STOCK PURCHASE AGREEMENT

 

 

 

                            STOCK PURCHASE AGREEMENT

 

                  This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of

December 31, 2004, is made between LONG ISLAND PHYSICIAN HOLDINGS CORPORATION, a

New York corporation (the "LIPH" or "Buyer"), MDNY HEALTHCARE, INC., a New York

corporation ("MDNY" and together with LIPH, the "Buyer Parties"), and CATHOLIC

HEALTHCARE NETWORK OF LONG ISLAND, INC., a New York not-for-profit corporation

("CHNLI" or "Seller").

 

                                     RECITALS

 

         A. LIPH owns 907 shares of MDNY's Class A Common Stock, par value

$.001, constituting all of MDNY's Class A Common Stock, and CHNLI owns 451

shares of MDNY's Class B Common Stock, par value $.001, constituting all of

MDNY's Class B Common Stock.

 

         B. LIPH desires to purchase from CHNLI, and CHNLI desires to sell to

LIPH, all of the Class B Shares. In connection therewith, LIPH, MDNY and CHNLI

desire to cause the resignation of the three Class B Directors elected by CHNLI

and the termination of the MDNY Stock Subscription Agreement and the MDNY

Shareholders Agreement, and to waive any and all rights any of them has or may

have in connection with such purchase and sale pursuant to the MDNY Shareholders

Agreement.

 

                                TERMS OF AGREEMENT

 

         In consideration of the premises, and of other good and valuable

consideration, the receipt and sufficiency of which are hereby acknowledged, the

parties agree as follow:

 

                                   ARTICLE I.

                                   DEFINITIONS

 

         Definitions. As used in this Agreement, the following terms have the

meanings set forth below:

 

         "Acquiror" means any third party with whom or which LIPH or MDNY, as

the case may be, consummates a Sale.

 

         "Amendment to CHSLI Subscriber Agreements" means an amendment to the

CHSLI Subscriber Agreements, in form and substance reasonably satisfactory to

MDNY and CHSLI, whereby the CHSLI Subscriber Agreements shall be amended,

effective as of the Closing Date, to provide for the same penalties and interest

on past due premiums and other amounts payable to MDNY by the CHSLI Subscribers

as those applicable under current regulations to late payments due from MDNY to

the Hospitals under the Hospital Provider Agreements, or, at MDNY's option, an

agreement, in form and substance reasonably satisfactory to MDNY and CHSLI,

whereby the CHSLI Subscribers shall agree to be subject to and pay the same

penalties and interest on past due premiums and other amounts payable by the

CHSLI Subscribers to MDNY under the CHSLI Subscriber Agreements as the those

applicable under current regulations to late payments due from MDNY to the

Hospitals under the Hospital Provider Agreements.

 

 

 

                                        1

<PAGE>

 

         "Attorney General" means the Attorney General of the State of New York.

 

         "Buyer Party Release" means a release made by MDNY and LIPH,

individually and in its capacity as a shareholder of MDNY, in favor of CHNLI and

CHSLI, individually and in its capacity as agent for the Hospitals, in form and

substance reasonably satisfactory to CHNLI and the Buyer Parties, whereby, among

other things, the Buyer Parties shall release CHNLI and CHSLI, and their

respective members, directors, officers, shareholders and advisors, and the

Diocese and the Hospitals, from any and all claims arising through and including

the Closing Date, except for claims arising under this Agreement, the CHSLI

Subscriber Agreements (as amended by the Amendment to CHSLI Subscriber

Agreements), the Recovery and Subordination Agreement, the Diocese Subscriber

Agreement and the Hospital Provider Agreements.

 

         "CHNLI's Equity Investment in MDNY" means $4,500,000, which equals the

aggregate amount of all payments or contributions to the capital of MDNY made by

CHNLI in payment or consideration for the issuance of the Class B Shares to

CHNLI.

 

         "CHSLI" means Catholic Health System of Long Island, Inc. (d/b/a

Catholic Health Services of Long Island), a New York not-for-profit corporation.

 

         "CHSLI Providers" means each of the Hospitals.

 

         "CHLSI Subscribers" means each of the Hospitals; Maryhaven Center of

Hope; Our Lady of Consolation Geriatric Care Center; Nursing Sisters Homecare;

CHSLI Home Support Services; Good Shepherd Hospice; St. Catherine of Siena

Nursing Home; and CHSLI Service Center.

 

         "CHSLI Subscriber Agreements" means the MDNY Group Applications

effective as of December 31, 2002 between MDNY and CHSLI, as agent for each of

the CHSLI Subscribers.

 

         "Class B Shares" means 451 shares of MDNY's Class B Common Stock to be

purchased and sold pursuant to this Agreement;

 

         "Class B Directors" means the three directors elected to the Board of

Directors of MDNY by CHNLI, as holder of the Class B Shares.

 

         "Diocese" means the Diocese of Rockville Centre.

 

         "Diocese Subscriber Agreement" means the MDNY Group Application

effective as of December 31, 2002 between MDNY and the Diocese.

 

          "ERD" means the Ethical and Religious Directives for Catholic Health

Care Services of the United States Conference of Catholic Bishops (as

interpreted by the Bishop of Rockville Centre).

 

 

 

                                       2

<PAGE>

 

         "Hospital Provider Agreements" means the contracts between MDNY and

each of the Hospitals whereby the Hospitals provide inpatient and outpatient

services to MDNY enrollees.

 

         "Hospitals" means Mercy Medical Center, St. Catherine of Siena Medical

Center, St. Charles Hospital and Rehabilitation Center, St. Francis Hospital and

Good Samaritan Hospital Medical Center, each a New York corporation.

 

         "Island IPA" means Island Professional Association, I.P.A., Inc., a New

York corporation (a/k/a Island Practice Association I.P.A., Inc.).

 

         "MDNY By-laws" means the By-laws of MDNY, as amended and in effect.

 

         "MDNY Board" means the Board of Directors of MDNY.

 

         "MDNY Charter" means the Certificate of Incorporation of MDNY, as

amended and in effect.

 

         "MDNY Shareholders Agreement" means the Shareholders Agreement dated as

of October 11, 1995 among MDNY, CHNLI and LIPH, as amended.

 

         "MDNY Stock Subscription Agreement" means the Stock Subscription and

Purchase Agreement dated as of October 11, 1995 between LIPH, MDNY and CHNLI, as

amended.

 

         "NYDOH" means the New York State Department of Health.

 

         "NYSID" means the New York State Insurance Department.

 

         "Recovery and Subordination Agreement" means the Recovery and

Subordination Agreement dated as of January 1, 2002, among MDNY, Island IPA and

CHSLI, as agent for the Hospitals, and approved by NYSID.

 

         "Subscriber Agreements" means the Diocese Subscriber Agreement and the

CHSLI Subscriber Agreements.

 

         "Sale" means the disposition by LIPH of its stock in MDNY or of all or

substantially all of MDNY's business to one or more third parties, in one

transaction or a series or combination of related transactions, through a sale

of capital stock or assets, or a merger, consolidation or similar transaction.

For the avoidance of doubt, the term "Sale" shall not include (i) any

transaction involving an investment in or capital contribution to MDNY unless

LIPH actually receives Sale Proceeds in connection therewith, or (ii) any

transaction not consummated on or before December 31, 2008; provided, that if

the definitive agreement(s) governing such transaction are executed prior to

December 31, 2008 and provide for the deferral of the closing of such

transaction for more than three months after such date of execution, and the

transaction closes after December 31, 2008, such transaction shall be considered

a Sale closed in 2008 for purposes hereof.

 

 

 

                                       3

<PAGE>

 

         "Sale Proceeds" shall mean the net amount of cash and the fair market

value (on the date of payment, as determined in accordance with the methodology

set forth in Section 2.3(b)) of all securities and other property paid by an

Acquiror and received by LIPH (either directly or from MDNY) in respect of

LIPH's equity interest in MDNY. Fair market value, bona fide payments to LIPH or

MDNY by third parties on account or in respect of goods, services or other

consideration not related to the subject Sale shall not be deemed Sale Proceeds.

 

          "Section 1307 Contribution" means the sale, assignment and transfer

to, and contribution to the capital of, MDNY all CHNLI's right, title and

interest in, to and under the Section 1307 Loan Agreement and the Section 1307

Note.

 

         "Section 1307 Loan" means the loan evidenced by the Section 1307 Loan

Agreement and the Section 1307 Note, together.

 

         Section 1307 Loan Agreement" means the Section 1307 Loan Agreement

between LIPH and CHNLI dated December 18, 1997.

 

         "Section 1307 Note" means the Subordinated Note dated December 18, 1997

made by MDNY in favor of CHNLI.

 

         "Seller Party Release" means a release made by CHNLI, the Diocese, and

CHSLI, individually and in its capacity as agent for the Hospitals, in favor of

each of MDNY and LIPH, individually and in its capacity as a shareholder of

MDNY, in form and substance reasonably satisfactory to the CHNLI and the Buyer

Parties, whereby, among other things, CHNLI and CHSLI shall release LIPH and

MDNY, and their respective directors, officers, shareholders and advisors (in

their capacities as such), from any and all claims arising through and including

the Closing Date, except for claims arising under this Agreement, the CHSLI

Subscriber Agreements, the Recovery and Subordination Agreement, the Diocese

Subscriber Agreement and the Hospital Provider Agreements.

 

         "Supreme Court" means the Supreme Court of the State of New York.

 

         "Termination Agreement" means an agreement, in form and substance

reasonably satisfactory to CHNLI, LIPH and MDNY, whereby the MDNY Stock

Subscription Agreement and the MDNY Shareholder Agreement are terminated,

effective as of the Closing Date;

 

                                  ARTICLE II.

             PURCHASE AND SALE OF CLASS B SHARES AND SECTION 1307 LOAN

 

         Subject to the terms and conditions of this Agreement:

 

         2.1 Purchase and Sale of Class B Shares and Section 1307 Contribution.

 

            (a) At the Closing (as defined below):

 

            (i) LIPH shall purchase from CHNLI, and CHNLI shall sell, assign and

transfer to LIPH, the Class B Shares; and

 

 

 

                                       4

<PAGE>

 

            (ii) CHNLI shall sell, assign and transfer to MDNY all right, title

and interest in, to and under the Section 1307 Loan and contribute the Section

1307 Note to the capital of MDNY and for cancellation by MDNY.

 

         2.2 Closing Payment. In consideration of the sale, assignment and

transfer of the Class B Shares and of the Section 1307 Contribution, LIPH shall

pay to CHNLI the sum of $10.00 (the "Closing Payment").

 

         2.3 Additional Conditional Consideration.

 

            (a) As additional consideration of the sale, assignment and transfer

of the Class B Shares, LIPH shall pay to CHNLI the percentage specified below of

any Sale Proceeds actually received by LIPH in respect of its equity interest in

MDNY upon any Sale that is consummated prior to December 31 of the year

specified below (or with respect to calendar year 2008, certain transactions

consummated after December 31, 2008 as detailed in the definition of "Sale"),

but not to exceed in the aggregate the amount of CHNLI's Equity Investment in

MDNY and subject to Section 2.3(i) hereof:

 

                  Percentage of Sale Proceeds                  Year

 

                  33.3%                                        2005

                  25.0%                                        2006

                  20.0%                                        2007

                   15.0%                                        2008

 

            (b) Sale Proceeds, if any, payable to CHNLI shall, at LIPH's sole

option, be payable in kind, depending upon the form of consideration paid by the

Acquiror; provided that if the receipt of any securities by CHNLI would cause

CHNLI to violate the ERD, then CHNLI shall promptly notify LIPH thereof and LIPH

shall have the option, in its discretion, of (i) paying CHNLI cash in an amount

equal to the fair market value of such securities, (ii) paying CHNLI in kind

with other assets (not causing an ERD violation) having a fair market value

equal to the fair market value of such securities or (iii) obtaining the consent

of the issuer of such securities to CHNLI's assignment of its right to receive

such securities to an entity not subject to the ERD. (In each case, the fair

market value of any securities or other assets shall initially be determined in

good faith by the Board of Directors of LIPH. If CHNLI disagrees, CHNLI shall,

within fifteen (15) days, set forth the reasons for its disagreement in writing

and shall propose an alternate quantity reflecting fair market value. For thirty

(30) days following CHNLI's disagreement, the parties shall attempt in good

faith to come to agreement upon such fair market value. If the parties fail to

agree within such time period, the matter shall be resolved by submitting the

two competing values to PricewaterhouseCoopers LLP ("PWC"). In such case, PWC

shall either determine that one of the two proposed values most closely

represents the fair market value of the securities under the circumstances, or

if PWC determines in its reasonable discretion that neither of the two proposed

values most closely represents such fair market value, then PWC shall determine

such fair market value in accordance with such factors that it reasonably deems

appropriate. The valuation selected by PWC shall be used as the indicator of

fair market value.)

 

 

 

                                       5

<PAGE>

 

            (c) Any securities received by CHNLI as part of Sale Proceeds

payable hereunder shall be held by CHNLI subject to any generally applicable

restrictions imposed by the Acquiror and any such securities delivered to CHNLI

may bear an appropriate legend with respect to any such restrictions.

 

            (d) In the event that the terms of any Sale provide that all or any

part of the investment or purchase price is to be paid into an escrow account at

closing, then the amount of Sale Proceeds, if any, payable to CHNLI shall be

proportional to the escrowed portion and shall not be payable unless and until

the escrowed portion is released and thereafter received by LIPH (directly or

from MDNY).

 

            (e) In any instance where any cash or securities are required to be

returned to the Acquiror for any reason, CHNLI shall promptly return to LIPH an

amount of the cash or securities, as the case may be, received by CHNLI as Sale

Proceeds that is proportionate to the amount of cash and securities returned by

LIPH or MDNY, as the case may be. Payment by LIPH of any amounts to third

parties on account of or in respect of goods, services or other consideration

not related to the Sale shall not be deemed to be a return of Sale Proceeds.

 

            (f) The applicable percentage of Sale Proceeds, if any, payable by

LIPH to CHNLI under Section 2.3(a), shall be deemed earned and payable to CHNLI

upon receipt of Sale Proceeds by LIPH at the closing of any Sale and, with

respect to contingent or deferred payments, if any, from time to time only upon

the receipt thereof by LIPH; provided, that, if LIPH agrees to accept contingent

or deferred payments for the purpose of reducing the applicable percentage of

Sale Proceeds otherwise payable to CHNLI, then the applicable percentage of any

such contingent or deferred payments received by LIPH and payable to CHNLI shall

be determined by reference to the year in which the first payment was received

under the definitive agreement governing such Sale; and further provided, that

the applicable percentage of any Sale Proceeds that are paid into an escrow

account and releasable to LIPH, subject to the terms of the applicable escrow

agreement, shall be determined by reference to (i) the year that such Sale

Proceeds are paid into such account by the Acquiror if and to the extent that

such Sale Proceeds are deposited into escrow to secure indemnifiable obligations

(and/or payments in respect of any breach of representation or warranty) payable

by LIPH to the Acquiror pursuant to the definitive agreement(s) governing the

applicable Sale, and (ii) the year that such Sale Proceeds are released from

escrow to LIPH if and to the extent that such Sale Proceeds are deposited into

escrow to secure the performance, satisfaction or fulfillment of any

performance-based condition, covenant or criteria after the closing under such

definitive agreement(s).

 

            (g) If, for any reason whatsoever, including, without limitation,

the act, omission, negligence or willful default of any party, a proposed Sale

is not consummated, CHNLI shall not be entitled to any Sale Proceeds.

 

            (h) LIPH and MDNY reserve the right in their sole discretion to

determine all terms and conditions of any proposed Sale and to accept or reject,

for any reason in its or their absolute discretion, any Sale.

 

 

 

                                       6

<PAGE>

 

            (i) Each of CHNLI, LIPH and MDNY agree to (i) treat the total amount

of additional consideration payable to CHNLI under this Section 2.3 (prior to

the application of paragraph 2.3(j)) as additional purchase price for the Class

B Shares, which amount, when paid, shall increase LIPH's tax basis in its Class

B Shares to the extent permitted by law, and (ii) report the payment of such

additional consideration on its yearly information return (for CHNLI) and income

tax return (for LIPH and MDNY) as additional purchase price (to the extent

permitted by law) for the Class B Shares.

 

            (j) Notwithstanding anything in this Section 2.3 to the contrary,

any amount payable by LIPH to CHNLI pursuant to this Section 2.3 shall be

reduced by the net increase in taxes payable by LIPH as a result of the receipt

by LIPH of that portion of the Sale Proceeds attributable to the amount payable

to CHNLI hereunder, taking into account the provisions of Section 2.3(i) and not

taking into account any net operating loss or other tax deductions available to

LIPH which are unrelated to this transaction.

 

         2.4 Waiver. LIPH, CHNLI and MDNY hereby waive any and all rights any of

them has or may have under the MDNY Shareholders Agreement, the MDNY Charter and

the MDNY By-laws, as the case may be, and any failure to comply with the MDNY

Shareholders Agreement, the MDNY Charter or the MDNY By-laws, with respect to

the purchase of the Class B Shares by LIPH and the other transactions

contemplated hereby.

 

                                  ARTICLE III.

                     REPRESENTATIONS AND WARRANTIES OF CHNLI

 

         CHNLI hereby represents and warrants to the