1
EXHIBIT 10.34
PACIFICARE HEALTH SYSTEMS, INC.
KONOWIECKI & RANK
LEGAL SERVICES AGREEMENT
I. PARTIES
The agreement is between PacifiCare Health Systems, Inc., a Delaware
corporation, and its subsidiaries (PHS) and Konowiecki & Rank (K&R).
II. PURPOSE
PHS has a unique relationship with its outside counsel, K&R. K&R is
accountable for all legal services required by PHS, including those
rendered by other attorneys and law firms unaffiliated with K&R
(collectively "Third Party Firms"). The goal of this agreement is to
control PHS legal costs through planned efficiency targets and to share
with K&R a portion of the efficiencies achieved.
III. K&R RESPONSIBILITIES
K&R shall be responsible for and shall have the authority to:
a. Manage and assure performance of all legal services required by PHS,
including those set forth in Exhibit I ("Legal Services");
b. Devise, implement and coordinate with PHS procedures for utilization
control and quality assurance of such Legal Services;
c. Provide Legal Services directly, or arrange for the provision of
Legal Services by Third Party Firms as requested by PHS; and,
d. Make good faith efforts to advise PHS as to legal trends, upcoming
legislation and potential court action which may effect the business
of PHS and its policies.
IV. PHS RESPONSIBILITIES
PHS shall:
a. Take all necessary legal and administrative steps to empower K&R to
perform its duties described above;
b. Cooperate with K&R in the completion of legal projects and matters,
including the timely provision by PHS of necessary information on a
case by case basis;
c. Designate a senior management level person whom K&R may contact
regarding the performance of this Agreement; such designated person
shall be Xxxx Xxxxx until otherwise changed in writing by PHS;
d. Make payments to K&R for Legal Services rendered to PHS by K&R and
related activities as set forth in Section V. K&R agrees that legal
rates and charges for Legal Services directly provided by K&R to PHS
are and shall continue to be the most favorable legal rates and
charges for such Legal Services provided to K&R's clients.
Notwithstanding the foregoing, the legal fees and rates paid by
insurance carriers to K&R for insurance litigation defense work
performed by K&R shall be consistent with industry standards and
shall not be considered in the determination of K&R's most favorable
rates for Legal Services; and,
e. Make payments to K&R for savings in the total budgeted cost of Legal
Services incurred by PHS, as set forth in Section VI.
2
V. K&R HOURLY RATES, COSTS AND EXPENSES
K&R shall xxxx PHS for actual time spent by K&R providing Legal Services
to PHS at billing rates described in Exhibit II hereto, except that, any
and all time incurred by Xxxxxx X. Xxxxxxxxxx will be billed at a total
monthly amount of $42,166 (Forty-Two Thousand One Hundred Sixty-Six
Dollars) (referred to herein as the "JSK Level Payment") On January 1,
2000 and on January 1 of each year thereafter during the Term of the
Agreement, such rates and the JSK Level Payment shall be increased by
multiplying the JSK Level Payment and each rate by the applicable PHS
Merit Pool Factor. The PHS Merit Pool Factor is equal to the most
recently published (usually by the PHS President or VP Human Resources)
average merit increase guidelines for exceptional performance.
The hourly rate for any K&R attorney not named in Exhibit II shall be
determined based on experience of the new attorney in comparison to the
experience of the attorneys listed in Exhibit II (i.e., the rates shall
be based on the number of years of experience of the new attorney
compared to other attorneys at K&R).
In addition to K&R hourly rates, K&R shall invoice PHS four and one-half
percent (4.5%) of billed services for copying, postage and telephone.
The total of billed services and the 4.5% administrative charge shall be
discounted by 25%. K&R shall invoice PHS for all out of pocket costs and
expenses associated with the provision of Legal Services for PHS,
including, without limitation, travel, messenger and overnight mail,
litigation costs, filing fees and Legal Services and costs provided by
law firms other than K&R.
PHS agrees to remit payment to K&R for hourly attorney rate charges, the
JSK Level Payment and costs and expenses ("K&R Legal Service Payment")
in accordance with this Section V within twenty-five (25) days of
receipt of K&R's invoice for the same.
VI. INCENTIVE CALCULATIONS
a. Defined Legal Budget
The Defined Legal Budget shall be a number equal to the Defined Legal
Expenses for calendar year 1998 plus 5%.
i. New Business Adjustment
If there is a material change in the business of PHS, the parties
shall reasonably negotiate the effect of such change to the
Defined Legal Budget.
2
3
b. Defined Legal Expenses
Defined legal expenses shall be quantified for each calendar year
using the accrual method of accounting as follows:
K&R Legal Service Payment
Plus: Payments for Third Party Firm Legal Services and
related expenses
Less: Amounts over Project Stop Loss (as defined below)
Less: Amounts reimbursed by third parties for Legal Services
Equals: Defined Legal Expenses
i. K&R Services and Expenses
All K&R Legal Service Payments determined in accordance
with Section V will be included in the calculation of
Defined Legal Expenses.
ii. Third Party Firm Legal Services and Expenses
Because K&R is responsible for the management of all
Legal Services, the accrued legal fees and expenses for
Legal Services provided by law firms or attorneys other
than K&R ("Third Party Firm") will be included in the
calculation of Defined Legal Expenses, provided that such
services and expenses have been approved in writing by
K&R. Third Party Firm Legal fees and out-of-pocket
expenses not approved by K&R shall be excluded from
Defined Legal Expenses. K&R shall not unreasonably
withhold approval of any Third Party Firm but will
appropriately evaluate cost, quality and whether K&R
could have performed the applicable Legal Services
performed or proposed to be performed by the Third Party
Firm. K&R will make good faith efforts to educate and
communicate to PHS staff that K&R manages all Legal
Services.
iii. Project Stop Loss
All legal fees and expenses, excluding the Xxxxxx X.
Xxxxxxxxxx Level Payment, exceeding $85,000 per project
each calendar year for projects with legal fees and
expenses which exceed $170,000 ("Project Stop Loss")
shall be excluded from the Defined Legal Expenses.
iv. Reimbursements by Third Parties
Reimbursement for K&R or Third Party Firm Legal Services
received from third parties (e.g., recent acquisition
sellers, or shared costs with UniHealth America, or
reimbursement from insurance carriers) shall be excluded
from Defined Legal Expenses when written evidence of
reimbursement is submitted to PHS by K&R. The evidence
may include purchase/sale agreements, offering agreements
and/or confirming correspondence from third parties.
c. Incentive Pool Savings
Incentive Pool Savings for a calendar year are defined as follows:
Defined Legal Budget for calendar year
Less: Defined Legal Expenses for such calendar year
Equals: Incentive Pool Savings
When Defined Legal Expenses are less than the Defined Legal Budget
for the year to date measurement period, K&R shall be paid an
additional amount equal to 50% of the Incentive Pool Savings.
3
4
d. Frequency of Calculation
On a quarterly basis, a calculation shall be made of the Incentive
Pool Savings. Calculations shall be on a PHS fiscal year-to-date
basis and completed with in 45 days of the end of each calendar
quarter subject to timely receipt of K&R. billing. If savings have
been generated, then the amount due K&R shall be paid as an interim
payment against the final year's Incentive Pool Savings results. If
prior quarterly periods resulted in Incentive Pool Savings payment
greater than the current measurement period, K&R will reimburse PHS
for any excess Incentive Pool Savings payments through offsets into
the next quarterly calculation. Payment for Quarter 4 shall be
subject to the final Incentive Pool Savings calculation which shall
be made within 90 days of the end of the fiscal year.
VII. EXCLUSIVITY
Except with the approval of PHS, K&R shall not provide legal
representation to any PHS HMO competitors in PHS' markets in matters
pertaining to HMO law and legal issues which are unique to HMOs and the
other specialty products businesses of PHS.
VIII. TERMS
The term of this Agreement shall be for three (3) years ("Term") and
shall commence on January 1, 1999 ("Commencement Date"). A "year" under
this Agreement shall begin on January 1st and end on December 31st. The
Term of this Agreement shall be automatically extended for one (1) year
on each successive anniversary of the Commencement Date unless either
party provides the other with written notice of such party's intention
not to extend the Term no less than one hundred eighty (180) days prior
to such anniversary of the Commencement Date. The parties acknowledge
that on each successive January 1, a three (3) year term shall be in
effect, unless notice of termination has been given, provided in this
Section VIII.
IX. APPROVALS
Please indicate your agreement with the terms of this letter by signing
below.
PACIFICARE HEALTH SYSTEMS KONOWIECKI & RANK
------------------------------ ---------------------------
Xxxx Xxxxx Xxxxxxx X. Xxxxxx
Managing Partner
4
