motion to approve mou

Hearing Date and Time: March 18, 2013 at 2:00 p.m. (Eastern Time) Objection Deadline: March 11, 2013 at 4:00 p.m. (Eastern Time)

Alan J. Lipkin Shaunna D. Jones Jack M. Tracy II WILLKIE FARR & GALLAGHER LLP 787 Seventh Avenue New York, New York 10019 Tel: (212) 728-8000 Fax: (212) 728-8111 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------x In re : Chapter 11 : Interfaith Medical Center, Inc.,1 : Case No. 12-48226 (CEC) :

Debtor. : ------------------------------------------------------x

NOTICE OF HEARING ON DEBTOR’S MOTION FOR ORDER APPROVING MEMORANDUM OF UNDERSTANDING BETWEEN

THE BROOKLYN HOSPITAL CENTER AND INTERFAITH MEDICAL CENTER

PLEASE TAKE NOTICE that annexed hereto is the Debtor’s Motion for Order

Approving Memorandum of Understanding Between the Brooklyn Hospital Center and Interfaith

Medical Center (the “Motion”).

PLEASE TAKE FURTHER NOTICE that a hearing (the “Hearing”) on the

Motion has been scheduled for March 18, 2013 at 2:00 p.m. (EDT) before the Honorable Carla

E. Craig, United States Bankruptcy Judge in Courtroom 3529 of the United States Bankruptcy

Court, 271 Cadman Plaza East - Suite 1595, Brooklyn, New York 11201-1800.

PLEASE TAKE FURTHER NOTICE that responses or objections, if any, to

entry of the order requested in the Motion must be made in writing, state with particularity the

grounds therefor, conform to the Federal Rules of Bankruptcy Procedure and the Local

1 The last four digits of the Debtor’s federal tax identification number are 6155. The Debtor’s mailing address is

1545 Atlantic Avenue, Brooklyn, New York 11213.

Case 1-12-48226-cec Doc 260 Filed 02/22/13 Entered 02/22/13 17:05:19

2

Bankruptcy Rules for the Eastern District of New York, be filed electronically in text searchable

portable document format (PDF) with the Court by registered users of the Court’s case filing

system and by all other parties in interest (with a hard-copy delivered directly to the Judge’s

Chambers), and be served upon: (i) Interfaith Medical Center, 1545 Atlantic Avenue, Brooklyn,

NY 11213 (Attn: Luis Hernandez and Robert Mariani); (ii) counsel for the Debtor, Willkie Farr

& Gallagher LLP, 787 Seventh Avenue, New York, NY 10019 (Attn: Alan J. Lipkin, Esq. and

Shaunna D. Jones, Esq.); (iii) the Office of the United States Trustee, 271 Cadman Plaza East,

Suite 4529, Brooklyn, NY 11201 (Attn: William E. Curtin, Esq. and Susan D. Golden, Esq.);

(iv) counsel to the Dormitory Authority of the State of New York, Winston & Strawn LLP, 200

Park Avenue, New York, NY 10166-4193 (Attn: David Neier, Esq. and Carey D. Schreiber,

Esq.); and (v) counsel to the Official Committee of Unsecured Creditors, Alston & Bird LLP, 90

Park Avenue, New York, NY 10016 (Attn: Martin G. Bunin, Esq. and Craig Freeman, Esq.), so

as to be actually received on or before 4:00 p.m. (prevailing Eastern Time) on March 11,

2013.

PLEASE TAKE FURTHER NOTICE that if you wish to be heard with respect to any of

the foregoing matters, you must attend the Hearing. The Hearing may be adjourned from time to

time in open court.


3

PLEASE TAKE FURTHER NOTICE that if you would like to receive copies of the

Motion set forth above, (a) you may access such documents online from either the Bankruptcy

Court’s electronic case filing system located at http://www.nyeb.uscourts.gov/ or the website of

the Debtor’s claims agent at http://www.donlinrecano.com/interfaithmedical, or (b) you may

contact Jack M. Tracy II, Esq., at Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New

York, NY 10019, by telephone at (212) 728-8000 or by e-mail at [email protected].

Dated: February 22, 2013 WILLKIE FARR & GALLAGHER LLP

By: /s/ Alan J. Lipkin Alan J. Lipkin Shaunna D. Jones

Jack M. Tracy II 787 Seventh Avenue

New York, New York 10019 Tel: (212) 728-8000 Fax: (212) 728-8111

Attorneys to Debtor and Debtor in Possession


Hearing Date and Time: March 18, 2013 at 2:00 p.m. (Eastern Time) Objection Deadline: March 11, 2013 at 4:00 p.m. (Eastern Time)

Alan J. Lipkin Shaunna D. Jones Jack M. Tracy II WILLKIE FARR & GALLAGHER LLP 787 Seventh Avenue New York, New York 10019 Tel: (212) 728-8000 Fax: (212) 728-8111 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------x In re : Chapter 11 : Interfaith Medical Center, Inc.,1 : Case No. 12-48226 (CEC) :

Debtor. : ------------------------------------------------------x

DEBTOR’S MOTION FOR ORDER APPROVING MEMORANDUM OF UNDERSTANDING BETWEEN

THE BROOKLYN HOSPITAL CENTER AND INTERFAITH MEDICAL CENTER

TO THE HONORABLE CARLA E. CRAIG, CHIEF UNITED STATES BANKRUPTCY JUDGE:

Interfaith Medical Center, Inc., the debtor and debtor in possession in the above-

captioned case (the “Debtor” or “IMC”), hereby moves for entry of an order, pursuant to

sections 105 and 363(b) of title 11 of the United States Code (the “Bankruptcy Code”) and

Rules 2002 and 6004 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”),

approving the Memorandum of Understanding, dated February 1, 2013, attached hereto as

Exhibit A (the “MOU”), between IMC and The Brooklyn Hospital Center (“TBHC”). In

support of this Motion, the Debtor respectfully states as follows:

1 The last four digits of the Debtor’s federal tax identification number are 6155. The Debtor’s mailing

address is 1545 Atlantic Avenue, Brooklyn, New York 11213.


2

JURISDICTION

1. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157

and 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is properly

before this court pursuant to 28 U.S.C. §§ 1408 and 1409. The statutory predicates for the relief

requested herein are sections 105 and 363(b) of the Bankruptcy Code, as supplemented by

Bankruptcy Rules 2002 and 6004.

GENERAL BACKGROUND

2. On December 2, 2012 (the “Petition Date”), the Debtor filed a voluntary

petition for relief under chapter 11 of the Bankruptcy Code. The Debtor is continuing in

possession of its property and management of its business as a debtor in possession pursuant to

sections 1107 and 1108 of the Bankruptcy Code. On December 13, 2012, the Office of the

United States Trustee for the Eastern District of New York appointed an official committee of

unsecured creditors in this case.

3. The events leading to the Debtor’s chapter 11 filing and certain facts and

circumstances supporting the relief requested herein are further described in the Declaration of

Luis A. Hernandez, President and Chief Executive Officer of Interfaith Medical Center, in

Support of Chapter 11 Petition and First Day Pleadings [Docket No. 2] (the “Hernandez

Declaration”), which was filed with the Court on the Petition Date.

4. As referenced in the Hernandez Declaration, prior to the Debtor’s chapter

11 case, the Debtor was negotiating the terms of a business relationship with one or more other

hospitals. Such negotiations continued postpetition and have resulted in the MOU between IMC

and TBHC.


3

RELIEF REQUESTED

5. By this motion, IMC requests entry of an order (the “Proposed Order”)

substantially in the form attached as Exhibit B, approving the MOU. The purpose of the MOU is

to set forth the general terms pursuant to which the Parties2 (i.e., IMC and TBHC) would

continue their negotiations and due diligence efforts concerning a potential business integration

(the “Proposed Transaction”). Consummation of any such Proposed Transaction would be

conditioned upon, among other things, further due diligence, the negotiation, execution, and

delivery of Definitive Agreements, the proposal and confirmation of a chapter 11 plan for IMC

(i.e., the IMC Financial Restructuring Plan), approval by the governing boards of both TBHC

and IMC, and any requisite government and other Court approvals.

6. In large part, the MOU constitutes a nonbinding statement of the Parties’

current mutual intentions with respect to certain terms of the Proposed Transaction and the

process for seeking agreement on those and all other terms. While the MOU does not include a

complete list of all of the terms and conditions of a Proposed Transaction, the terms referenced

in the MOU include, but are not limited to: (a) (i) the reorganization of IMC with TBHC or its

designated affiliate as New IMC’s sole member, or (ii) the transfer of IMC’s assets to a not-for-

profit successor entity that would have TBHC or its designated affiliate as its sole member; (b) in

either case, the TBHC Member of IMC would be an active parent exercising a variety of

reserved powers and would appoint 60% of New IMC’s board of trustees with the remaining

40% to be current IMC board members; and (c) the formation of the BHC Network to engage in

planning and strategic development for an integrated healthcare system in the Brooklyn

marketplace. See MOU ¶ 3. Additionally, the MOU provides for the establishment of a joint

2 Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the MOU.


4

board and management committee to review current and future clinical services at IMC in order

to address how services at the two hospitals would be integrated. See id.

7. The MOU is not intended to constitute a binding agreement of TBHC,

IMC or any other person or entity, except as to the following provisions:3

• While the Definitive Agreements are being negotiated, TBHC and IMC will cooperate in conducting diligence of each other with a view to completing their respective due diligence reviews as expeditiously as practicable following execution of the MOU. (MOU, ¶ 2).

• No broker has been used in connection with the Proposed Transaction. (MOU, ¶ 5(a)).

• No third party beneficiary rights are, or are intended to be, created by the MOU. (MOU, ¶ 5(b)).

• Neither party will assume any obligations or liabilities of the other Party as a result of entering into the MOU. (MOU, ¶ 5(c)).

• The MOU constitutes a statement of the Parties’ mutual intentions with respect to the Proposed Transaction, does not contain all matters upon which agreement must be reached in order for the Proposed Transaction to be consummated and, therefore, does not constitute a binding commitment with respect to the Proposed Transaction itself. Further, the MOU’s terms and conditions are subject to being supplemented or restructured in the course of negotiating the Definitive Agreements. (MOU, ¶ 6).

• The Parties shall be bound in respect of the Proposed Transaction only upon the execution and delivery of the Definitive Agreements, among other conditions. (MOU, ¶ 7(a)).

• Within 30 days of the date of the MOU, the Parties, with the approval of DASNY and DOH, shall agree upon a New CRO, who, subject to bankruptcy court approval, shall be appointed to replace IMC’s existing Chief Restructuring Officer. The New CRO would report to IMC’s Board and be in charge of IMC’s operational and financial restructuring in connection with the Proposed Transaction or otherwise. (MOU, ¶ 7(b)).

• IMC and TBHC will work together towards a closing of the Proposed Transaction and will not solicit alternative proposals. Notwithstanding anything in the MOU to the contrary, however, higher or better offers for

3 The descriptions of the MOU’s provisions are for summary purposes only.


5

IMC and/or its assets may be considered by IMC to the extent required by applicable bankruptcy or other law. (MOU, ¶¶ 7(c) and (d)).

• Except as otherwise required by applicable law, each party will not issue any press releases or make any other public announcements or disclosures with respect to the MOU or the Proposed Transaction without the prior approval of the other Party; provided, however, IMC may disclose the existence and terms of the MOU. (MOU, ¶ 7(e) and (f)).

• In connection with the Proposed Transaction, each Party will make available to the other certain information of a non-public, confidential, or proprietary nature concerning its respective business and affairs. Such information shall be kept confidential pursuant to the prepetition Confidentiality Agreement between the parties, except to the extent any such confidentiality requirement is rendered inoperative pursuant to the Confidentiality Agreement; provided, however, that the Parties may share Confidential Information with DOH and DASNY and IMC may share Confidential Information with any other IMC creditor or IMC creditor representative that agrees in writing to keep such information confidential or as required by court order. (MOU, ¶ 7(f)).

• Each of the Parties shall bear its own expenses in connection with the Proposed Transaction, including, without limitation, costs incurred in negotiating the Definitive Agreements. (MOU, ¶ 7(h)).

• Subject to the terms of the MOU, the MOU may be terminated and the Proposed Transaction may be abandoned: (i) at any time by the mutual agreement of the Parties, (ii) by either Party if the Definitive Agreements have not been executed by the Parties within 9 months of the date of the MOU; (iii) by TBHC if the New CRO has not been appointed within 60 days of the date of the MOU; or (iv) by either Party if it determines, in its sole discretion, that any of the conditions described in paragraph 4 of the MOU are unlikely to be satisfied. (MOU, ¶ 7(k)).

8. Besides the Parties’ continued active work towards a Proposed

Transaction, the main impact of the MOU (and the Debtor’s Third Interim Cash Collateral

Order) is the Debtor’s retention of a new CRO. Efforts to select a new CRO are ongoing now.

Upon appointment of a new CRO, Corbett Price, IMC’s current CRO, will no longer be CRO,

but will remain available for a limited period to facilitate the new CRO’s transition. The

remainder of the senior management team that is provided by Kurron Shares of America, Inc.

(“Kurron”) and engaged in managing IMC’s operations will remain in their roles and function


6

as before. The Debtor appreciates and acknowledges both Mr. Price’s extensive and productive

efforts on IMC’s behalf to date as well as his gracious cooperation in the transition to a new

CRO that IMC is required to make.

9. By this Motion, pursuant to sections 105(a) and 363 of the Bankruptcy

Code, the Debtor requests that the Court enter the Proposed Order approving the MOU.

BASIS FOR RELIEF REQUESTED

10. Section 363(b) of the Bankruptcy Code provides, in pertinent part, that a

debtor in possession “may use, sell, or lease, other than in the ordinary course of business,

property of the estate . . .” 11 U.S.C. § 363(b); see also Official Comm. of Unsecured Creditors

of Enron Corp. v. Enron Corp. (In re Enron Corp.), 335 B.R. 22, 27 (S.D.N.Y. 2005); 255 West

4th St. Realty Corp. v. Nisselson, 1997 U.S. Dist. LEXIS 3894 *4 (S.D.N.Y. Apr. 1, 1997).

11. Under section 363(b), the standard for approval of a debtor’s decision to

use, sell or lease property of the estate other than in the ordinary course of business is whether

the debtor’s decision is conducted with good business judgment. See Comm. of Equity Sec.

Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. N.Y. 1983) (“The rule

we adopt requires that a judge determining a § 363(b) application expressly find from the

evidence presented before him at the hearing a good business reason to grant such an

application.”). In assessing whether the debtor exercised good business judgment, the court

“should consider all salient factors pertaining to the proceeding and, accordingly, act to further

the diverse interests of the debtor, creditors and equity holders, alike.” Id. at 1071; See also In re

Metaldyne Corp., 409 B.R. 661, 667 (Bankr. S.D.N.Y. 2009) (“In answering th[e] question [of

whether a debtor exercised good business judgment] the Court is guided by the decisions in this

jurisdiction emphasizing that the Court should not substitute its business judgment for that of the

Debtors’.”) (citations omitted).


7

12. It is generally understood that “[w]here the debtor articulates a reasonable

basis for its business decisions (as distinct from a decision made arbitrarily or capriciously),

courts will generally not entertain objections to the debtor’s conduct.” In re Johns-Manville

Corp., 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986). If a valid business justification exists, there is

a strong presumption that “the directors of a corporation acted on an informed basis, in good

faith and in the honest belief that the action taken was in the best interests of the company.” In

re Integrated Res., Inc., 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488

A.2d 858, 872 (Del. 1985)), appeal dismissed, 3 F.3d 49 (2d Cir. 1993). The burden of rebutting

this presumption falls to parties opposing the proposed exercise of a debtor’s business judgment.

Id. (citing Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)).

13. The MOU is the culmination of a concerted and collaborative effort by

IMC, TBHC, and certain New York State agencies to reconfigure, enhance, and expand

resources to improve the provision of healthcare to the community now served by IMC and of

healthcare outcomes in Brooklyn generally. The terms of the MOU, including the Proposed

Transaction, result from the Debtor’s analysis of its financial situation and ability to continue

operating as an independent acute care hospital. The Debtor has determined that its continued

operation probably is dependent upon entering into a business relationship with one or more

local hospitals. Both prior to and during the Debtor’s chapter 11 case, the Debtor has sought to

negotiate such a relationship. As of the date hereof, TBHC is the most viable option for the

formation of such a business relationship.

14. As the Debtor’s senior management personnel provided by Kurron that

oversee the Debtor’s operations will remain in place and continue to function as before, the

ongoing negotiations with TBHC on a Proposed Transaction and the replacement of IMC’s


8

current CRO should not impact IMC’s day-to-day operations during this chapter 11 case. As

part of the negotiations on a Proposed Transaction, IMC will seek to ensure that substantially all

of IMC’s current operations continue post-confirmation on a financially viable basis and that

safeguards will be instituted to ensure such continued operations. In that regard, in the MOU

TBHC agreed that there will be commercially reasonable, good faith efforts to maintain the New

IMC as a general hospital with inpatient services. See MOU, ¶ 3(a)(i)(C). Those issues will

remain central in future negotiations on a Proposed Transaction.

15. As the Debtor is the primary acute care provider to its community, failure

to form a business relationship as contemplated by the MOU likely would have serious

consequences for the provision of healthcare in the Brooklyn community served by IMC, the

extent of the jobs created by such services, and the value of the Debtor’s estate. For these and

other reasons, the Debtor believes that entering into the MOU with TBHC is a sound exercise of

IMC’s business judgment and warrants approval by the Court.

16. To successfully implement the foregoing, the Debtor respectfully seeks a

waiver of the fourteen-day stay under Bankruptcy Rule 6004(h).

NOTICE

17. Notice of this Motion will be given in accordance with this Court’s Order

Establishing Certain Notice, Case Management, and Administrative Procedures and Omnibus

Hearing Dates, dated as of December 4, 2012 [Docket No. 35]. Under the circumstances, no

other or further notice is required.

18. As the authorities relied upon herein are set forth above, the Debtor

respectfully submits that this motion satisfies the requirements of Rule 9013-1(a) of the Local

Bankruptcy Rules of the Eastern District of New York regarding the submission of a

memorandum of law.


9

19. No previous motion for the relief sought herein has been made to this or

any other court.

.


CONCLUSION

WHEREFORE, the Debtor respectfully requests that the Court enter an order

substantially in the form annexed hereto as Exhibit B granting the relief requested in the Motion

and granting the Debtor such other and further relief as may be just and proper.

Dated: February 22, 2013

WILLKIE FARR & GALLAGHER LLP

By: /s/ Alan J. Lipkin Alan J. Lipkin Shaunna D. Jones

Jack M. Tracy II 787 Seventh Avenue

New York, New York 10019 Tel: (212) 728-8000 Fax: (212) 728-8111

Attorneys for the Debtor and Debtor in Possession


EXHIBIT A

MOU


EXECUTION COPY

MEMORANDUM OF UNBKRSTAMMWG

THIS MEMORANDUM OF UNDERSTANDING (this "MOL"'), dated as of February 1,

2013, is by and between THE BROOKLYN HOSPITAL CENTER ("TBHC"} and

INTERFAITH MEDICAL CENTER ("interfaith" or "SiVC")s each a "Party" and collectively,

the "Parhes. "

The Parties hereby agree as follov s:

1. Introduction.

(a) ~tcuidin ~Princi ies. The Parties share a mutual commitment and mission

to reconfigure, enhance and expand resources to improve healthcare outcomes in

Brooklyn through better access to primary and preventative care and other ambulatory

services; more effective and efficient management of acute and chronic ambulatory care-

sensitive conditions, greater depth, quality, ef5ciency and effectiveness of inpatient

services; and coordinated care to decrease redundancy and cost while simultaneously

continuing to serve and be responsive to their respective local conununity health care

needs, which for IMC means the needs of central and north Brooklyn, and addressing

population health concerns.

(b) Overview of Structure. The Parties desire to put in place a riew

organizational structure comprised of a hospital system under an active parent model to

streamline care, enhance coordination and encourage partnerships with other providers,

nursing homes and long-term facilities, FQHCs and community physicians to reduce

duplicative services and faciTitate access to care for residents.

(c) P ose of this MOU. The purpose of this MOU is to set forth the general

terms pursuant to which the Parties would be interested in continuing their discussions


and due diligence efforts concerning their formation of and participation in such new

hospital svstem (the "Proposed Transaction" ). Notwithstanding anything to the contrary

contained herein, it is expressly understood and agreed between the Parties that the

consummation of the Proposed Transaction is subject to, among other things, the

successful completion of due diligence and the negotiation, execution and delivery of a

definitive corporate reorganization agreement, and other related agreements and

documents (collectively, the "Depniiive Agreements"), and a plan of fiinancial

restructuring for Interfaith {the "JMC Financial Restriicturing J'Ian'), each mutually

acceptable in form and substance to TBHC and Interfaith, as well as the approval of the

governing boards of both TBHC and Interfaith, which approval may be denied in the sole

discretion of either or both of such boards. It is anticipated that the Proyosed Transaction

would be accomplished on substantially the terxns set forth herein.

il' . %'hile the Definitive Agreements are being negotiated, TBHC

and Irjterfaith will cooperate in conducting diligence of each other with a view to coxnpleting

their respective due diligence reviews as expeditiously as practicable following the execution. of

this MOU.

3. Terms, It is anticipated that the Definitive Agreements will include, axnong

others, the following terms:

{a) Healthcare S stem. The Parties intend to form an integrated healthcare

system under an active parent model that preserves and strengthens both Interfaith and

TBHC, each having a governing body that is representative of its coxxnnunity, so &at each

may continue to be responsive to, and better serve, local comxnunity health care needs.

interfaith and TBHC will become integrated as follows;


(i) IMC. Interfaith will either (x) be reorganized with TBHC or its

designated aIfiliate as its sole member, or (y) transfer its assets to a new New

York not-for-profit corporation formed to be its successor. which corporation shall

have TBHC or its designated affiliate as its sole member. Either such successor of

IMC is referred to herein as "Ãew LMC and TBHC or its designated affiliate is

referred to herein as the "TBHC Member. "

(A) TBHC. The TBHC Member will exercise the following

reserved powers: appoint and remove New IMC's trustees; approve

operating and capital budgets; approve operating policies and procedhires;

approve the appointment of corporate officers and senior inanagement,

approve afliliation, clinical service and management agreements: approve

certificate of need and other regulatory applicatioris; approve settlements of

administrative proceedings and litigation in which New IMC is a party; and

such additional powers as shall be set forth in the Definitive Agreements.

The TBHC Member, as New IMC's parent, shall have no powers over

New Ii&C not expressly agreed upon by the Parties and enumerated in the

Definitive Documents.

The initial board of trustees of the New

IMC shall have five members (or such higher number as the Parties may

agree upon), in a single class, consisting of the following: (i) sixty percent

{60/o) of the board members shall be appointed by the TBHC Member (at

least one of whom shall also be a member of the TBHC board of trustees).

and (ii) forty percent (4P/0) of the inembers shall be cmrent members of


the IMC board of trustees, appointed by IMC (the 'YMC Designated

Trustees" ). Each of the members of the New IMC board will be appointed

for an initial term of S years. During that initial 5 year period, none of the

IMC Designated Trustees may be removed from the New IMC board

without cause. In the event that any IMC Designated Trustee resi~ or is

removed for any reason, a replacement trustee nominated by the remaining

IMC Designated Trustee shall be appointed by the TBHC Member (to

serve for tbe remainder of the initial trustee" s 5 year term). All New IMC

Trustees shall comply with applicable statutes, regulations, New IMC

bylaws, and New IMC policies for corporate comphance, conflicts of

interest and trustee fiduciary responsibilities and obligations, which

policies will be consistent with the current policies of TBHC

{C) Continued Medical Center 0 erations. New IMC and the

TBHC Member (i} wiII make commercially reasonable, good faith efforts

to maintain the New IMC medical center as a general hospital with

mpatient services; {ii) shall not approve a closure plan for New IMC as a

general hospital with inpatient services without full consideration of

reasonabl. e alternatives; and (iii) shall only implement such closure plan in

compliance with applicablc DOH regulations.

(D) Cortununi Re resentation on New IMC Board. Each

IMC Designated Trustee shall reside in Brooklyn and shall either (i) reside

in New IMC's primary service area; (ii} have experience within the health

care industry; or {iii) have knov ledge of local community health needs


(E) TBHC Board. New IMC shall nominate one of its trustees

to serve on the TBHC Member board of trustees, unless the Parties

otherwise agree to provide in the Defmitive Agreements that the chairman

of the board of New IMC will serve as an ex o+rcio member of the TBHC

Member board. During the initial 5 year period of the New IMC, the IMC

Designated Trustees shaH designate one of' themselves to be the trustee

nominated to sit on the TBHC Member board.

(ii) BHC Network. TBHC will form a New York not-for-profit

corporation (the "BHC Network" ). The BHC Network will engage in planning

and strategic development for the Brooklyn marketplace. The BHC Network will

work with TBHC New IMC and other entities providing continuity of care, as

such are approved by the BHC Network. Anv contractual relationship between

the BHC Network and New IMC shaH be satisfactory to New IMC and TBI-IC

(iii) Man ement Com anv It is contemplated that TBHC will form a

for profit corporation to provide management and other services for members of

the BHC Network and other entities. Any contractual relationship betv. een such

management company and New IMC shaH be satisfactory to New' IMC and

(b) Financial Restructuring. Concurrently with the preparation and execution

of the Defmitive Agreements, and in cooperation and consultation with TBHC, it is

contemplated that IMC will engage in a financial restructuring and its Board will take

such actions that are appropriate under the circumstances to result in an IMC Financial


Restructuring Plan. The IMC Financial Restructuring Plan is expected to involve, among

other things, a restructuring of PiIIC's balance sheet and. the elimination of significant

liabilities. The restructuring process will include meetings with representatives of the

New York State Department of Health, the Dormitory Authority of the State of New York

and such other third parties necessary to a successful IMC Financial Restructuring Plan

and to the obtaining of appropriate financing. The IMC Financial Restructuring Plan will

be responsive, as appropriate, to the recommendations of any DOH approved Navigant

report, and shall include other elements appropriate and necessary to meet the health care

needs of the community served by IMC,

(c) Clinical Services Review. The Parties acknov'ledge that to achieve the

purposes of this MOU consistent with the guiding principles stated in Section 1{a) and to

maintain both TBHC and New IMC as first class, high quality hospitals serving the needs

of their respective communities, the Parties must consider the possibility of new, reduced

and reconfigured services at New IMC. To that end. the Parties shall establish a joint

board committee composed of an equal number of trustees/directors from each Party' s

board (or non trustee/director representatives who may include members of senior

manageinent as determined. by each Party's board in its sole discretion) to review the

current and Arture clinical services at IMC. The joint board committee will have the

following advisory responsibilities:

(i) Prepare a community service plan which will describe the clinical

ser~~ces needs of the communities served by 1MC;


(ii) Compile a list of "core services" at IMC which should be

maintained for the clinical services needs of the communities served by IMC to be

met; and

(iii) Develop a demographic, demand and financial assessment tool to

assess any addition, reduction, closure or reconfiguration of clinical services at

IMC subsequent to the Proposed Transaction.

The plans, lists and tools described above shall be submitted to the TBHC and IMC

boards for considering clinical services changes at IMC in connection with the Proposed

Transaction.

{d) Other. The I3efmitive Agreements will contain standard representations,

warranties, covenants, disclosure schedules, closing conditions and other provisions that

are customary in a transaction of this type and size.

4, Conditions The closing of the Proposed Transaction (the 'Closing" ) will be

conditioned upon the satisfaction or waiver of, among other things:

{a) HEAL Grants.

itj ~Pre-Clasin . Both Parties shall have received HEAL grants prior

to the Closing, which as to IMC, shall be sufficient, inter alia. to provide for

consummation of the IMC Financial Restructuring Plan.

(ii) P~ost-Closin . The Parties each shall have received written

commitments from applicable governmental authorities to provide HEAL grants

to both TBHC and New IMC following the Closing in amounts determined to be

necessary to provide for the future viability of TBHC, New IMC and the BHC

Network.


{b) Medicaid Rate Ad ustments.

t'i) P~re-Ctosin . Each of the Parties shall have reached agreement

with appHcable governmental authorities regarding adjusted Medicaid rates for

services such party provides for periods prior to the Closing and such agreed upon

adjusted Medicaid rates shall have been implemented.

Each of the Parties shall have received written

commitments from all applicable governmental authorities to implement adjusted

Medicaid rates with regard to services provided by TBHC and. New IMC

following the Closing, in amounts determined to be necessary to provide for the

future viability of TBHC, New IMC and the BHC Network, as applicable.

(c) Other Crrants and Subsidies. Each of the Parties shall have received

written coininitments from all applicable governmental authorities to provide such party

such other grants and subsidies (e. g. , bad debt and charity care disbursements) as may be

determined to be necessary to provide for the future viability of TBHC, New IMC and the

BHC Network, as applicable.

(d) royal of IMC Financial Restructtirin Plan. IMC and TBHC shall

each be satisfied with the terms of the IMC Financial Restructuring Plan.

(e) Goverinnental and Third P A rovaIs Each Party shall be satisfied

that (i) all requisite notices and all other information shall have been filed with all

appropriate governmental and regulatory authorities, and (ii) all necessary or appropriate

governmental and other third party approvals, orders and consents relating to the

Proposed Transaction shall have been obtained.


(f} A royal b the Parties' Governin Boards. The Proposed Transaction

and the terms of the Definitive Agreements and the IMC Financial Restructuring Plan

shall have been approved by the governing boards of each Party in its sole discretion prior

to execution.

{g} Court Orders. Orders of any applicable court entered in connection with

the IMC Financial Restructuring Plan shall be in form and substance acceptable to IMC

and TBHC in their respective sole discretion.

5. Other Matters.

{a} No Broker. The Parties agree that no broker has been used in connection

with the Proposed Transaction.

{b) No Third P Benefici . No third party beneficiary rights are, or are

intended to be, created hereunder.

(c) No Assum tion of Liabilities. For the avoidance of doubt, it is further

expressly acknowledged that neither Party mill assume any obligations or liabilities of thc

other Party as a result of the entering of this MOU.

6. Prclimin Nature of MOU.

{a) Fore~pin Not Exhaustive. The foregoing is not intended to be a complete

list of all the terms and conditions to the Parties' willingness to participate in the

Proposed Transaction. The terms and conditions contained in this MOU are, of course,

subject to being supplemented or restructured in thc course of negotiating the Definitive

Agreements.

All matters referred to herein and all corporate

proceedings are subject to legal review and approval by the Parties' respective counscL


(c} No Contract. It is understood that this MOU merely constitutes a

statement of the Parties' mutual intentions with respect to the Proposed Transaction. does

not contain all matters upon which agreement must be reached in order for the Proposed

Transaction to be consmnnmted and, therefore, does not constitute a binding commitment

with respect to the Proposed Transaction itself.

7. Bindin~ Obli ations.

(a) Extent of Bindin Obligations. Except for the provisions of paragraphs 2,

5, 6, and 7 hereof, which will be fully binding on each of the Parties upon the execution

of this MOU by both Parties, this MOU is not intended to (and shall not under any

circumstances) constitute a binding agreement of TBHC, Interfaith or any other person or

entity. The Parties shaH be bound in respect of the Proposed Transaction only upon the

execution and delivery of the Definitive Agreements.

(b) Interim Man ement of Interfaith. Within 30 days of the date hereof, the

Parties with the approval of DASNY and DOH, shall agree upon a new Chief

Restructuring Officer (the "Pew CEO"), who, subject to bankruptcy court approval, shall

be appointed to replace the existing Chief Restructuring Officer and to have full authority

over the management of Interfaith. The Ne~ CRO and the chief executive officers of

Interfaith and TBHC (and any other officers that Interfai& or TBHC determines to be

necessary) shall meet weekly to discuss Interfaith's operations and the development of

the IMC Financial Restructuring Plan Representatives f'rom DOH and DASNY shall be

invited to attend such meetings and to consult with the Interfaith and TBHC officers,

Trustees of TBHC and IMC sha11 meet periodically to coordinate respective activities

Representatives from DOH, DASNY and TBHC shall be invited to attend all Interfaith

10


board meetings. On or before the Closing, Interfaith's then existing management team

shall step down and be replaced by a new rnanagernent team approved by New IMC's

(c) No Solicitation. This MOU will constitute an agreement by Interfaith to

work with TBHC toward the Closing and not to solicit alternative proposals. From the

date of this MOU to the earlier of (i) the execution of the Definitive Agreements, or (ii)

the termination of this MOU in accordance with Paragraph 7(j) below, except as

otherwise required by law or IMC's fiduciary duties, none of Interfaith, its members or

trustees, any affiliate of its members or trustees, or any agent, employee, attorne,

investment banker, broker or other person acting on behalf of any of the foregoing, sha11

solicit or initiate inquiries or proposals &om any parties with respect to {x} any

transaction that is similar to the Proposed Transaction, {y) any clinical or administrative

affiliation or business arrangement of IMC, or (z) any other transaction the consummation

of which would or could reasonably be expected to interfere with, prevent or materially

delay the Proposed Transaction, the prospective relationship between TBHC and IMC or

the desi~ of the nev hospital system. Notwithstanding anything herein to the contrary,

higher or better offers for IMC and/or its assets may be considered by IMC to the extent

required by applicable bankruptcy or other law.

(d) This MOU will constitute an agreement by TBHC to

work v ith Interfaith toward the Closing and not to solicit alternative proposals. From the

date of this MOU to the earlier of {i} the execution of the Definitive Agreements, or (ii)

the termination of this MOU in accordance with Paragraph 7(j) below, except as

otherwise required by Iaw or TBHC's fiduciary duties, none of TBHC or its trustees, or


any agent, employee, attorney, investment banker, broker or other person acting on behalf

of any of the foregoing, shall solicit or irutiate inquiries or proposals from any parties

with respect to (x} any transaction that is similar to the Proposed Transaction, (y} any

clinical or admimstrative affiliation or business arrangement of IMC, or (z} any other

transaction the consununation of which would or could reasonably be expected to

interfere with, prevent or materially delay the Proposed Transaction or the prospective

relationship between TBHC and IMC, without the prior ~vitten consent of IMC.

(e} Public Announcements. Except as otherwise required by applicable law,

each Party agrees that it will not issue any press releases or make any other public

announcements or disclosures with respect to this MOU or the Proposed Transaction

without the prior approval of the other Party.

In connection with the Proposed Transaction, each Party

will make available to the other certain information of a non-public, confidential, or

proprietary nature concerning its respective businesses and affairs. Such iiiformation,

whether disclosed orally or in writing by a Party and/or its accountants, attorneys,

investment bankers or other professional advisors, and including any analyses,

compilations. studies or other documents prepared by a Party or its professional advisors

that contain, compile, analyze, sununarize, or otherwise reflect such information,

coMitutes "Corrfiderctiai Information" v ithin the meaning of, and shall be kept

confidential pursuant to that certain Confidentiality and Non-Disclosure Agreement

between TBHC and Interfaith, effective as of June 8, 2012 (the "C nfid 1

A~cement"jt except to the extent any such confidentiality requirement is rendered

inoperative pursuant to paragraph 8 of the Conttdentiahty Agreement; provided however,


that the Parties may share Confidentiai Information with DOH and DASNY and IMC

may share Confidential Information with any other IMC creditor or IMC creditor

representative that agrees in writing to keep such information confidential or as required

by court order. "notwithstanding anything to the contrary in the Confidentiality

Agreement. if IMC is under chapter 1 I protection, then IMC may disclose the existence

and terms of this MOU. The obbgations contained in this Paragraph 7(f) shall survive the

termination of this MOU.

(g) Governin~ Law. This MOU shall be governed by the internal laws of the

State of New York without regard to conflict of laws principles thereof.

(h) Exttenses. Each of the parnes shall heat its own expenses in connection

with the Proposed Transaction, including, without limitation, costs incurred in negotiating

the Definitive Agreements.

(i) Execution. This MOU may be executed in counterparts, each of which

vill be deemed to be an original copy and both of which, when taken together, will be

deemed to constitute one and the same document. The exchange of copies of this MOU

and of signature pages by facsimile or other electronic transmission shaH constitute

effective execution and delivery hereof as to the Parties and may be used in lieu of the

original MOU for all purposes.

(0 No Amendment. This MOU may not be amended, except by a writing

signed by both Parties that refers specifically to this MOU.

(k) Termination. Subject to the terms set forth herein, this MOU may be

terminated and the Proposed Transaction may be abandoned: {i) at any time by the

mutual agreement of the Parties, (ii) by either Party if the Definitive Agreements have not

13


been executed by the Parties within 9 months of the date hereof. (iii) by TBHC if the New

CRO has not been appointed within 60 days of the date of this MOU, or (iv} by either

Party if it determines, in its sole discretion, that any of the conditions described in

Paragraph 4 above is unlikely to be satisfied.

(remainder of page intentionallv left blank)


IN %VASTNESS Wf-KREOF, the Parties have executed this MOU or caused this MOV to

be executed by their respective ofTicers hereunto duly authorized, all as of the date tu. st

appearing above.

THE BROOKLYN HOSPITAL CENTER. INTERFAITH MEDICAL CENTER

Title: Chief Executive Of6cer ~

By: Name. Luis Hernandez Title: Chief Executive Officer


EXHIBIT B

Proposed Order


UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------x In re : Chapter 11 : Interfaith Medical Center, Inc.,1 : Case No. 12-48226 (CEC) :

Debtor. : ------------------------------------------------------x

ORDER APPROVING MEMORANDUM OF UNDERSTANDING BETWEEN THE BROOKLYN HOSPITAL CENTER AND INTERFAITH MEDICAL CENTER

Upon the motion (the “Motion”) of Interfaith Medical Center, Inc., the debtor and

debtor in possession in the above-captioned case (the “Debtor”), requesting entry of an order,

pursuant to sections 105 and 363(b) of title 11 of the United States Code (the “Bankruptcy

Code”) and Rules 2002 and 6004 of the Federal Rules of Bankruptcy Procedure (the

“Bankruptcy Rules”), approving the memorandum of understanding attached to the Motion as

Exhibit A; and due and sufficient notice of the Motion having been given; and it appearing that

no other or further notice need be provided; and a hearing on the Motion having been held; and it

appearing that the relief requested by the Motion is in the best interest of the estate, its creditors,

and other parties in interest; and after due deliberation and sufficient cause appearing therefore, it

is hereby

ORDERED, ADJUDGED, AND DECREED that:

1. The Motion is granted to the extent set forth herein.

2. Capitalized terms not otherwise defined herein shall have the meanings

ascribed to such terms in the Motion.

1 The last four digits of the Debtor’s federal tax identification number are 6155. The Debtor’s mailing

address is 1545 Atlantic Avenue, Brooklyn, New York 11213.


2

3. The MOU is approved, and the Debtor’s execution and implementation of

the MOU is authorized nunc pro tunc.

4. Notwithstanding any Bankruptcy Rule to the contrary, including, without

limitation, Bankruptcy Rule 6004, this Order shall be immediately effective and enforceable

upon its entry.

5. This Court shall retain jurisdiction over any matters arising from or related

to the implementation or interpretation of this Order.
