AS SUCCESSOR IN INTEREST TO THE COMMISSIONER
OF THE DEPARTMENT OF CORPORATIONS
By /s/ Daniel Zingali
------------------------------------------------
47
<PAGE> 53
DEPARTMENT OF MANAGED CARE
By /s/ Daniel Zingali
------------------------------------------------
Title: Daniel Zingali
Director of the Department of Managed Care
J. MARK ABERNATHY,
as Special Monitor-Examiner and not individually
By /s/ J. Mark Abernathy
------------------------------------------------
Title: J. Mark Abernathy,
as Special Monitor-Examiner
48
