Exhibit 10.6
STOCK SUBSCRIPTION AND PURCHASE AGREEMENT
THIS STOCK SUBSCRIPTION AND PURCHASE AGREEMENT (this "Agreement") is made
this 11th day of October, 1995 by and among Long Island Physician Holdings
Corporation, a New York corporation having an address for the conduct of its
business at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("LIPHC"), Catholic
Healthcare Network of Long Island, Inc., a New York not-for-profit corporation
having an address for the conduct of its business at Good Samaritan Hospital,
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (CHNLI"), and MDLI Healthcare,
Inc., a New York corporation having its principal place of business located at
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("MDLI").
W I T N E S S E T H
WHEREAS, LIPHC and CHNLI have entered into a letter agreement dated June
27, 1995 relating to the formation of MDLI; and
WHEREAS, LIPHC has caused a certificate of incorporation for MDLI to be
filed with the New York Department of State; and
WHEREAS, in connection with the qualification process, LIPHC has caused to
be filed with the New York State Department of Health (the "Department") on
behalf of MDLI, an Application for Certification as a Health Maintenance
Organization under Article 44 of the New York State Public Health Law (an
"HMO"), which application is currently pending before the Department;
NOW, THEREFORE, in consideration of the representations, warranties, and
agreements herein made and on the terms and subject to the conditions herein
contained, the Parties hereby agree as follows:
1. Certain Definitions. As used herein, the following terms shall have the
following meanings:
"Amended By-laws" shall mean the amended By-laws of MDLI in the form
of Exhibit 1 (a) to this Agreement.
"Application for Authority" shall mean MDLI's Application for
Authority submitted to the Department for licensing as an HMO.
"Certificate of Amendment" shall mean an amendment to MDLI's
Certificate of Incorporation in the form of Exhibit 1(b) to this Agreement.
"CHNLI Hospitals" shall mean Good Samaritan Hospital Medical Center,
St. ▇▇▇▇▇▇▇ Hospital and Rehabilitation Center, Mercy Medical Center and St.
▇▇▇▇▇▇▇ Hospital.
"Service Area" shall mean the geographic area, defined by counties
or other geographic subdivisions, identified in the Application for Authority
and any subsequent expansion of such area, as approved by the Department.
"Shareholders Agreement" shall mean a Shareholders Agreement among
LIPHC, MDLI and CHNLI in the form of Exhibit l(c) to this Agreement.
"total reimbursement arrangement" shall mean global reimbursement
for hospital and physician services.
2. Subscription for MDLI Common Stock.
2.1 On the terms and subject to the conditions of this Agreement, MDLI
will issue and sell 300 shares of its Class B Common Stock, par value $.001 per
share (the "Shares"), to CHNLI, and CHNLI will purchase the Shares, at a price
of $10,000 per Share (the "Purchase Price") and for other consideration as set
forth in this Agreement.
2.2 The Purchase Price shall be paid by official bank check payable to
MDLI Healthcare, Inc. on the date set for each purchase; provided, however, that
there, shall be a grace period for the closing and payment of the Purchase Price
of five (5) business days from the date set for the closing.
3. Closings.
3.1 CHNLI shall purchase the Shares from MDLI at four closings as follows:
(a) On October _, 1995, CHNLI shall purchase 100 Shares for an
aggregate Purchase Price of $1,000,000 (the "Initial Closing");
(b) On the later to occur of (i) January 1, 1996, or (ii) the date
upon which the Department has granted MDLI a license to operate as an HMO, CHNLI
shall purchase 100 shares for an aggregate Purchase Price of $1,000,000;
(c) On July 1, 1996, CHNLI shall purchase 50 Shares for an aggregate
Purchase Price of $500,000;
(d) On January 1, 1997, CHNLI shall purchase 50 Shares for an
aggregate Purchase Price of $500,000 (closings (b) through (d) being
individually a "Subsequent Closing," and collectively the "Subsequent
Closings").
3.2 The Initial Closing will take place at 10:00 AM local time at the
offices of MDLI, and each Subsequent Closing will take place at 10:00 AM local
time at the offices of MDLI.
3.3 If, at any time subsequent to the Initial Closing and prior to a
Subsequent Closing, (i) MDLI is required by the New York Department of Insurance
to increase its reserve funds, or (ii) MDLI faces a shortage of working capital,
then MDLI may accelerate the date of any or all Subsequent Closings by giving
written notice (the "Acceleration Notice") to CHNLI at least 90 days prior to
the date to which the Subsequent Closing or Subsequent Closings will be
accelerated. The Acceleration Notice shall indicate the amount of additional
reserve funds or working capital required, whether such acceleration results
from a requirement to increase
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MDLI's reserves or a shortage of working capital, the Subsequent Closing or
Subsequent Closings to be accelerated, and the date to which any Subsequent
Closing shall be accelerated.
4. Conditions.
4.1 The obligation of CHNLI to purchase and pay for the Shares is subject
to the satisfaction on or before the Initial Closing of the following
condition's (any of which may be waived by CHNLI in its sole discretion):
(a) each of the representations and warranties of MDLI and LIPHC
shall be true and correct in all material respects as of the date of the Initial
Closing as though made as of such time and MDLI and LIPHC shall have performed
in all material respects each and every covenant contained in this Agreement
required to be performed by them at the time of the closing, and MDLI shall have
delivered to CHNLI a certificate signed by an appropriate officer of MDLI in the
form attached hereto as Exhibit 4.1(a);
(b) the Certificate of Amendment shall have been duly authorized by
all necessary corporate action of MDLI and fixed by the Department of State of
the State of New York and, except as consented to by CHNLI in writing, the
Certificate of Incorporation of MDLI shall not otherwise have been amended,
modified or supplemented in any respect;
(c) the Amended By-laws shall have been duly authorized by all
necessary corporate action of MDLI and, except as consented to by CHNLI in
writing, shall not have been amended, modified or supplemented in any respect;
(d) the Shareholders Agreement shall have been executed by LIPHC and
MDLI and delivered to CHNLI;
(e) CHNLI shall have received from counsel to LIPHC an opinion,
dated the date of the closing, substantially in the form of Exhibit 4.1(e) to
this Agreement; and
(f) all corporate and other proceedings taken by LIPHC and MDLI in
connection with the transactions contemplated hereby and all documents incident
thereto shall be reasonably satisfactory in form and substance to CHNLI and its
counsel, and CHNLI shall have received all such certified or other copies of all
such documents as CHNLI shall reasonably have requested.
4.2 The obligation of MDLI to issue and sell the Shares to CHNLI is
subject to the satisfaction on or before the Initial Closing of the following
conditions (any of which may be waived by MDLI or LIPHC in their sole
discretion):
(a) each of the representations and warranties of CHNLI made in this
Agreement shall be true and correct in all material respects as of the date of
the Initial Closing as though made as of such time, and CHNLI shall have
performed in all material respects each and every covenant contained in this
Agreement required to be performed by CHNLI at the time of the Initial Closing,
and CHNLI shall have delivered to MDLI and LIPHC a certificate signed by
appropriate officer of CHNLI in the form attached hereto as Exhibit 4.2(a);
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(b) The Shareholders Agreement shall have been executed by CHNLI and
delivered to LIPHC and MDLI;
(c) MDLI and LIPHC shall have received from counsel to CHNLI
opinions, dated the date of the Initial Closing, substantially in the form of
Exhibit 4.2(c) to this Agreement; and,
(d) all corporate and other proceedings taken by CHNLI in connection
with the transactions contemplated hereby and all documents incident thereto
shall be reasonably satisfactory in form and substance to MDLI and LIPHC and
their counsel, and MDLI and LIPHC shall have received all such certified or
other copies of all such documents as MDLI and LIPHC shall have reasonably
requested.
5. Representations and Warranties of MDLI to CHNLI.
MDLI hereby represents and warrants to CHNLI as follows:
5.1 Corporate Organization and Authority. MDLI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. MDLI is duly qualified and in good standing as a foreign corporation
in all other jurisdictions in which the character of its business or the
location of its properties make such qualification necessary, except where the
failure to be so qualified would not have a material adverse effect on the
condition (financial or otherwise), net worth or results of operations of MDLI
taken as a whole.
5.2 Authorization by MDLI. All action on the part of MDLI, its officers
and directors for the authorization, execution, delivery and performance of all
obligations of MDLI under this Agreement and the Shareholders Agreement have
been taken by MDLI, its officers and/or directors, and this Agreement and the
Shareholders Agreement, when executed and delivered, and assuming the due
execution and delivery hereof by CHNLI and LIPHC, shall constitute legally valid
and binding obligations of MDLI, enforceable against MDLI in accordance with
their terms, except as such enforcement may be subject to or limited by
applicable federal and state bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other laws or court decisions relating to or affecting
the rights of creditors generally, in law or in equity.
5.3 Conflicting Provisions. MDLI is not a party to any contract or
agreement or subject to any charter or other corporate restriction which
materially and adversely affects the business, properties or condition
(financial or other) of MDLI. Subject to approval of the Application for
Certification, neither the execution and delivery of this Agreement and the
issuance of the Shares nor compliance with the terms and provisions hereof or
the Certificate of Amendment will conflict with or result in a breach of the
terms, conditions or provisions of, or result in any violation of, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
a loss of a material benefit under, the Certificate of Incorporation or By-laws
of MDLI or (i) any agreement to which it is a party or by which it is bound or
(ii) any order, judgement, decree, statute, law, rule or regulation applicable
to MDLI or any of its assets.
5.4 Capitalization. The authorized capital stock of MDLI consists of 9,000
shares of Common Stock, par value $.001 per share, comprised of 6,000 shares of
Class A Common
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Stock, par value $.001 per share, of which 600 have been duly and validly
issued, are fully paid and nonassessable and are owned beneficially and of
record by LIPHC, and 3,000 shares of Class B Common Stock, par value $.001 per
share, of which no shares are currently outstanding. MDLI does not have any
equity interest in or own any, equity securities of any corporation or other
entity, whether directly or indirectly. Except for the Shares, there are no
shares of capital stock or other equity securities of MDLI outstanding, there
are no options, warrants, calls, rights, commitments or agreements of any
character to which MDLI is a party or by which it is bound obligating MDLI to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or obligating MDLI to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement.
5.5 Assets of MDLI on the Initial Closing Date. On the Initial Closing
date, MDLI shall have received $6,000,000 in payment for the 600 Class A shares
of MDLI common stock issued to LIPHC. On the Initial Closing date, except for
this Agreement, and that certain Management Services Agreement by and among
NextStage Healthcare Management, Inc., MDLI, LIPHC and CHNLI (the "Management
Agreement"), MDLI shall not have any material commitments, obligations,
liabilities or debts.
5.6 Status of Shares. The Shares, when sold and delivered by MDLI pursuant
to this Agreement will be duly authorized by MDLI, validly issued, fully paid
and nonassessable.
5.7 Litigation; Compliance with Law. There is no suit, action,
investigation or proceeding pending, or, to the knowledge of MDLI, threatened
against MDLI or its officers or directors which questions the validity of this
Agreement, the Shareholders Agreement, the Certificate of Amendment or the
Shares or any action to be taken hereto or thereto. There is no suit, action,
investigation or proceeding pending or, to the knowledge of MDLI, threatened
against MDLI or any of its directors or officers which, if adversely determined,
would have, nor is there any judgment, decree, injunction, rule or order of any
governmental entity or arbitrator outstanding against MDLI or any of its
officers or directors having, or insofar as reasonably can be foreseen, in the
future would have, a material adverse effect on the business, properties or
condition (financial or other) of MDLI.
5.8 Actions Prior to the Initial Closing. Except as contemplated by this
Agreement, and in preparation of the Application for Authority, including,
without limitation the negotiation and approval of the Management Agreement,
MDLI has not taken any action or carried on any business prior to the initial
Closing.
5.9 No Brokers or Finders. MDLI has not retained any investment banker,
broker or finder in connection with the transactions contemplated by this
Agreement, and no investment banker, broker or finder is owed a fee by MDLI as a
result of the transactions contemplated by this Agreement.
6. Representations and Warranties of LIPHC to CHNLI.
LIPHC hereby represents and warrants to CHNLI as follows;
6.1 Corporate Organization and Authority. LIPHC is a corporation duly
organized, validly existing, authorized to exercise all of its corporate powers,
rights and
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privileges, and in good standing under the laws of the State of New York, and
has full corporate power and authority to own and operate its properties and to
carry on its business as now conducted and as proposed to be conducted. LIPHC is
duly qualified and in good standing as a foreign corporation in all other
jurisdictions in which the character of its business or the location of its
properties make such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the condition (financial
or otherwise), net worth or results of operations of LIPHC taken as a whole.
6.2 Authorization by LIPHC. All action on the part of LIPHC, its officers
and directors for the authorization, execution, delivery and performance of all
obligations of LIPHC under this Agreement and the Shareholders Agreement have
been taken by LIPHC, its officers and/or directors, and this Agreement and the
Shareholders Agreement, when executed and delivered, and assuming the due
execution and delivery hereof by CHNLI and MDLI, shall constitute legally valid
and binding obligations of LIPHC, enforceable against LIPHC in accordance with
their terms, except as such enforcement may be subject to or limited by
applicable federal and state bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other laws or court decisions relating to or affecting
the rights of creditors generally, in law or in equity.
6.3 Litigation; Compliance with Law. There is no suit, action,
investigation or proceeding pending, or, to the knowledge of LIPHC, threatened
against LIPHC or its officers or directors which questions the validity of this
Agreement or the Shareholders Agreement or any action to be taken hereto or
thereto. There is no suit, action, investigation or proceeding pending or, to
the knowledge of LIPHC, threatened against LIPHC or any of its directors or
officers which, if adversely determined, would have, nor is there any judgment,
decree, injunction, rule or order of any governmental entity or arbitrator
outstanding against LIPHC or any of its officers or directors having, or insofar
as reasonably can be foreseen, in the future would have, a material adverse
effect on the business, properties or condition (financial or other) of LIPHC.
6.4 No Brokers or Finders. LIPHC has not retained any investment banker,
broker or finder in connection with the transactions contemplated by this
Agreement, and no investment banker, broker or finder is owed a fee by LIPHC as
a result of the transactions contemplated by this Agreement.
6.5 Investment in MDLI. On or prior to the Initial Closing, LIPHC has
purchased 600 shares of Class A Common Stock of MDLI and has contributed
$6,000,000 to the capital of MDLI in payment therefor.
6.6 Nature of LIPHC. LIPHC is a New York corporation whose shareholders
are New York State-licensed healthcare practitioners. Shareholders in LIPHC are
not precluded by the Certificate of Incorporation, By-laws or rules of LIPHC
from contracting to provide professional services to any health maintenance
organization, independent practice association or facility licensed under
Article 28 of the New York Public Health Law.
7. Representations and Warranties of CHNLI to LIPHC and MDLI.
CHNLI hereby represents and warrants to LIPHC and MDLI as follows:
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7.1 Corporate Organization and Authority. CHNLI is a not-for-profit
corporation duly organized, validly existing, authorized to exercise all of its
corporate powers, rights and privileges, and in good standing under the laws of
the State of New York, and has full corporate power and authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted. CHNLI is duly qualified and in goodstanding as a
foreign corporation in all other jurisdictions in which the character of its
business or the location of its properties make such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the condition (financial or otherwise), net worth or results of
operations of CHNLI taken as a whole.
7.2 Authorization. All action on the part of CHNLI, it officers and
trustees for the authorization, execution, delivery and performance of all
obligations of CHNLI under this Agreement and the Shareholders Agreement have
been taken by CHNLI, its officers and/or trustees, and this Agreement and the
Shareholders Agreement, when executed and delivered, and the due execution and
delivery hereof by LIPHC and MDLI, shall constitute the legally valid and
binding obligation of CHNLI, enforceable against CHNLI in accordance with its
terms, except as such enforcement may be subject to or limited by applicable
federal and state bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other laws or court decisions relating to or affecting the rights
of creditors generally, in law or in equity.
7.3 Investment Representation. The Shares to be acquired by CHNLI
hereunder will be acquired for investment purposes only for CHNLI's own account,
and not with a view to the public resale or distribution thereof within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), other
than for any resale or distribution conducted in compliance with the
registration and prospectus delivery requirements thereof, and CHNLI has no
present intention of selling, granting any participation in, or otherwise
disposing of the same. CHNLI understands and acknowledges that the offering of
the MDLI Common Stock pursuant to this Agreement will not be registered under
the Securities Act on the grounds that the offering and sale of securities
contemplated by this Agreement are exempt from registration pursuant to Section
3(b) or Section 4(2) of the Securities Act, and that MDLI's reliance upon such
exemption is predicated upon CHNLI's representations set forth in this
Agreement. CHNLI (i) or CHNLI and its advisors, have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its prospective investment in the Shares; (ii) has the
ability to bear the economic risks of its prospective investment; and (iii) is
able, without materially impairing its financial condition, to hold the Shares
for an indefinite period of time.
7.4 No Brokers or Finders. CHNLI has not retained any investment banker,
broker or finder in connection with the transactions contemplated by this
Agreement, and no investment banker, broker or finder is owed a fee by CHNLI as
a result of the transactions contemplated by this Agreement.
8. Covenants. Except as otherwise provided in Section 9 hereof, MDLI and
LIPHC, on the one hand, and CHNLI, on the other hand, hereby covenant to and
agree with one or another as follows:
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8.1 MDLI Board and Committee Representation.
(a) As soon as practicable, but in any event not later than the date
when MDLI is licensed as an HMO, LIPHC shall cause MDLI to establish a Board of
Directors consisting of eighteen (18) members, comprised of the following: (i)
ten (10) members elected by the holders of the Class A Common Stock (the "Class
A Directors"); (ii) four (4) members elected by the holders of the Class B
Common Stock (the "Class B Directors"); and (iii) four (4) members elected by
the holders of both the Class A Common Stock and the Class B Common Stock, all
of whom, within one year after the date MDLI is licensed as an HMO, shall be
representatives of enrollees of the health maintenance organization operated by
the Company (each, an "Enrollee Representative," and collectively, the "Enrollee
Representatives").
(b) The MDLI board of directors, by resolution adopted by a majority
of the entire board, shall designate from among its members a Finance Committee
which shall be comprised of three (3) Class B Directors and three (3) Class A
Directors (each of whom shall be a physician), a Hospital Selection Committee
which shall be comprised of three (3) Class B Directors and three (3) Class A
Directors (each of whom shall be a physician), and a Medical Delivery Committee
comprised of four (4) Class B Directors, and ten (10) Class A Directors, (four
(4) of whom shall be Primary Care Physicians, four (4) of whom shall be
Specialty Care Physicians, one (1) of whom shall be a Dental Healthcare Provider
and one (1) of whom shall be a Behavioral Healthcare Provider).
8.2 Adoption of Certificate of Amendment and Amended By-laws. To the
extent permitted by the Department in connection with the licensing of MDLI as
an HMO, prior to the Initial Closing, MDLI shall cause the Certificate of
Amendment to be filed by the Secretary of State of the State of New York, and
the Amended By-laws to be adopted and maintained as the official By-laws of
MDLI, until such documents are amended in accordance with their terms.
8.3 Application for Authority. MDLI and LIPHC shall use their best efforts
to cause the Department to approve the Application for Authority. CHNLI agrees
to use it best efforts to assist MDLI and LIPHC, and to cause the CHNLI
Hospitals to assist MDLI and CHNLI in the efforts made by MDLI and LIPHC to have
the Application for Authority approved by the Department.
8.4 Development and Maintenance of Hospital Network.
(a) The parties agree to seek and to use their best efforts to
obtain Department approval for an independent practice association formed by,
affiliated with, or designated by CHNLI (the "Hospital IPA"), which shall be
responsible for contracting with hospital providers to provide services to MDLI
members within the Service Area, as outlined below, subject to compliance with
all applicable laws. In the event that such Hospital IPA is not approved, CHNLI
shall be responsible for developing the network of hospitals which will contract
with MDLI, according to the principles set forth below.
(b) CHNLI or, if approved, the Hospital IPA shall develop the
hospital network based upon assessment of the need to provide the most
marketable array of geographically-accessible in-patient and out-patient
services to the MDLI member population.
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CHNLI further agrees that it or, if approved, the Hospital IPA will seek to
develop the hospital network from hospitals in the Service Area that provide
MDLI members convenient geographic access to necessary services (including
specialized services) and that maintain affiliations with MDLI participating
healthcare providers. In furtherance of these objectives, the parties
contemplate that CHNLI or, if approved, the Hospital IPA shall seek to develop
the hospital network from at least the following hospitals: the CHNLI Hospitals,
Long Island Jewish Medical Center, North Shore University Hospital, ▇▇▇▇ Cove
Community Hospital, Central General Hospital, Huntington Hospital, St. John's
Hospital, ▇▇▇▇▇▇, Central Suffolk/Eastern Long Island/Southampton, Brookhaven
Hospital and the University Hospital at Stony Brook (for tertiary services,
only). It is further contemplated and agreed by the parties hereto that certain
specific additional services shall be obtained from other hospitals pursuant to
contractual arrangements with such hospitals for these specific services. If
approved, the Hospital IPA shall, in its discretion and subject to the above
criteria, propose to MDLI the network of hospitals which will contract with the
Hospital IPA as participating providers, subject to MDLI's approval or
disapproval of such network; provided that MDLI shall not add or delete
individual hospitals as providers contracting with the Hospital IPA, without the
concurrence of CHNLI and the Hospital IPA. If the Hospital IPA is not approved,
CHNLI shall, in its discretion and subject to the above criteria, propose to
MDLI the network of hospitals which will contract with MDLI as participating
providers, subject to MDLI's approval or disapproval of such network; provided
that MDLI shall not add or delete individual hospitals as providers contracting
with it without the concurrence of CHNLI. If the Hospital IPA is approved, MDLI
shall negotiate the rates to be paid to participating hospitals, subject to such
guidelines as may be contained in the risk-sharing arrangement between MDLI and
the Hospital IPA, and compliance with all applicable laws.
(c) The parties hereto acknowledge that Good Samaritan Hospital
Medical Center, which is one of the CHNLI Hospitals, is a party to a Consent
Decree/Final Judgment with the U.S. Department of Justice in U.S. v. Classic
Care Network Inc., and that pursuant to that Final Judgment, Good Samaritan
Hospital Medical Center is required to give notice of certain activities to the
Justice Department. The parties acknowledge that the Justice Department may
review the MDLI hospital network and relationships with respect to compliance
with the antitrust laws and may make recommendations with respect thereto, and
the parties agree to comply with any such recommendations. The parties hereto
further acknowledge that the Department may, from time to time, review MDLI's
hospital network, and make recommendations thereto, and the parties hereto agree
to comply with any Department requirements.
8.5 Risk Sharing Arrangement.
(a) MDLI shall, pursuant to a budget duly adopted by its Board,
allocate the premium dollars received from Members between amounts for
administrative expenses and reserves on the one hand and amounts to be used to
pay for all types of medical expenses on the other hand. Of the total amount
MDLI allocates to pay for medical expenses each year, MDLI shall allocate funds
("Percentage of Medical Expense") between a Hospital Pool, a Physician Pool, and
a Carve-Out Pool in accordance with Schedule 8.5 attached hereto. MDLI further
agrees to allocate the Hospital Pool between two sub-pools, one for all
in-patient stays attributable to psychiatric, alcohol and/or substance abuse
stays ("Behavioral Health Hospital Pool") and one for all other in-patient,
emergency room, ambulatory surgery, and home health
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stays ("Med-Surg Hospital Pool") in accordance with Schedule 8.5. MDLI agrees
that the Percentage of Medical Expense and the Utilization Targets set forth in
Schedule 8.5 with respect to the Hospital Pool and each of its sub-pools shall
be the minimum amount it shall allocate to each of these pools, and that it
shall fund these pools, at a minimum, according to these amounts.
(b) The Hospital IPA, if approved, shall be entitled to 1/3 of any
surplus in each of the Hospital Sub-pools (i.e., in each of the Med-Surg
Hospital Pool and the Behavioral Health Hospital Pool). The Hospital IPA, if
approved, shall be responsible for 1/3 of any deficit in excess of 110% of the
total deficit in the combined Hospital Pool (i.e. combining the two Hospital
Sub-pools and calculating any deficit in the combined Sub-pools). If the
Hospital IPA is not approved, each CHNLI Hospital may elect, in its sole
discretion, to enter into a risk-sharing arrangement with MDLI in which such
CHNLI Hospital would bear 1/3 of the risk of any surplus and 1/3 of the risk of
any deficit in excess of 110% of the total deficit in the Combined Hospital Pool
in its LDU, and, for any LDU in which a CHNLI Hospital has not agreed to bear
risk, MDLI shall bear the same proportion of risk of any surplus or deficit
which the Hospital IPA, if approved, would have borne.
(c) The parties agree that LIPHC or a DOH-approved independent
practice association formed by LIPHC or the physicians who sign participating
provider agreements with a DOH-approved independent practice association formed
by LIPHC shall bear the remainder of the risk of any deficit or surplus in the
Hospital Pool in accordance with the terms of Schedule 8.5 as more fully
explained below:
(i) With respect to the Med-Surg Hospital Pool, MDLI shall
divide the Service Area into a series of local delivery units (each such unit
within the Service Area, an "LDU"). Each LDU will be its own economic unit, and
the method for funding the Med-Surg Hospital Pool in each LDU shall be uniform
and shall be in accordance with Schedule 8.5. MDLI participating physicians and'
other participating practitioners who participate with Island Practice
Association, I.P.A., Inc. ("Island IPA") will each select an LDU (which
selection may be based upon traditional referral patterns, as well as office
location). The Island IPA participating practitioners who have selected the same
LDU and have entered into participating provider agreement agreeing to share
risks within their LDU shall be known as "LDU Physicians," and shall agree to
share risk within their LDU as set forth in Schedule 8.5. MDLI and LIPHC each
agree that either MDLI or Island IPA shall enter into participating provider
contracts with each LDU Physician which will obligate each such physician to the
risk-sharing arrangement set forth in this Section 8.5 and which shall entitle
MDLI or Island IPA to deduct from any funds owed or to be paid to such physician
for rendering professional services the amount of any deficit to be allocated to
such physician pursuant to this section. The LDU Physicians and Island IPA shall
be responsible for all deficits experienced by the LDU Physician's LDU in the
Med-Surg Hospital Pool, except as set forth in Section 8.5(b). Downside risk
will be minimized by MDLI being responsible for in-patient costs in excess of
$50,000 for each patient whose annual in-patient hospital costs are in excess of
$50,000 per year. The cost of high risk cases (i.e., organ transplants,
extensive ▇▇▇▇▇, HIV) shall be borne by all Nassau/Suffolk County LDUs either
through reinsurance or other stop-loss mechanisms funded by MDLI. The LDU
Physicians within each LDU shall be entitled to 2/3 of any surplus generated in
the Med-Surg Hospital Pool within their LDU.
10
(ii) With respect to the Behavioral Health Hospital Pool,
certain MDLI participating physicians and other participating practitioners who
participate with the Island Behavioral Health Association I.P.A. ("IBHA") shall
be responsible for all deficits experienced by the Behavioral Health Hospital
Pool, except as set forth above in Section 8.5(b). Downside risk will be
minimized by MDLI being responsible for in-patient behavioral health hospital
costs in excess of $50,000 for each patient whose annual in-patient behavioral
health hospital costs are in excess of $50,000 per year. MDLI and LIPHC each
agree that either MDLI or IBHA shall enter into participating provider contracts
with each physician which will obligate each such physician to the risk-sharing
arrangement set forth in this Section 8.5 and which shall entitle MDLI, or IBHA,
to deduct from any funds owed or to be paid to such physician for rendering
professional services the amount of any deficit to be allocated to such
physician pursuant to this section. IBHA shall be entitled to 2/3 of any surplus
generated in the Behavioral Health Hospital Pool.
(d) There shall be no allocation of surplus or deficit to the
Hospital IPA, if approved, or to a CHNLI Hospital or to MDLI from the Physician
Pool or the Carve-Out Pool, including no allocation of surplus or deficit from
the provision of dental or chiropractic services.
(e) MDLI agrees to be responsible for costs in excess of $10,000 per
year for each patient whose annual costs for services covered by the Physician
Pool exceed $10,000 per year.
8.6 Management Contracts.
(a) The parties hereto agree that in the event any management
services are needed by the IPA if approved, such IPA shall contract Management,
Inc., a Delaware corporation affiliated with LIPHC and CHNLI ("NextStage");
provided that such services are provided by NextStage on terms and conditions
that are competitive with other management services providers. The parties
hereto agree and acknowledge that certain terms and conditions of any management
agreement, including, without limitation, management fees, are governed by
regulations promulgated by the Department, and that the final terms and
conditions of any management agreement shall be subject to review and comments
by the Department.
(b) In addition to any management agreement between the IPA if
approved, and NextStage, MDLI shall enter into an agreement with LIPHC and
CHNLI. Pursuant to the terms of this agreement, LIPHC and CHNLI shall perform
various specified duties and provide consulting services to MDLI in exchange for
a fee equal to one percent (1%) of MDLI premium revenues, once a break-even
point has been achieved by MDLI. The fee payable by MSLI shall be allocated
between LIPHC and CHNLI at a ratio of two-thirds-to-one-third (2/3: 1/3). For
purposes of the foregoing, "break-even" with respect to MDLI shall mean the date
on which MDLI has 50,000 HMO enrollees.
8.7 Exclusivity.
(a) CHNLI Hospitals shall be engaged by MDLI as the exclusive
in-patient provider of available services within each CHNLI Hospital's local
service area. The parties hereto agree and acknowledge that the list of the
CHNLI Hospitals attached hereto as Schedule
11
8.7(a) identifies all services available at the respective CHNLI Hospitals for
which such hospital shall be the exclusive provider of such in-patient services
for MDLI. Schedule 8.7(a)also defines each CHNLI Hospital's local service area.
(b) In addition to being the exclusive in-patient provider of
available services, Mercy Medical Center and St. ▇▇▇▇▇▇▇ Hospital shall be
engaged by MDLI as the exclusive providers of in-patient rehabilitation services
for MDLI members residing within Nassau and Suffolk Counties, New York,
respectively; provided that the total reimbursement arrangement for such
in-patient rehabilitation services compares favorably with Mercy's or St.
▇▇▇▇▇▇▇' total reimbursement arrangement for comparable services with any HMO
certified pursuant to New York State law. This exclusive provision is dependent
upon an adequate number of appropriately qualified Mercy and St. ▇▇▇▇▇▇▇
physicians agreeing to be MDLI participating providers who can provide such
services.
(c) St. ▇▇▇▇▇▇▇ Hospital shall be engaged as the exclusive contract
provider of tertiary cardiac services for Nassau and Suffolk Counties, New York
(except where performed by other CHNLI Hospitals), including PTCA's and open
heart surgery, for MDLI members, provided that St. ▇▇▇▇▇▇▇ provides timely
access to MDLI members and the total reimbursement arrangement for such services
compares favorably with St. ▇▇▇▇▇▇▇' total reimbursement arrangement for
comparable services with any HMO certified pursuant to New York State law. With
respect to electrophysiology services (EPS), this exclusive provision shall
apply only when a participating hospital does not perform said service. This
exclusive provision is dependent upon an adequate number of appropriately
qualified St. ▇▇▇▇▇▇▇' physicians agreeing to be MDLI participating providers
who can provide such services.
(d) The parties hereto agree that entities owned, managed or
otherwise affiliated with either CHNLI (such as Catholic Charities and the
Nursing Sisters Home visiting Services) or LIPHC that provide ancillary services
shall be engaged by MDLI as the exclusive providers of the respective services
provided by such entities in the Service Area, provided that such services are
provided on as competitive terms and conditions, including price and quality, to
MDLI and its enrollees/subscribers as they could receive from other providers of
such care.
(e) With the exception of St. ▇▇▇▇▇▇▇, CHNLI shall use its best
efforts to cause each CHNLI Hospital to extend privileges on a full or qualified
basis, to all MDLI providers who seek to have privileges at such hospital and
otherwise qualify and meet the standards maintained by such CHNLI Hospital. In
accordance with applicable by-laws and medical staff regulations of each CHNLI
Hospital, CHNLI Hospitals shall use their best efforts to grant admitting
privileges to MDLI providers that, with respect to the coverage and other
obligations of the MDLI provider, allow for some reduction or elimination of
such obligations where the MDLI provider maintains his or her primary
affiliation with another hospital and where the number of patients admitted by
such provider to the CHNLI hospital is not large enough to warrant requiring the
provider to satisfy all of the otherwise applicable obligations.
(f) The parties hereto agree that Schedule 8.7(f) attached hereto
identifies: (1) all Article 28 and Article 36 services available from respective
CHNLI Hospitals for which such hospitals shall be the exclusive provider of such
services in the respective local services area for the CHNLI Hospital and (2)
all other out-patient services for which CHNLI Hospitals shall be
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either the exclusive provider of a preferred provider in the respective service
area of such hospital, as noted in the attached Schedule 8.7(f).
(g) For the purposes of the foregoing, "exclusive provider" shall
mean that, for the applicable geographic area or treatment specified, MDLI
participating physicians shall be required to refer and/or admit patients
requiring hospital-based care to the appropriate CHNLI Hospital, except where
the referral or the admission of the patient to another participating hospital
is justified by documented market-related factors (including factors related to
the market for purchasing HMO services, such as employer requirements), sound
medical judgment, or justifiable concerns for patient-subscriber satisfaction.
It is further agreed by the parties hereto that referral patterns and practices
subject to these provisions shall be the subject of ongoing review by MDLI. MDLI
will implement a precertification program to monitor this provision. For
purposes of the foregoing, "preferred provider" shall mean that MDLI shall
contract with each CHNLI Hospital to provide the specified service in its
service area, but that MDLI may also contract with other providers to provide
such service.
8.8 Future Expansion. The parties hereto agree and acknowledge that it is
the intent of MDLI to expand its Service Area to include other counties in New
York State under the name of MDNY Healthcare, Inc. (the application for a
certificate of authority to operate an HMO currently pending before the
Department relates to Nassau and Suffolk Counties, only). In furtherance of this
intended expansion, the parties recognize that there may be some degree of
dilution of their initial equity positions and the corporate governance
associated with such equity positions, and agree to negotiate in good faith all
future expansion plans and strategies, and to effect those transactions, if
necessary, that may result in dilution and/or other changes in the corporate
governance of MDLI. It is the further intent of the parties hereto that LIPHC
shall be responsible for establishing the physician and ancillary provider
networks, and CHNLI or an entity formed by, affiliated with, or designated by
CHNLI shall be responsible, if CHNLI or such entity elects, for the
establishment of the hospital network, including the sale of ownership interests
in such network, if appropriate, in any expanded MDLI Service Area. In the event
CHNLI or an entity formed by, affiliated with, or designated by CHNLI can not,
or elects not to, establish a hospital network in such expanded Service Area
within the time allotted for such establishment by MDLI, MDLI shall assume
responsibility for establishing the hospital network. CHNLI shall use its best
efforts to assist LIPHC and MDLI if and when a decision is made to expand the
Service Area of MDLI beyond Nassau and Suffolk Counties, New York.
8.9 Other Terms and Conditions.
(a) LIPHC shall grant to CHNLI the opportunity to participate (on
terms and conditions to be agreed upon, however, in no event less favorable than
terms and conditions available from an unaffiliated third party) in any new
venture proposed to be entered into by LIPHC to the extent LIPHC seeks or plans
to seek equity participants who are outside investors, and CHNLI shall grant to
LIPHC the opportunity to participate (on terms and conditions to be agreed upon,
however, in no event less favorable than terms and conditions available from an
unaffiliated third party) in any new, non-Article 28-related venture proposed to
be established by CHNLI to the extent CHNLI seeks or plans to seek equity
participants who are outside investors.
13
(b) LIPHC hereby agrees not to acquire, establish or invest in, in
any Service Area in which CHNLI Hospital operates, any facility regulated by
Article 28 of the New York Public Health Law or any HMO regulated by Article 44
of the New York Public Health Law, without the approval of CHNLI; provided,
however that this agreement by LIPHC is not meant to preclude any individual
investor in LIPHC from acquiring, establishing or investing in any entity
regulated under Article 28 or Article 44 of the New York Public Health Law or
from contracting to provide health care services to such regulated entities.
(c) At CHNLI's request, LIPHC shall cause MDLI to establish a
private label medicaid/indigent and a Medicare insurance program that identify
the Diocese of Rockville Centre as the sponsor. In consideration for the
establishment of each such program, MDLI participating physicians shall be
offered the right to participate in each program at reimbursement levels
comparable with Medicare reimbursement levels, with appropriate incentives and
disincentives. The parties hereto further agree that such program shall enter
into an agreement with each of LIPHC and CHNLI, pursuant to which LIPHC and
CHNLI shall perform various specified duties and provide consulting services to
the program in exchange for a fee equal to one percent (1%) of program premium
revenue. The fee payable by the program shall be allocated between LIPHC and
CHNLI at a ratio of two-thirds to one-third (2/3 1/3).
(d) CHNLI shall cause each CHNLI Hospital to cooperate fully with
LIPHC, MDLI or any practice associations with respect to credentialing any
physician on staff at a CHNLI Hospital who has applied to be a participating
provider in MDLI, and shall facilitate, to the extent reasonably necessary, such
credentialing process by making available any and all records and other
information in the possession of such CHNLI Hospital regarding such physicians.
This obligation shall be an on-going obligation of CHNLI and CHNLI Hospitals.
(e) The Diocese of Rockville Centre and its sponsored hospital and
health care entities shall offer, on terms and conditions at least as favorable
to the employee as other comparable plans being offered by the Diocese of
Rockville Centre and its sponsored hospital and health care entities, MDLI
health insurance through the Diocesan Health Plan ("DHP"), where DHP is acting
in a group purchasing capacity, to all of its employees no later than the end of
the first quarter of 1996 if MDLI has been certified to operate an HMO prior to
that date, or as soon thereafter as is practicable. In connection with such
offering, MDLI shall agree to establish a commercial product, on terms and
conditions substantially similar to its other commercial health insurance
policies, that identifies the DHP, as well as MDLI, as the product's sponsors.
(f) Any other hospital or health care entity invited to secure an
equity ownership interest in MDLI (through CHNLI affiliation or otherwise) shall
offer, on terms and conditions at least as favorable to the employee as other
comparable plans being offered by such entity, MDLI coverage to all eligible
employees of such member-hospitals no later than the end of the first quarter of
1996, or as soon thereafter as practicable.
(g) MDLI shall not offer medical services that are morally
objectionable to the Diocese of Rockville Centre as part of its basic benefit
plan, but only as a rider to ensure that CHNLI Hospitals shall not derive any
economic benefit from the sale of such coverage or from the provision of such
services. The parties hereto agree that all necessary steps shall be taken to
ensure that this provision is fully effectuated.
14
(h) MDLI has adopted the operating philosophy set forth on Schedule
8.9(h) hereto as its operating philosophy, and MDLI will conduct its business in
accordance therewith.
8.10 HMO Network. MDLI shall assure that primary care physicians
(including obstetricians and gynecologists) shall consist of at least
twenty-eight percent (28%) of its total physician network (excluding
psychiatrists and podiatrists) as such network shall be submitted to the
Department in connection with the Application for Certification.
8.11 Indemnity by MDLI and LIPHC. MDLI and LIPHC will indemnify, defend
and hold harmless CHNLI and its successors and assigns, from and against any and
all claims, judgments, damages, losses, costs and expenses (including reasonable
attorneys' fees) arising out of relating to any of the following matters: (i)
the inaccuracy of any representation or warranty contained in Sections 5 and 6
hereof; and (ii) the breach of any covenant, agreement or obligation of MDLI or
LIPHC contained in this Agreement.
8.12 Indemnity by CHNLI. CHNLI will indemnify, defend and hold harmless
MDLI and LIPHC and their successors and assigns, from and against any and all
claims, judgments, damages, losses, costs and expenses (including reasonable
attorneys' fees) arising out of relating to any of the following matters: (i)
the inaccuracy of any representation or warranty contained in Section 7 hereof;
and (ii) the breach of any covenant, agreement or obligation of CHNLI contained
in this Agreement.
9. Forfeiture. The parties hereto agree that if CHNLI (a) fails to
subscribe for and purchase the appropriate number of Shares as set forth in
Section 2 hereof, (b) fails to remit the appropriate payments in connection with
such subscriptions as set forth in Section 3 hereof, or (c) otherwise fails to
purchase any of the Shares pursuant to this Agreement, then, upon such failure,
this Agreement shall terminate and all of the covenants and agreements made by
LIPHC and MDLI in Section 8 hereof shall terminate and be of no further force or
effect, and CHNLI's rights as a shareholder of MDLI shall be limited to the
powers ordinarily vested in a shareholder of a New York corporation. Without
limiting the foregoing, in the event CHNLI fails, at any time, to comply with
and perform its obligations under Sections 2 and/or 3 hereof, CHNLI shall: (a)
not be entitled to nominate the board members or have such members or other
representatives participate in board or advisory committees pursuant to the
Shareholders Agreement; (b) not be entitled to enforce or otherwise exercise any
of the supermajority voting rights accorded CHNLI in the Amendment to
Certificate or Amended By-laws; (c) not be entitled to continue the development
and maintenance of the hospital network servicing MDLI members in Nassau and
Suffolk Counties, New York, or in any expanded service area, except for the
maintenance of any hospital network then-existing within such areas; (d) not be
entitled to enforce the provisions of Section 8.5 of this Agreement; (e) not be
retained by MDLI for the provision of any management services pursuant to the
agreement referenced in Section 8.6(b), and such agreement, at least as such
relates to CHNLI, shall be terminated immediately; (f) not be granted any of the
rights to exclusivity provided by Section 8.7 hereof; and (g) not be entitled to
participate in any future expansions of MDLI as provided by Section 8.8 hereof.
CHNLI agrees to take all actions necessary or advisable, in the sole and
complete discretion of LIPHC or MDLI, to effectuate the foregoing termination,
including the due execution and delivery of any and all documents, instruments
or certificates, and voting any shares of Common Stock held by CHNLI at the time
15
in favor of any and all matters relating to the forfeiture of any and all rights
vested in CHNLI arising out of the covenants and other agreements made by LIPHC
in Section 8 hereof.
10. Miscellaneous.
10.1 Entire Agreement; Successors and Assigns. This Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof, and any previous or contemporaneous agreement, including all prior or
contemporaneous correspondence and negotiations, between MDLI, LIPHC and CHNLI
regarding the subject matter of this Agreement are superseded by this Agreement.
Subject to the exceptions specified in this Agreement, the terms and conditions
of this Agreement will inure to the benefit of and be binding upon the
respective successors and permitted assigns of the parties hereto.
10.2 Survival of Representations and Warranties. All representations and
warranties and agreements made by the parties in this Agreement and all
statements contained in any certificate or document delivered at or in
connection with the Initial Closing shall survive the execution and delivery of
this Agreement or such certificate or other document, the sale and purchase of
the Shares and any disposition thereof.
10.3 Expenses. LIPHC and CHNLI will each bear their respective legal and
other expenses in connection with the transactions contemplated by this
Agreement; provided, that in the event the purchase of the MDLI Common Stock
pursuant hereto does not occur for any reason, LIPHC shall be entitled to retain
that amount of the One Hundred Fifty Thousand Dollar ($150,000) deposit given by
CHNLI to LIPHC in connection with the actions contemplated hereby (the
"Deposit") equal to fifty percent (50%) of the legal fees incurred by LIPHC in
connection with the transactions contemplated hereby; and provided, further,
that in no respect is the foregoing intended to be or intended to be construed
as liquidated or other agreed-upon damages for the non-occurrence of the
purchase by CHNLI of MDLI Common Stock contemplated hereby, but rather the
foregoing is intended only as an agreement between the parties to share legal
expenses incurred in connection herewith in the event CHNLI does not purchase
the Shares.
10.4 Department Review. The parties hereto further acknowledge that the
transactions contemplated hereunder are subject to review and approval, in some
instances by certain regulatory agencies of New York State, including the
Department, and agree that, to the extent required by such regulatory agencies,
the parties hereto shall use their best efforts to structure and effectuate
transactions that reflect the agreement of the parties contained herein to the
extent permissible in light of such requirements; provided, however, that in the
event the transaction contemplated by the parties hereby cannot be reasonably
consummated as a result of such requirements, and LIPHC shall return the Deposit
less an amount equal to fifty percent (50%) of the legal fees incurred by LIPHC
in connection with the transaction contemplated hereby by and between LIPHC and
CHNLI.
10.5 Governing Law. This Agreement and the transactions contemplated
hereby shall be governed by and construed in accordance with the laws of the
State of New York, without regard to the principles of conflicts of laws.
16
10.6 Headings. The headings and captions contained in this Agreement are
for convenience only and will not be themselves determine the interpretation of
this Agreement.
10.7 Notices. Any notice required or permitted hereunder will be given in
writing and will be conclusively deemed effectively given upon personal
delivery, or three (3) days after deposit in the United States Mail, by
registered or certified mail, postage prepaid, addressed to the appropriate
party at its respective address as shown in the preamble to this Agreement, or
to such other address as MDLI, LIPHC or CHNLI may designate by ten(10) days'
written prior notice to the other party hereto.
10.8 Amendment of Agreement. Any provision of this Agreement may be
amended only by a written instrument signed by the parties hereto.
10.9 Waiver. No waiver of any kind under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any right arising from any breach or failure to perform
will be deemed to be a waiver or authorization of any other breach or failure to
perform or of any other rights arising under this Agreement.
10.10 Invalid or Void Provisions. If any provision of this Agreement is
deemed invalid, illegal, or unenforceable in any jurisdiction, such provision
will be deemed amended to the extent necessary to conform to applicable law so
as to be valid, legal and enforceable in such jurisdiction, and the validity,
legality and enforceability of such provision will not be affected or impaired
thereby in any other jurisdiction; if such provision cannot be amended without
altering materially the intention of the parties, it will be stricken and the
remainder of this Agreement will be in full force and effect.
10.11 Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same instrument.
17
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the day and year first abovewritten.
CATHOLIC HEALTHCARE NETWORK LONG ISLAND PHYSICIAN
OF LONG ISLAND, INC. HOLDINGS CORPORATION
By: /S/ Rev. Msgr. ▇▇▇▇ ▇. ▇▇▇▇▇ By: /S/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
------------------------------- -------------------------------
Name: Rev. Msgr. ▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
Title: Board Chair Title: President
MDLI HEALTHCARE, INC.
By: /S/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D.
-------------------------------
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D.
Title: President
Exhibits:
1(a) Amended By-laws of MDLI
1(b) Certificate of Amendment of Certificate of Incorporation of MDLI
1(c) Shareholders Agreement among LIPHC, CHNLI and MDLI
4.1(a)(i) MDLI Officer's Certificate
4.1(a)(ii) LIPHC Officer's Certificate
4.1(e) Opinion of Counsel to LIPHC
4.2(a) CHNLI Officer's Certificate
4.2(c) Opinion of Counsel to CHNLI
Schedules:
8.5 Risk Sharing Arrangement
8.7(a) Services available at CHNLI Hospitals
8.7(f) Out-patient services available at CHNLI Hospitals
8.9(h) Operating philosophy