<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
/ / Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
</TABLE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C>
/ / $125 per Exchange Act Rules 0-11(c)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how
it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
</TABLE>
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on January 25, 1997
Dear Fellow Shareholder:
The Annual Meeting of the Shareholders of Long Island Physician Holdings
Corporation, a New York corporation (the "Company"), will be held at the
Huntington Hilton Hotel, Melville, New York, on January 25, 1997, at 10:00 a.m.
(the "Meeting"), for the following purposes, as more fully described in the
accompanying Proxy Statement:
1. To elect forty directors;
2. To approve amendments to the Company's By-Laws to permit the exchange of
one share of the Company's Class B common stock for one share of Class A common
stock by certain shareholders who do not presently own voting shares; and to
permit certain practitioners to serve on the Company's Board of Directors;
3. To approve a proposed restructuring and recapitalization of the Company
and MDNY Healthcare, Inc. pursuant to an Agreement and Plan of Merger and
amendments to the Company's Certificate of Incorporation and By-Laws;
4. To approve an amendment to the Company's Certificate of Incorporation to
eliminate preemptive rights;
5. To approve the appointment of Coopers & Lybrand LLP as the Company's
auditors for the 1997 fiscal year; and
6. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ELECTION
OF EACH OF ITS NOMINEES FOR DIRECTOR AND "FOR"
APPROVAL OF EACH OF THE OTHER ITEMS DESCRIBED ABOVE.
Only shareholders of record at the close of business on December 9, 1996 are
entitled to notice and to vote at the Meeting or any adjournment thereof. A
complete list of the shareholders entitled to vote at the Meeting on the
foregoing proposals will be open to examination by any shareholder for any
purpose germane to the Meeting during ordinary business hours for a period of
ten days prior to the Meeting at the offices of the Company, 275 Broadhollow
Road, Melville, NY 11747.
<TABLE>
<S> <C>
December , 1996 By order of the Board of
Directors,
Babu Easow, M.D.
Secretary
</TABLE>
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING WHETHER OR NOT
YOU ARE PERSONALLY ABLE TO ATTEND. YOU ARE URGED TO COMPLETE, SIGN AND MAIL THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE.
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
275 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
------------------------
PROXY STATEMENT
------------------------
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 25, 1997
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished to the holders of Class A common stock,
$.001 par value per share (the "Class A Common Stock"), and Class B common
stock, $.001 par value per share (the "Class B Common Stock" and together with
the Class A Common Stock, the "Common Stock"), of Long Island Physician Holdings
Corporation, a New York corporation formed on October 6, 1994 (the "Company"),
in connection with the solicitation of proxies on behalf of the Board of
Directors of the Company for use at the Annual Meeting of Shareholders of the
Company to be held on January 25, 1997 and at any adjournment thereof (the
"Meeting"), pursuant to the accompanying Notice of Annual Meeting of
Shareholders.
This Proxy Statement and the form of Proxy were first mailed to the
shareholders on or about December , 1996. Only shareholders of record at the
close of business on December 9, 1996 (the "Record Date") are entitled to notice
of the Meeting and only holders of record of the Class A Common Stock on that
date are entitled to vote at the Meeting, except that holders of the Class B
Common Stock are entitled to vote as a class on the proposals described in Items
3 and 4. The outstanding voting securities of the Company on the Record Date
consisted of [1,523 SHARES] of Class A Common Stock. The total number of issued
and outstanding shares of Class B Common Stock on the Record Date was [4,319
SHARES].
On all matters requiring a vote by holders of the Common Stock, each share
of Class A Common Stock entitles the holder of record to one vote. Each share of
Class B Common Stock will entitle the holder of record to one vote. The holders
of a majority of the outstanding shares of Class A Common Stock, present in
person or by proxy, will constitute a quorum. Directors shall be elected by a
plurality of the votes cast at the Meeting. With respect to those proposals
requiring the approval of the holders of the Class B Common Stock voting as a
class, the holders of a majority of the outstanding shares of Class B Common
Stock, present in person or by proxy, will constitute a quorum for those
specific items.
<PAGE>
VOTING OF PROXIES
Shares represented by Proxies, in the accompanying form of Proxy, which are
properly executed, duly returned and not revoked, will be voted in accordance
with the instructions contained therein. If no specification is indicated on the
Proxy, the shares represented thereby will be voted (i) for the election as
directors of the persons who have been nominated by the Board of Directors; (ii)
for approval of the proposed amendments to the Company's By-Laws to permit the
exchange by certain holders of shares of Class B Common Stock for shares of
Class A Common Stock and to permit certain practitioners to serve on the
Company's Board of Directors; (iii) for approval of the proposed restructuring
transactions pursuant to the proposed Agreement and Plan of Merger and
amendments to the Company's Certificate of Incorporation and By-Laws; (iv) for
approval of the proposed amendment to the Company's Certificate of Incorporation
to eliminate preemptive rights; (v) for approval of Coopers & Lybrand LLP as the
Company's auditors for the 1997 fiscal year; and (vi) on any other matter that
may properly be brought before the Meeting in accordance with the judgment of
the person or persons voting the Proxies. The execution of a Proxy will in no
way affect a shareholder's right to attend the Meeting and vote in person.
A shareholder voting through a Proxy who abstains with respect to the
election of directors will be considered to be present and entitled to vote on
the election of directors at the Meeting and will be, in effect, a negative
vote. A shareholder who does not give authority to a Proxy to vote, or withholds
authority to vote, on the election of directors shall not be considered present
and entitled to vote on the election of directors. A shareholder voting through
a Proxy who abstains with respect to approval of any other matter to come before
the Meeting will be considered to be present and entitled to vote on that matter
and will be, in effect, a negative vote. A shareholder who does not give
authority to a proxy to vote, or withholds authority to vote, on any such matter
shall not be considered present and entitled to vote thereon.
Any Proxy executed and returned by a shareholder may be revoked at any time
thereafter if written notice of revocation is given to the Secretary of the
Company prior to the vote to be taken at the Meeting, or by execution of a
subsequent Proxy which is presented to the Meeting, or if the shareholder
attends the Meeting and votes by ballot, except as to any matter or matters upon
which a vote shall have been cast pursuant to the authority conferred by such
Proxy prior to such revocation.
The cost of solicitation of the Proxies being solicited on behalf of the
Board of Directors will be borne by the Company. In addition to use of the
mails, proxy solicitation may be made by telephone, telegraph and personal
interview by officers, directors and employees of the Company. The Company will
bear all costs in connection with the solicitation by the Board of Directors of
proxies of the Meeting. Officers and employees of the Company who solicit
proxies will receive no extra compensation for such solicitation. [THE COMPANY
HAS RETAINED TO ASSIST IN THE SOLICITATION OF PROXIES.]
2
<PAGE>
ITEM 1
ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
Unless otherwise specified, all Proxies received will be voted in favor of
the election of the persons named below as directors of the Company, to serve
until the expiration of the terms for which they are elected and until their
successors shall be duly elected and qualified. The terms of the current
directors expire at the Meeting or when their successors are duly elected and
qualified. Management has no reason to believe that any of the nominees will be
unable or unwilling to serve as a director, if elected. Should any of the
nominees not remain a candidate for election at the date of the Meeting, the
Proxies will be voted in favor of those nominees who remain candidates and may
be voted for substitute nominees selected by the Board of Directors.
The names of the nominees and certain information received from them are set
forth in the following table, including their principal occupations, for at
least the last five years, and the names of any other companies whose securities
are publicly held and of which they presently serve as directors.
FOR A TERM ENDING WITH THE 1999 ANNUAL MEETING
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE BECAME A DIRECTOR
- --------------------------------------------------------------------- --- -------------------
<S> <C> <C>
David J. Weissberg, M.D. ............................................ 41 1994
M. A. Mirza, M.D. ................................................... 51 1994
Babu Easow, M.D. .................................................... 47 1995
Paul Kolker, M.D. ................................................... 60 1994
Salvatore J. Caravella, M.D. ........................................ 39 1995
Amy Koreen, M.D. .................................................... 33 1995
Ronald R. Perrone, M.D. ............................................. 48 1995
Bruce A. Seideman, M.D. ............................................. 38 1995
Eli Anker, M.D. ..................................................... 47 1995
Jeffrey R. Ashkin, M.D. ............................................. 52 1995
Marion Bergman, M.D. ................................................ 44 1995
Charles A. Calabrese, M.D. .......................................... 44 1995
Anthony P. Caruso, M.D. ............................................. 46 1995
Gregory Kalmar, D.D.S. .............................................. 49 1996
</TABLE>
David J. Weissberg, M.D., conducts a medical practice in orthopedic surgery
with the Huntington Medical Group, in Huntington Station, New York, a practice
he has conducted since 1985. He has served as Chairman of the Board of Directors
and as the President of the Company since its inception.
M. A. Mirza, M.D., conducts a medical practice in orthopedic surgery in
Smithtown, New York, a practice he has conducted since 1974. Dr. Mirza is the
President of Moorewood Partners, a position he has held since 1982, and
President of Northshore Smithtown Development, a position he has held since
1989. Dr. Mirza is the Medical Director, since 1990, and President, since 1989,
of Northshore Surgicenter, located in Smithtown, New York. Dr. Mirza has been a
director and the Vice President of the Company since its inception.
Babu Easow, M.D., conducts a medical practice in cardiology in Riverhead,
New York, a practice he has conducted since 1982. Dr. Easow has been a director
of the Company since its inception. He also serves as the Secretary of the
Company.
Paul Kolker, M.D., conducts a medical practice in thoracic and
cardiovascular surgery in Roslyn, New York, a practice he has conducted since
1969. Dr. Kolker has been a director of the Company since its inception.
3
<PAGE>
Salvatore J. Caravella, M.D., conducts a medical practice in pediatrics in
Huntington, New York, a practice he has conducted since 1988. Dr. Caravella is
also employed as a neonatologist at the Westchester County Medical Center, a
position he has held since 1988. Dr. Caravella has been a director of the
Company since its inception.
Amy Koreen, M.D., is an assistant professor of psychiatry and a research
psychiatrist at Long Island Jewish Medical Center/Albert Einstein College of
Medicine, positions she has held since July 1993. She also conducts a medical
practice in psychiatry in Huntington, New York, a practice she has conducted
since 1994. Prior to that time, Dr. Koreen completed a fellowship in biological
psychiatry and neuropsychopharmacology at Long Island Jewish Medical Center. Dr.
Koreen has been a director of the Company since its inception.
Ronald R. Perrone, M.D., conducts a medical practice in anesthesiology in
Melville, New York, a practice he has conducted since 1989. Dr. Perrone has been
a director of the Company since its inception.
Bruce A. Seideman, M.D., conducts a medical practice in orthopedic surgery
with Orthopaedic Associates of Manhasset in Manhasset, New York, a practice he
has conducted since 1987. Dr. Seideman has been a director of the Company since
its inception.
Eli Anker, M.D., conducts a medical practice in general and vascular surgery
with the Island Surgical and Vascular Group, P.C. in Islip Terrace, New York, a
practice he has conducted since 1977. Dr. Anker has been a director of the
Company since its inception.
Jeffrey R. Ashkin, M.D., conducts a medical practice in gastroenterology in
Bay Shore, New York, a practice he has conducted since 1976. Dr. Ashkin has been
a director of the Company since its inception.
Marion Bergman, M.D., conducts a medical practice in pulmonary diseases and
internal medicine in Patchogue, New York, a practice she has conducted since
1981. Dr. Bergman has been a director of the Company since its inception.
Charles A. Calabrese, M.D., conducts a medical practice in plastic surgery
in Stony Brook, New York, a practice he has conducted since 1987. Dr. Calabrese
has been a director of the Company since its inception.
Anthony P. Caruso, M.D., conducts a medical practice in otolaryngology in
Southampton, New York, a practice he has conducted since 1979. Dr. Caruso has
been a director of the Company since its inception.
Gregory Kalmar, D.D.S., conducts a practice in family and cosmetic dentistry
in Huntington, New York, a practice he has conducted since 1974. From 1982, Dr.
Kalmar has also been an attending dentist at Nassau County Medical Center; East
Meadow, New York. Dr. Kalmar was elected to the Board in August 1996.
4
<PAGE>
FOR A TERM ENDING WITH THE 1998 ANNUAL MEETING
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE BECAME A DIRECTOR
- --------------------------------------------------------------------- --- -------------------
<S> <C> <C>
Lew E. Cibeu, M.D. .................................................. 63 1995
Martin B. Cohen, M.D. ............................................... 56 1995
Alan Dietzek, M.D. .................................................. 39 1995
Geri DiGiovanna, D.O. ............................................... 31 1995
Jeffrey M. Epstein, M.D. ............................................ 44 1995
Franco Gallo, M.D. .................................................. 34 1995
Steven M. Goldberg, M.D. ............................................ 41 1995
David T. Goldman, M.D. .............................................. 41 1995
Linda Harkavay, M.D. ................................................ 41 1995
Robert A. Jason, M.D. ............................................... 38 1995
Martin P. Kaplan, M.D. .............................................. 48 1995
Joseph Tamburrino, D.P.M. ........................................... 50 1996
</TABLE>
Lew E. Cibeu, M.D., conducts a medical practice in pediatrics in Islip
Terrace, New York, a practice he has conducted since 1962. Dr. Cibeu has been a
director of the Company since April 1995.
Martin B. Cohen, M.D., conducts a medical practice in pediatrics in
Huntington, New York, a practice he has conducted since 1969. Dr. Cohen has been
a director of the Company since April 1995.
Alan Dietzek, M.D., conducts a medical practice in vascular surgery in Great
Neck, New York, a practice he has conducted since 1993. Prior to that Dr.
Dietzek conducted a medical practice in vascular surgery at North Shore
University Hospital from July 1990 through May 1993. Dr. Dietzek has been a
director of the Company since April 1995.
Geri DiGiovanna, D.O., conducts a medical practice in family practice in
Massapequa Park, New York, a practice she has conducted since 1993. Dr.
DiGiovanni has been a director of the Company since April 1995.
Jeffrey M. Epstein, M.D., conducts a medical practice in neurosurgery in
West Islip, New York, a practice he has conducted since 1991. Dr. Epstein served
as the Secretary of South Shore Neurologic Association from June 1988 to
November 1991. Dr. Epstein has been a director of the Company since its
inception.
Franco Gallo, M.D., conducts a medical practice in gastroenterology and
hepatology with Gastroenterology Associates of Suffolk, P.C., in Port Jefferson
and Smithtown, New York, a practice he has conducted since July 1994. Dr. Gallo
is also a clinical instructor in the Department of Medicine, Division of
Gastroenterology and Hepatology at Stony Brook University Medical Center. Dr.
Gallo has been a director of the Company since its inception.
Steven M. Goldberg, M.D., conducts a medical practice in internal medicine
and cardiology in Great Neck, New York, a practice he has conducted since 1990.
Dr. Goldberg has been a director of the Company since April 1995.
David T. Goldman, M.D., conducts an urgent care and primary care medical
practice in Center Moriches, New York, a practice he has conducted since 1988.
Dr. Goldman has been a director of the Company since its inception.
David Grossman, M.D., conducts a medical practice in internal medicine with
the Woodmere Medical Associates in Woodmere, New York, a practice he has
conducted since July 1994. Prior to conducting his practice, Dr. Grossman was
associated with the North Shore University Hospital, Manhasset, New York, where
he was an intern and resident from July 1988 to June 1991 and received
fellowship training from July 1992 to June 1994, and with the University
Hospital, Stony Brook, New York, receiving fellowship training from July 1991 to
June 1992. Dr. Grossman has been a director of the Company since its inception.
5
<PAGE>
Linda Harkavay, M.D., conducts a medical practice in radiology with, and
serves as president of Sunrise Medical Imaging, P.C., in Valley Stream, New
York, a practice she has conducted and a position she has held since 1992. Prior
to conducting her practice at Sunrise Medical Imaging, P.C., Dr. Harkavay has
been in the academic and private practice of radiology since 1985. Dr. Harkavay
has been a director of the Company since its inception.
Robert A. Jason, M.D., conducts a medical practice in gynecology in Great
Neck, New York, a practice he has conducted since 1986. Dr. Jason has been a
director of the Company since April 1995.
Martin P. Kaplan, M.D., conducts a medical practice in pediatrics in Port
Jefferson Station, New York, a practice he has conducted since 1978. Dr. Kaplan
has been a director of the Company since April 1995.
Joseph Tamburrino, D.P.M., conducts a practice in podiatric medicine in
Westbury and Bayshore, New York, a practice he has conducted since 1974 and
1980, respectively. Dr. Tamburrino was elected to the Board in August 1996.
FOR A TERM ENDING WITH THE 1997 ANNUAL MEETING
<TABLE>
<CAPTION>
YEAR FIRST
NAME AGE BECAME A DIRECTOR
- --------------------------------------------------------------------- --- -------------------
<S> <C> <C>
Steven Kobren, M.D. ................................................. 36 1995
Michael Ladinsky, D.O. .............................................. 36 1995
Steven A. Napoli, M.D. .............................................. 41 1995
Andrew A. Pastewski, M.D. ........................................... 59 1995
Asvin M. Patel, M.D. ................................................ 42 1995
Andrew J. Peters, M.D. .............................................. 61 1995
Reed Phillips, M.D. ................................................. 48 1995
Lynn Pierri, D.D.S., M.S. ........................................... 41 1995
Rosario Romano, M.D. ................................................ 48 1995
Robert Sarnataro, M.D. .............................................. 42 1995
Jitendra Shah, M.D. ................................................. 50 1995
William E. Shuell, M.D. ............................................. 45 1995
Gary Wohlberg, M.D. ................................................. 41 1995
Anthony DiBlanda, D.C. .............................................. 32 1996
</TABLE>
Steven Kobren, M.D., conducts a medical practice in internal medicine in
Great Neck, New York, a practice he has conducted since 1989. Dr. Kobren has
been a director of the Company since April 1995.
Michael Ladinsky, D.O., conducts a medical practice in family practice in
East Islip, New York, a practice he has conducted since 1988. Dr. Ladinsky has
been a director of the Company since April 1995.
Steven A. Napoli, M.D., conducts a medical practice in ophthalmology in Port
Jefferson, New York, a practice he has conducted since 1987. Dr. Napoli has been
a director of the Company since its inception.
Andrew A. Pastewski, M.D., conducts a medical practice in general surgery in
Patchogue, New York, a practice he has conducted since 1973. Dr. Pastewski has
been a director of the Company since its inception.
Asvin M. Patel, M.D., conducts a medical practice in family practice in
Hicksville, New York, a practice he has conducted since 1986. Dr. Patel has been
a director of the Company since April 1995.
Andrew J. Peters, M.D., conducts a medical practice in internal medicine in
Rockville Centre, New York, a practice he has conducted since 1966. Dr. Peters
has been a director of the Company since its inception.
Reed Phillips, M.D., conducts a medical practice in oncology in Glen Head,
New York, a practice he has conducted since 1980. Dr. Phillips has been a
director of the Company since its inception.
6
<PAGE>
Lynn S. Pierri, D.D.S., M.S., conducts a dental practice in oral and
maxillofacial surgery in Smithtown, New York, a practice she has conducted since
1986. Dr. Pierri has been a director of the Company since April 1995.
Rosario Romano, M.D., conducts a medical practice in internal medicine in
Port Jefferson, New York, a practice he has conducted since 1985. Dr. Romano has
been a director of the Company since its inception.
Robert Sarnataro, M.D., conducts a medical practice in internal medicine in
Flushing, New York, a practice he has conducted since 1985. Dr. Sarnataro has
been a director of the Company since April 1995.
Jitendra Shah, M.D., conducts a medical practice in family medicine in
Patchogue, New York, a practice he has conducted since 1980. Dr. Shah has been a
director of the Company since April 1995.
William E. Shuell, M.D., conducts a medical practice in
obstetrics/gynecology in Southampton, New York, a practice he has conducted
since 1989. Dr. Shuell has been a director of the Company since its inception.
Gary Wohlberg, M.D., conducts a medical practice in pulmonology medicine in
Bay Shore, New York, a practice he has conducted since 1986. Dr. Wohlberg has
been a director of the Company since its inception.
Anthony DiBlanda, D.C., conducts a multispecialty practice in
musculo-skeletal medicine in Nesconset, New York, a practice he has conducted
since 1991. Dr. DiBlanda has been a director of the Company since 1996.
MEETINGS, COMMITTEES, DIRECTORS' FEES
The Company's Board of Directors held 12 meetings during the year ended
December 31, 1995. From time to time, the members of the Board of Directors and
its Committees also act by unanimous consent pursuant to the laws of the State
of New York. Each director attended more than 75% of the aggregate number of
meetings of the Board of Directors and Committees on which he or she served
during the fiscal year ended December 31, 1995 ("Fiscal 1995").
The Board of Directors has a standing Nominating Committee. The Nominating
Committee consists of six members: Jeffrey Ashkin, M.D., Marion Bergman, M.D.,
David Goldman, M.D., Andrew Peters, M.D., Bruce Seideman, M.D. and David J.
Weissberg, M.D. The purpose of the committee is to nominate members for the
Board of Directors and its committees.
During Fiscal 1995, Paul Kolker, M.D., Charles A. Calabrese, M.D., Michael
Ladinsky, M.D., Andrew A. Pastewski, M.D., Ronald R. Perrone, M.D., Jeffrey
Ashkin, M.D., Steven Kobren, M.D. and Franco Gallo, M.D. served as members of
the Selection Committee which was responsible for selecting a full time Medical
Director for the Company's subsidiary, MDNY Healthcare, Inc. ("MDNY"). Upon
completion of this task, the Committee was disbanded.
The Company does not have a Compensation Committee or an Audit Committee.
The Company did not pay any cash compensation to its directors or officers in
Fiscal 1995. The Company intends to pay each director a fee equal to $200 per
meeting attended for serving as a director.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of a plurality of the aggregate issued
and outstanding shares of Class A Common Stock entitled to vote at the Meeting,
present in person or represented by proxy at the Meeting, is required to elect
each director.
THE BOARD OF DIRECTORS DEEMS THE ELECTION OF EACH OF THE BOARD'S NOMINEES
TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS
AND RECOMMENDS A VOTE "<*>FOR</*>" THE ELECTION OF EACH NOMINEE.
7
<PAGE>
ITEM 2
PROPOSAL TO APPROVE AMENDMENTS TO THE COMPANY'S BY-LAWS TO
PERMIT THE EXCHANGE OF CLASS B COMMON STOCK HELD BY
CERTAIN SHAREHOLDERS WHO DO NOT OWN CLASS A COMMON STOCK
FOR CLASS A COMMON STOCK AND TO PERMIT CERTAIN PRACTITIONERS
TO SERVE ON THE COMPANY'S BOARD OF DIRECTORS
The Company's By-Laws currently provide that shares of Class A Common Stock
can only be issued to health care providers who are doctors of medicine and who
are then members of an independent practice association that is a subsidiary of
the Company ("IPA"). The By-Laws also provide that only holders of Class A
Common Stock can be members of the Board of Directors. Shares of Class B Common
Stock can be issued to other health care providers. The Board of Directors has
determined that in order to encourage greater participation in the Company on
the part of psychologists, general dentists, specialty dentists (with the
exception of oral and maxillofacial surgeons), podiatrists and chiropractors who
currently are not permitted to own Class A Common Stock but who are members of
an IPA, the By-Laws should be amended to allow such practitioners to own one
share of Class A Common Stock; but to provide that such practitioners cannot, as
a group, hold more than 20% of the seats on the Company's Board of Directors. If
such amendments are approved, the Company intends to offer each such Class B
shareholder the opportunity to exchange one share of Class B Common Stock he or
she holds for one share of Class A Common Stock. There are a total of 483 shares
of Class B Common Stock to be exchanged for 483 shares of Class A Common Stock.
These exchanges would be effected prior to the transactions described in Item 3.
As a result of this exchange, the voting rights of present holders of the
Company's Class A Common Stock will be diluted.
Accordingly, the Board of Directors has proposed, subject to approval by the
holders of Class A Common Stock, amendments to the By-Laws which permit the
exchange of Class B Common Stock held by certain shareholders for Class A Common
Stock and which limit to not more than 20% of the entire Board of Directors the
number of seats on the Board of Directors that may be held by practitioners who
are not doctors of medicine.
Annexed to this Proxy Statement as Exhibit A is Section 1 of Article III and
Section 1 of Article IV of the By-Laws as proposed to be amended. In addition,
the Company's Board of Directors has proposed that Article VI, Section 4 of the
By-Laws be amended by deleting the introductory paragraph and subsection (a)
thereof to eliminate qualifications for share ownership. Annexed to this Proxy
Statement as Exhibit B is Section 4 of Article VI of the By-Laws as proposed to
be amended.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of holders of two-thirds (2/3) of the issued and
outstanding shares of Class A Common Stock entitled to vote at the Meeting,
present in person or represented by proxy at the Meeting, will be required to
approve the amendments to the Company's By-Laws as proposed by the Company's
Board of Directors.
THE BOARD OF DIRECTORS DEEMS THE PROPOSAL CONTAINED IN ITEM 2
TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS
AND RECOMMENDS A VOTE "<*>FOR</*>" APPROVAL THEREOF
8
<PAGE>
ITEM 3
PROPOSAL TO APPROVE A PROPOSED RESTRUCTURING AND
RECAPITALIZATION OF THE COMPANY AND MDNY HEALTHCARE,
INC. PURSUANT TO AN AGREEMENT AND PLAN OF MERGER AND
AMENDMENTS TO THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
BACKGROUND AND REASONS FOR THE AGREEMENT AND PLAN OF MERGER
The Company presently owns all of the shares of Class A common stock of MDNY
Healthcare, Inc. ("MDNY"), a health maintenance organization licensed to provide
health care services in the Long Island service area. The Catholic Healthcare
Network of Long Island, Inc., a New York not-for-profit corporation ("CHNLI"),
owns all of the shares of Class B common stock of MDNY. Until November 13, 1996,
the Company also owned all of the shares of common stock of three Independent
Practice Associations ("IPAs") which have service contracts with MDNY as well as
certain other investments. On that date the Company exchanged its shares in the
IPAs, its other investments and substantially all of its cash and cash
equivalents for all of the voting and non-voting membership interests of LIPH,
LLC, a newly-formed New York limited liability company. The membership interests
in LIPH, LLC were then distributed by the Company to the shareholders of the
Company on a pro rata basis (the "LIPH Restructuring"). The distribution was
effected pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), for intrastate
offerings. The transfer restrictions upon the Company's Common Stock and the
Company's rights of repurchase with respect to outstanding shares of the
Company's Common Stock also apply to the membership interests in LIPH, LLC
pursuant to the LIPH, LLC Operating Agreement. As a result of the LIPH
Restructuring, the only assets remaining with LIPH as of November 13, 1996 were
its interest in MDNY common stock and substantially all of its cash and cash
equivalents. In addition, LIPH, LLC assumed the Company's obligations to certain
holders of outstanding options to acquire shares of the Company's common stock.
Such option holders will receive options to acquire membership interests in
LIPH, LLC based on the relative value of the LIPH assets distributed to LIPH,
LLC as compared to the value of the assets retained by LIPH.
MDNY is seeking to expand its financial and service resources and to expand
its service area by offering equity interests to health care providers and
hospitals in other areas of New York State who will also organize IPAs or other
entities which will contract with MDNY for the provision of medical and hospital
services to MDNY's enrollees. In addition, MDNY's Board of Directors has
determined that MDNY's purposes can be best served if it can make available to
its potential subscribers certain ancillary services, such as indemnity
insurance which, by law, it cannot offer either directly or through a
subsidiary, but which can be offered by an entity that is under common ownership
with MDNY. Consequently, MDNY, the Company and CHNLI have agreed that the equity
interests in MDNY should be owned by MDNY Holdings, LLC, a newly-formed New York
limited liability company ("Holdings"), which has been organized for this
purpose. The principal executive offices of Holdings will be located at 275
Broadhollow Road, Melville, New York 11747 ((516) 454-1900). CHNLI and all
future investors would own interests in Holdings rather than MDNY and the
shareholders of the Company will hold interests in Holdings directly rather than
through their interests in the Company (the "MDNY Restructuring"). The transfer
restrictions upon the Company's Common Stock and the Company's rights of
repurchase with respect to outstanding shares of the Company's Common Stock will
also apply to the membership interests in Holdings pursuant to the Holdings
Operating Agreement and will be substantially the same as those that are or will
become applicable with respect to the LIPH, LLC membership interests.
To accomplish the MDNY Restructuring: (i) immediately prior to the merger,
CHNLI will exchange its 336 shares of MDNY Class B voting common stock for
newly-created Class C voting Common Stock of the Company and Class B Common
Stock of the Company in proportions which will preserve the relative voting
rights of CHNLI and the Company in MDNY that existed prior to the MDNY
Restructuring and
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(ii) the Company will be merged (in a two-step transaction described below) into
Holdings, as a result of which the shareholders of the Company, including CHNLI,
will receive voting and non-voting interests in Holdings in the same proportion
as their ownership of shares of Class A, Class B and Class C Common Stock of the
Company immediately prior to the MDNY Restructuring. The Class C Common Stock
will have a par value of $.001 per share and the same rights as the Class B
Common Stock. Of the 2,500,000 shares of Class C Common Stock to be authorized
for issuance by the amended Certificate of Incorporation, shares of the
Class C Common Stock and shares of the Class B Common Stock will be issued
to CHNLI in order to reflect the relative equity and voting interests of CHNLI
and the Company in MDNY. Due to the fact that the exchange is to occur
simultaneously with the merger of the Company into Holdings, there will be no
significant effect on the existing shareholders of the Company as a result of
the issuance of the Class C Common Stock. The distribution of Holdings Interests
to the Company's shareholders and CHNLI will be effected pursuant to an
exemption from the registration requirements of the Securities Act for
intrastate offerings. An intrastate prospectus with respect to the distribution
of Holdings Interests will be filed with the New York State Attorney General's
Office.
Upon completion of the MDNY Restructuring as contemplated, the ownership
structure of MDNY would be represented as follows:
[CHART]
THE AGREEMENT AND PLAN OF MERGER AND AMENDMENTS TO
THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Shareholders of the Company are being asked to approve an Agreement and Plan
of Merger (the "Plan") among the Company, Holdings and a newly-formed Delaware
corporation ("MergerCo") that is a wholly-owned subsidiary of Holdings organized
solely for the purpose of effectuating the MDNY Restructuring. Pursuant to the
Plan, and as part of a single transaction, the Company will be merged into
MergerCo and MergerCo will then be merged into Holdings (the "Merger"). Pursuant
to the MDNY Restructuring, the shareholders of the Company, including CHNLI,
will become entitled to receive Class A, Class B-1 and Class C-1 membership
interests in Holdings in amounts equivalent to the shares of Class A, Class B
and Class C Common Stock of the Company owned by them. The resolution which will
be proposed at the Meeting will include (i) approval of the Plan, (ii) approval
of an amendment to the Company's Certificate of Incorporation to authorize the
creation of new Class C Common Stock, and (iii) approval of an amendment to
Section 1 of Article III of the By-Laws permitting CHNLI to be a shareholder of
the Company.
A copy of the Agreement and Plan of Merger among the Company, MergerCo and
Holdings is attached as Exhibit C and Holdings' Amended and Restated Articles of
Organization and Operating Agreement are attached to this Proxy Statement as
Exhibits D-1 and D-2, respectively. The Form of Certificate of Amendment to the
Company's Certificate of Incorporation authorizing the creation of Class C
Common Stock is attached as Exhibit E and the proposed form of amended Article
III, Section 1 of the By-Laws is attached hereto as Exhibit A.
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FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is intended that the Merger be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and that the Company, Holdings and MergerCo be parties to the
reorganization within the meaning of Section 368(b) of the Code. Thereby no gain
or loss will be recognized by the Company's shareholders with respect to their
receipt of Holdings Interests in exchange for their shares of the Company's
Common Stock. A successful challenge to the status of the Merger as a tax free
reorganization would result in a shareholder recognizing gain or loss with
respect to each share of the Company's Common Stock surrendered equal to the
difference between the shareholder's basis in such share and the fair market
value, at the time of the Merger, of the Holdings Interests received in exchange
therefor.
DESCRIPTION OF HOLDINGS
Holdings' Articles of Organization and Operating Agreement provide for the
issuance of an unlimited number of membership interests with such voting rights
as shall be designated by Holdings' Board of Managers. Upon completion of the
MDNY Restructuring, the Company's shareholders will own Holdings Class A
Non-Voting Interests and Holdings Class B-1 Voting Interests and CHNLI will own
Holdings Class A Non-Voting Interests and Holdings Class C-1 Voting Interests.
The Holdings Operating Agreement permits individual health care providers to own
only one voting membership interest in Holdings but to invest in additional
non-voting interests in Holdings. Holdings intends to issue Class B Voting
Interests in sequentially numbered series to groups of health care providers who
desire to own more than one Interest in Holdings. In accepting investments from
Hospital Entities, Holdings intends to allocate voting Holdings Interests (which
will be denominated as Class C Voting Interests in sequentially numbered series)
and Class A Non-Voting Interests to such investors in a manner that will be
determined by reference to the number and/or value of voting and non-voting
interests in Holdings sold to health care providers in transactions deemed
appropriate for such purpose, subject to the limitation that the Holdings
Operating Agreement does not permit Holdings to issue voting Holdings Interests
to Hospital Entities equal to more than 33-1/3% of the total number of
outstanding voting Holdings Interests (i.e., no more than 50% of the outstanding
voting Holdings Interests held by health care providers).
DESCRIPTION OF GOVERNANCE OF HOLDINGS AND MDNY
HOLDINGS
The Board of Managers of Holdings (the "Holdings Board") is responsible for
the management of Holdings, its assets and the disposition thereof, and is
responsible for the general policies of Holdings and the general supervision of
the activities conducted by Holdings' officers, agents, employees, advisors or
independent contractors as may be necessary in the course of Holdings' business.
Generally, actions to be taken by the Holdings Board will require approval of a
majority of the managers present at any meeting at which there is a quorum,
except with respect to the election of the Board of Directors of MDNY (the "MDNY
Board"), and as otherwise specified in the Holdings Operating Agreement or by
the New York Limited Liability Company Law (the "LLC Law").
The initial Holdings Board will consist of twenty-nine (29) seats and will
be comprised of the present fourteen (14) practitioner members and hospital
representative members of the MDNY Board with fifteen (15) vacancies. Of the
fourteen initial members, four (4) ("Hospital Managers") will be representatives
of entities that own, operate or promote the interests of hospitals that are
under contract to provide hospital services to MDNY's enrollees ("Hospital
Entities"), and ten (10) individuals ("Practitioner Managers") will be designees
of health care providers, groups of health care providers, entities owned by
health care providers, independent practice associations or entities that own,
directly or indirectly, any such groups or independent practice associations
under contract with MDNY ("Practitioner Entities"). Commencing with the Annual
Meeting of Members of Holdings in 1997 (the "1997 Meeting") and subsequent
thereto, the
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Holdings Board will consist of twenty-nine (29) persons, eight (8) of whom will
be Hospital Managers; provided, however, that if after notice to Holdings,
Hospital Entities cease to own or be contractually committed to acquire an
aggregate of not less than 10% of the outstanding equity interests in Holdings
and the Hospital Entities fail to acquire sufficient additional equity interests
in Holdings within one year thereafter so as to own or be contractually
committed to acquire an aggregate of not less than 10% of the outstanding equity
interests in Holdings (the "Hospital Minimum Ownership"), they will no longer be
entitled to elect Hospital Managers. Of the Practitioner Managers, at least
sixteen (16) must be primary care physicians or specialty care physicians other
than psychiatrists ("Physician Practitioner Managers"). The remaining five (5)
Practitioner Managers will, to the extent practicable, consist of one dentist,
one psychiatrist, one psychologist, one podiatrist and one chiropractor.
The Holdings Operating Agreement provides that prior to the 1997 Meeting, in
the event Holdings issues additional series of Holdings Class B Interests to
future investors that are providers who participate in an MDNY-affiliated IPA
("Participating Providers") and Holdings receives proceeds in excess of
$1,000,000 from any one such sale of Holdings Class A Interests and Holdings
Class B Interests, purchasers in such offering will be entitled to elect, voting
as a separate class, that number of Practitioner Managers as shall bear, as near
as possible, the same ratio to 10 as the total consideration paid for Holdings
Interests purchased by such investors bears to the total consideration paid or
contractually committed to be paid by the Company for its shares of MDNY common
stock. Similarly, in the event that a Hospital Entity invests in Holdings prior
to the 1997 Meeting, and Holdings' proceeds from such sale are in excess of
$1,000,000, such Hospital Entity will be entitled to elect that number of
Hospital Managers as shall bear, as near as possible, the same ratio to 4 as the
total consideration paid for Holdings Interests purchased by such Hospital
Entity bears to the total consideration paid or contractually committed to be
paid by CHNLI for its shares of MDNY common stock.
Commencing with the 1997 Meeting and each Annual Meeting thereafter, the
Holdings Board will allocate the twenty-one (21) seats reserved for Practitioner
Managers (including the sixteen (16) seats for Physician Practitioner Managers)
among each series of Holdings Class B Interests whose holders are associated
with a Designating Practitioner Entity, in proportion, as near as possible, to
the total dollar amount of the consideration paid or contractually committed to
be paid for Holdings Interests purchased by the owners of all such series, and
each series of Holdings Class B Interests shall be entitled to elect, by
separate vote, their allocated number of Practitioner Managers, except that the
holders of Holdings Class B-1 Interests will in no event be allocated less than
two Physician Practitioner Managers and in no event will the holders of any
series of Class B Interests for whom a Practitioner Entity has qualified as a
"Designating Practitioner Entity" be allocated less than one Practitioner
Manager. Similarly, the eight (8) seats reserved for Hospital Managers shall be
allocated among and elected by each series of Holdings Class C Interests, except
that the holder of the Holdings Class C-1 Interests (CHNLI) will be entitled to
elect at least two Hospital Managers and in no event will the holders of Class C
Interests for whom a Hospital Entity has qualified as a "Designating Hospital
Entity" be allocated less than one Hospital Manager.
With the exception of those matters set forth below, and except as provided
in the LLC Law or in the Holdings Operating Agreement, the vote of the majority
of the managers present at any meeting at which there is a quorum, voting
together, is required for Board action. A majority of the total number of
managers will constitute a quorum for the transaction of business. The following
matters require the affirmative vote of the majority of the entire Holdings
Board, and, by separate vote, the majority of the Practitioner Managers and,
while Hospital Entities maintain the Hospital Minimum Ownership in Holdings, the
majority of the Hospital Managers:
- The dissolution, merger or consolidation of Holdings, or the sale, lease,
exchange or other disposition of all or substantially all of the assets of
Holdings (each a "Fundamental Change");
- A change in the Holdings Operating Agreement;
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- The sale of any shares of MDNY Common Stock owned by Holdings;
- The establishment by Holdings of a new line of business other than the
operation of an insurance company, or the establishment of any subsidiary
(corporate or other) of Holdings whose Board of Directors (or similar
managing body) does not reflect the same proportion of Practitioner
Managers (or their designees) and Hospital Managers (or their designees)
as the Board of Managers of Holdings;
- The issuance of additional Holdings Interests; except that (x) Hospital
Entities may, without Board approval, purchase, at unit prices comparable
to those paid by other members, Holdings Interests in order to maintain or
restore the Hospital Minimum Ownership in Holdings required to preserve
the rights and preferences of Holdings Class C Interests; (y) except that
the issuance and sale of additional Holdings Class B Interests to
Participating Providers solely in connection with a proposed expansion of
the service area of MDNY (which expansion has been approved by the Board
of Directors of MDNY) may be approved solely by the affirmative vote of at
least a majority of the Practitioner Managers, and that the issuance and
sale of additional Holdings Class C Interests to Hospital Entities solely
in connection with a proposed expansion of the service area of MDNY (which
expansion has been approved by the Board of Directors of MDNY) may be
approved solely by the affirmative vote of at least a majority of the
Hospital Managers; and (z) provided, however, that if, in either case,
such sales are made to persons or entities whose practice or hospital is
in a geographic area in which MDNY has already contracted for the
provision of medical services or hospital facilities, then a vote of the
majority of the entire Board and a separate vote of the Practitioner
Managers practicing in such geographic area or Hospital Managers who are
designated by the Hospital Entity where affiliated hospital(s) are located
in such geographic area will be required;
- Holdings making any commitment of funds or assets, including, but not
limited to, entering into any agreement, or borrowing or making other
financial arrangements, with a value in excess of $1,000,000 (a "Major
Commitment");
- The determination of the amount of any dividends received from MDNY which
shall be distributed to the Holdings members, which distribution shall be
PRO RATA in accordance with their Membership Interests; and
- Action which would result in any subsidiary of Holdings having, from the
total number of its directors or managers appointed by Holdings, a number
of Health Care Providers and representatives of Hospital Entities
disproportionate to the numbers of such persons then serving as managers
of Holdings.
The requirement of a supermajority vote of the Board for approval of a
Fundamental Change or certain other events enumerated above may have the effect
of delaying, deferring or preventing a change in control of Holdings. In
addition, the Holdings Operating Agreement provides that with respect to a
certain provision of MDNY's By-Laws relating to ethical principles, that the
vote of the majority of CHNLI's representatives on the Holdings Board is
required to approve any change or amendment to such provision. Also, the
Holdings Board has authority to amend the Holdings Operating Agreement, except
that any change in the Holdings Operating Agreement which would alter the rights
or privileges of the holders of any Class or series of any Class of Membership
Interests must be approved by a majority of the Managers who own such Class or
series.
The Holdings Operating Agreement provides that in the event the Hospital
Entities fail to maintain the Hospital Minimum Ownership in Holdings, they will
lose their right to elect any Hospital Managers to the Holdings Board and
Hospital Directors to the MDNY Board and their super majority voting rights on
both the Holdings Board and MDNY Board, but that CHNLI will retain the right to
prevent any change in
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the provision in MDNY's By-Laws relating to ethical principles so long as CHNLI
owns any Holdings Interests.
MDNY
MDNY's By-Laws presently provide that the MDNY Board will consist of
eighteen (18) members, comprised of the following: (i) ten (10) members elected
by the holders of the MDNY Class A common stock, 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 health care provider, and one (1) of whom
shall be a behavioral health care provider; (ii) four (4) members elected by the
holders of the MDNY Class B common stock; and (iii) four (4) four members
elected by the holders of both the MDNY Class A common stock and the MDNY Class
B common stock, voting together, all of whom, within one year of the date MDNY
was licensed as an HMO, shall be representatives of MDNY's enrollees.
If the MDNY Restructuring is effectuated, MDNY's By-Laws and Certificate of
Incorporation will be amended to change the composition of the MDNY Board. The
new MDNY Board will consist of eighteen (18) members. Four (4) of the Board
members must be representatives of MDNY enrollees, eight (8) will be Physician
Practitioner Managers of Holdings, two (2) will be other health care providers
who are Practitioner Managers of Holdings (together with the Physician
Practitioner Managers, the "Practitioner Directors"), and four (4) will be
Hospital Managers of Holdings (the "Hospital Directors").
With the exception of the representatives of MDNY enrollees, directors of
MDNY must also be members of the Holdings Board. The Holdings Operating
Agreement provides that the Holdings Board will elect from among the Holdings
managers those persons to serve as directors of MDNY for terms coextensive with
their terms as managers of Holdings. The Practitioner Directors will be elected
by the majority vote of the Practitioner Managers. The Hospital Directors will
be elected by the majority vote of the Hospital Managers.
With the exception of certain matters set forth below, action by the MDNY
Board will be taken upon the majority vote of the MDNY directors present at a
meeting at which a quorum is present. A majority of the total number of
directors will constitute a quorum for the transaction of business. With respect
to the matters listed below, an affirmative vote of a majority of all the MDNY
directors, and the majority of all the Practitioner Directors and while Hospital
Entities maintain the Hospital Minimum Ownership, the majority of the Hospital
Directors, voting separately, is necessary:
- A Fundamental Change of MDNY;
- The establishment, modification or change to the risk-sharing methodology
for funding hospital risk pools, including the percentage of medical
expenses allocated to hospital risk pools and the nature of items charged
against hospital risk pools;
- Selection, inclusion or termination of hospitals which are participating
providers with MDNY or with an IPA under contract to MDNY;
- A Major Commitment by MDNY;
- The issuance of additional shares of MDNY Common Stock, except to
Holdings;
- The establishment by MDNY of a new line of business other than the HMO, or
the establishment of any subsidiary (corporate or other) of MDNY whose
Board of Directors (or similar governing body) does not reflect the same
proportion of Practitioner Directors (or their designees) and Hospital
Directors (or their designees) as the MDNY Board;
- A change in MDNY's Certificate of Incorporation; and
- A change in MDNY's By-Laws affecting or relating to the purpose of MDNY or
the selection, term, termination and qualifications of individuals
comprising the MDNY Board or any committee
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thereof, provided that, any change to the section of MDNY's By-Laws that
provides that "MDNY shall not offer medical services that are morally
objectionable to the Diocese of Rockville Centre as part of its basic
benefit plan" shall require the affirmative vote of a majority of those
MDNY directors that are affiliated with CHNLI.
In addition, MDNY's Certificate of Incorporation provides that in the event
any of the foregoing matters would adversely affect MDNY's providers or
participants in a particular geographic subdivision recognized by the NYS
Department of Health in its determination of MDNY's service area, the
affirmative vote of Practitioner Directors or Hospital Directors must include
the votes of a majority of such directors who are associated with the
Practitioner Entity or Hospital Entity whose associated practitioners or
hospitals operate in such subdivision. For the purposes of this provision, a
matter would be deemed to "adversely affect" a geographic subdivision if the
matter involved a policy, financial arrangement or other determination that
would, on its face, treat, affect, or otherwise apply to a geographic
subdivision in a different way such that the providers or participants in such
geographic subdivision were materially disadvantaged thereby.
The MDNY Board, by resolution adopted by a majority of such Board, shall,
subject to the Hospital Entities maintaining the Minimum Hospital Ownership in
Holdings, designate from among its members: (i) a Finance Committee of such
Board, which shall be comprised of three (3) Practitioner Directors and three
(3) Hospital Directors; (ii) a Hospital Selection Committee which shall be
comprised of three (3) Practitioner Directors and three (3) Hospital Directors;
(iii) a Medical Delivery Committee, which shall be comprised of four (4)
Hospital Directors and eight (8) Practitioner Directors; (iv) a Customer
Satisfaction Committee, which shall be comprised of two (2) Practitioner
Directors and four (4) administrative staff representatives of MDNY; and (v) a
Marketing and Product Development Committee which shall be comprised of four (4)
Practitioner Directors and two (2) Hospital Directors.
With the exception of the Finance Committee, each of the foregoing
committees of the MDNY Board shall act solely in an advisory capacity with
respect to the Board of Directors. The Finance Committee, in addition to any
other powers granted to it by resolution of the MDNY Board, shall be vested with
the authority to (i) review and recommend approval of MDNY's budget to the MDNY
Board, (ii) report on the financial condition of MDNY to the MDNY Board, (iii)
establish cash management policy and assure maintenance of adequate reserves for
MDNY, (iv) review rate filing submissions by MDNY, and (v) review and approve
any dividend to be paid by MDNY to the Company.
DESCRIPTION OF THE HOLDINGS MEMBERSHIP INTERESTS
Holdings is a limited liability company formed under and governed by the LLC
Law. Holdings is issuing three classes of membership interests (the "Holdings
Interests"): Class A Interests, Class B Interests and Class C Interests. No
specific number of each such class of Interests is authorized because such
specific determination is not required in the limited liability company
structure, and, thus, Holdings is not restricted in the amount of additional
Interests it could issue in the future, except that only providers participating
in an IPA or an IPA, itself, may purchase additional Class B Interests in
Holdings. Except as set forth above with respect to voting, Holdings Class A,
Class B and Class C Interests have identical rights and benefits.
No member of Holdings is permitted to own more than one Class B Interest,
but there is no limitation upon the number of Class A Interests which a member
may own, subject to availability and the discretion of the Holdings Board. The
Holdings Class B and Class C Interests entitle the holder thereof to vote on all
matters to be voted on by members of the Company. The Class A Interests do not
entitle their holders to voting rights, except as may be provided by the LLC Law
or the Holdings Operating Agreement. As a result of the restriction placed on
the ownership of Class B Interests, all members of Holdings owning Class B
Interests will have equal voting rights on matters requiring action by members
of a limited liability company under the LLC Law or which the managers may
determine to submit to the members, regardless
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of the total investment in the Company made by an individual member. The
requirement in the Holdings Operating Agreement that certain events including a
"Fundamental Change" in Holdings be approved by a supermajority vote of the
Board, may have the effect of delaying, deferring or preventing a change in
control of Holdings.
All outstanding Class A Interests, Class B Interests and Class C Interests
will be entitled to receive PRO RATA distributions, if any, as may be declared
by the Holdings Board in its discretion out of funds legally available therefor.
Upon liquidation of Holdings, holders of Class A, Class B and Class C Interests
are entitled to share PRO RATA in any distribution of Holdings' assets. There
are no preemptive rights attached to any class of Holdings' Interests.
There are presently two offerings of Holdings Interests in progress to
health care providers practicing in Queens County and the Hudson Valley region
of New York. The securities to be issued in both offerings consist of a
combination of Holdings Interests and limited liability company membership
interests of regional holding companies that own independent practice
associations.
RESTRICTIONS ON TRANSFER OF HOLDINGS INTERESTS
The Holdings Operating Agreement and the Operating Agreement of LIPH, LLC
are designed to continue, in substantially similar form, the transfer
restrictions currently imposed on the Company's shareholders. The restrictions
on transfer of LIPH, LLC Interests differ from those imposed on the Holdings
Interests in that the LIPH, LLC Board must consent to transfers of LIPH, LLC
Interests, whereas the Holdings Operating Agreement does not generally require
such consent.
The Holdings Operating Agreement provides that in the event a member dies,
the decedent's estate shall have two years from the date of death within which
to sell such decedent's medical practice. Once the estate has secured a
purchaser for the practice, such purchaser shall have the right to join an
appropriate IPA (after satisfying the then-existing qualifications and receiving
the approval of the Credentialing Committee of that IPA) and purchase the
estate's Interests in Holdings.
If, after the passage of two years, the estate has been unable to find a
purchaser, or, if during the two-year period the estate finds a purchaser who
either does not qualify for participation in the appropriate IPA or does not
want to participate in the appropriate IPA, Holdings shall have the right, but
not the obligation, to purchase the estate's Interests in Holdings. This right
to purchase may be exercised in whole or in part. The purchase price for each of
the Interests that Holdings may elect to purchase shall be equal to the value of
such Interests determined by Holdings' independent certified public accountants
or an independent consultant appointed by Holdings at the end of the most recent
fiscal year completed prior to the date of the estate's offer to sell. In the
event Holdings chooses not to purchase any or all of the estate's Interests, the
estate may offer the Interests to a member of an IPA. In such event, however,
each Holdings Class B Interest shall be automatically converted into non-voting
Class A Interests to maintain the one member-one vote structure. An estate of a
member who was a member of a Participating Practice may sell the Interests to
the other members of the Participating Practice who are members of an IPA;
provided, however, that if any such person becomes the owner of more than one
Class B Interest, such excess will be converted to non-voting Class A Interests.
The Holdings Operating Agreement also provides that in the event a health
care provider's relationship with an IPA is involuntarily terminated by the IPA,
Holdings shall have the right, but not the obligation, to purchase such health
care provider's Interests. This right to purchase the Interests may be exercised
in whole or in part. The purchase price for each of the Interests that Holdings
may elect to purchase shall be equal to the value of such Interests determined
by Holdings' independent certified public accountants or an independent
consultant appointed by Holdings at the end of the most recent fiscal year
completed prior to the date of the member's offer to sell. In the event Holdings
chooses not to purchase any or all of such Interests, the health care provider
may offer the Interests to another member of an IPA.
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In such event, however, any Class B Interest sold shall be automatically
converted into one Class A Interest to maintain the one member-one vote
structure.
The Holdings Operating Agreement also provides that in the event a health
care provider retires, becomes disabled, sells his medical practice or otherwise
voluntarily terminates his provider relationship with the applicable IPA, such
health care provider has three options with respect to his Interests. The health
care provider can either: (i) request that his Class B Interest be exchanged for
a Class A Interest, in which case he will be entitled to continue to hold all of
his Interests, or (ii) sell the Interests owned by him to a member of an IPA who
is already a member of Holdings, provided that his Class B Interest be
automatically converted into a Class A Interest, or (iii) within two years from
the date of his voluntary termination sell his practice or his interest in a
group practice and his Holdings Interests to a member of an IPA or to a
non-participating provider, subject to his becoming a member of an IPA. In the
event such purchaser already is a member of an IPA, any Class B Interest sold
shall be automatically converted into one Class A Interest. In addition, subject
to obtaining the consent of the governing body of the respective regional
holding company of an IPA (E.G., the Board of Managers of LIPH), which consent
may be withheld for any or no reason, the health care provider may sell his
Holdings Interests to a health care provider who is not a member of Holdings,
provided that such health care provider satisfies the credentialing criteria
established by MDNY and the appropriate IPA and provided further that such
member's Class B Interest shall convert into a Class A Interest unless and until
the purchasing health care provider becomes a member of Holdings.
Neither Holdings nor LIPH, LLC is obligated to repurchase any member's
Interests. The purchase price of Interests that LIPH, LLC or Holdings elects to
purchase, if any, shall be equal to the fair market value determined by the
respective Board of Managers of LIPH, LLC and Holdings at the end of the most
recent fiscal year completed prior to the date of the member's offer to
Holdings. Additionally, a member may not be able to find a purchaser for his
Interests if a circumstance arises in which the member is permitted, under the
Holdings and LIPH, LLC Operating Agreements, to sell his Interests and any such
transfer of LIPH, LLC Interests must be approved by the LIPH, LLC Board, which
consent may be unreasonably withheld.
TAX CHARACTERISTICS OF A LIMITED LIABILITY COMPANY TAXABLE AS A SUBCHAPTER C
CORPORATION
Holdings was formed as a New York limited liability company, however, it
will be treated as a Subchapter C corporation for Federal tax purposes. As such,
any items of income, gain, loss, deduction and credit would be reflected on
Holdings' tax return rather than being passed on to its members, and Holdings'
net income, if any, would be taxed on the entity level at corporate tax rates.
In addition, any distribution made by Holdings to its members will be treated as
either taxable dividend income, a nontaxable return of capital or taxable
capital gain. The Company is subject to the identical treatment for Federal tax
purposes.
COMPARISON OF CERTAIN CHARACTERISTICS OF A NEW YORK
CORPORATION AND A NEW YORK LIMITED LIABILITY COMPANY
Upon consummation of the MDNY Restructuring, the shareholders of the Company
will become members of Holdings, a newly-formed New York limited liability
company taxable as a corporation. The following is a summary of certain
differences between the provisions of the New York Business Corporation Law
governing corporations (the "BCL") and the LLC Law and the relevant sections of
the Company's governing documents or the Holdings Operating Agreement where
those documents supersede the BCL or LLC Law. This summary does not purport to
be complete and reference is made to the Company's Certificate of Incorporation
and By-Laws and the Holdings Operating Agreement. Generally, the BCL dictates
the management structure and operation of a corporation. The LLC Law permits
greater flexibility in the conduct of a company's affairs in that in many
instances it defers to the operating agreement which can vary the statutory
requirements.
17
<PAGE>
CAPITALIZATION.
The Company's Certificate of Incorporation authorizes the issuance of
12,500,000 shares of Common Stock consisting of 2,500,000 shares of the Class A
Common Stock and 10,000,000 shares of the Class B Common Stock. A change in the
number of authorized shares would require an amendment to the Company's
Certificate of Incorporation and shareholder approval. The Company's Certificate
of Incorporation and By-Laws and the BCL describe the rights attributed to such
shares.
Under the LLC Law, there is no requirement that a company set forth the
number and type of interests it is authorized to issue. Therefore, there is no
restriction on the number of membership interests Holdings may issue or on the
characteristics and relative rights of such interests, except as may be provided
in the Holdings Operating Agreement.
PREEMPTIVE RIGHTS.
Generally, the BCL provides holders of the Company's Common Stock with the
preemptive right to subscribe for any new or increased shares of the Common
Stock issued by the Board of Directors unless such rights are specifically
excluded in the Company's Certificate of Incorporation. The Holdings Operating
Agreement specifically denies Holdings members any preemptive rights.
APPRAISAL RIGHTS.
The BCL provides that, upon compliance with the applicable requirements and
procedures, a dissenting shareholder has the right to receive the fair value of
his or her shares if he or she objects to: (i) certain mergers, (ii) a
consolidation, (iii) a disposition of assets requiring shareholder approval or
(iv) certain amendments to the Certificate of Incorporation which adversely
affect the rights of such shareholder.
Neither the LLC Law nor the Holdings Operating Agreement provide a
dissenting member with appraisal rights. Although the Holdings Operating
Agreement permits a member to withdraw from Holdings, Holdings has the right but
not the obligation to purchase that member's Holdings Interests. In fact, the
sale of a member's interests in Holdings is subject to transfer restrictions,
that, for the most part, have been carried over from the Company's By-Laws.
RIGHTS AND OPTIONS.
The BCL requires shareholder approval of any plan pursuant to which rights
or options are to be granted to directors, officers or employees. Neither the
LLC Law nor the Holdings Operating Agreement require member approval of such
plans, although various other relevant legal considerations such as those
contained in the Internal Revenue Code and Securities Exchange Act of 1934, as
amended (the "Exchange Act"), may make shareholder approval of certain rights or
option plans necessary or desirable.
REMOVAL OF DIRECTORS AND MANAGERS.
The Company's By-Laws permit the removal of a member of the Board of
Directors (i) with or without cause by a vote of the majority of shareholders
eligible to vote or (ii) with cause by a two-thirds (2/3) vote of the Board of
Directors. A Board member is automatically removed in the event he is no longer
a shareholder of the Company.
The Holdings Operating Agreement provides that a member of the Board of
Managers may be removed for cause by the vote of a majority of the voting
Holdings Interests. Any or all of the managers may be removed without cause
solely by action of the holders of a majority of the series of Class B Interests
or Class C Interests associated with the practitioner entity or hospital entity
which nominated such manager; provided, however, that if less than all of the
managers nominated by such practitioner entity or hospital entity are to be
removed, no such individual manager may be removed if the number of
18
<PAGE>
Class B Interests or Class C Interests that voted against his removal would be
sufficient to elect him if voted, in such manner as would have been permissible
under the governing instruments of such practitioner entity or hospital entity
at an election at which (i) the same total number of votes were cast as at the
vote on removal and (ii) the entire number of managers which the practitioner
entity or hospital entity is entitled to nominate were being elected.
AMENDING THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS AND
AMENDING THE HOLDINGS OPERATING AGREEMENT
The BCL provides that the Company's Certificate of Incorporation can be
amended when authorized by vote of the Board followed by a vote of holders of a
majority of all outstanding shares entitled to vote at a meeting of
shareholders. Under certain circumstances, the holders of shares of a class must
also authorize an amendment when that class would be adversely affected by such
amendment. The Company's By-Laws can be amended by a two-thirds (2/3) vote of
the Board when such amendment is proposed by a shareholder. When such amendment
is proposed by the Board, it may be authorized by two-thirds (2/3) vote of the
shareholders or adopted by a two-thirds (2/3) vote of the Board.
The Holdings Operating Agreement provides that it may only be amended by
vote of the majority of the Board of Managers and, by separate vote, the
majority of the Practitioner Managers and majority of the Hospital Managers.
LIMITATION ON LIABILITY OF DIRECTORS, MANAGERS AND OFFICERS; INDEMNIFICATION
The Company's By-Laws provide that if a director, officer or employee of the
Company is made party to a civil or criminal action or proceeding in any matter
arising out of the performance by such person of his duties for, on behalf of,
or at the request of the Company, then the Company may, to the full extent
permitted by law, advance to such person all sums necessary and appropriate to
conduct their defense and indemnify such person for all sums paid by him,
including attorneys' fees, in connection with the action.
Pursuant to the Holdings Operating Agreement, generally, no managers or
officers of Holdings will be personally liable to Holdings or any of Holdings'
members for any loss suffered by Holdings due to an act or omission performed or
omitted by such managers or officers unless such actions or omissions were in
bad faith or involved intentional misconduct, a knowing violation of law or such
manager or officer gained financially from such act or omission. All managers
and officers of Holdings are entitled to indemnification from Holdings for any
loss, damage or claim, including attorneys' fees, suffered as a result of any
act or omission by such manager or officer, if his conduct did not constitute
fraud, gross negligence, knowing breach of the Holdings Operating Agreement or
willful or wanton misconduct. In the event such indemnification is found to be
unenforceable as against public policy, the Holdings Operating Agreement
provides for contribution among parties in accordance with their relative fault.
CONTINUANCE OF CERTAIN RELATIONSHIPS
MANAGEMENT SERVICES AGREEMENT. The Company, CHNLI and MDNY are parties to a
Management Services Agreement with NextStage Healthcare Management of New York,
Inc. ("NextStage"), pursuant to which NextStage provides, for a fee payable by
MDNY based on its premium revenues, a variety of management services to the
Company, CHNLI, MDNY and the IPAs. The Company may also utilize NextStage to act
as a consultant to the Company with respect to future business ventures for a
fee to be negotiated between the Company and NextStage. The relevant portions of
this agreement will be assigned to LIPH, LLC. NextStage is a wholly-owned
subsidiary of NextStage Healthcare Resources, Inc. ("Resources"), which,
following the LIPH Restructuring, will be owned equally by LIPH, LLC, CHNLI and
NextStage Holdings, Inc. NextStage Holdings, Inc. is a corporation owned by
certain members of management of NextStage. As other groups of health care
providers invest in Holdings, NextStage may
19
<PAGE>
enter into arrangements with them substantially similar to the Management
Services Agreement. NextStage may also be engaged by other entities in the
health care area not affiliated with MDNY.
APPRAISAL RIGHTS
Holders of shares of the Company's Common Stock who do not vote for the
proposal described in Item 3 will have the right to dissent and to receive
payment for their shares provided they comply with the provisions of Section 623
of the BCL. Any such shareholder electing to demand an appraisal of his or her
shares must file written objection to this Item with the Company, before the
meeting of shareholders or at such meeting but before the vote on this Item.
Attached hereto as Exhibit F is the full text of Section 623 setting forth the
shareholders' statutory right of appraisal and the provisions thereof with which
they must be in strict compliance in order to effectively exercise such right.
VOTE REQUIRED FOR APPROVAL
Pursuant to Section 903 of the BCL, the proposal in Item 3 will be adopted
if it is approved by the affirmative vote of the holders of two-thirds (2/3) of
the issued and outstanding shares of the Class A Common Stock entitled to vote
at the Meeting, present in person or represented by proxy at the Meeting, and a
majority of the issued and outstanding shares of the Class B Common Stock
entitled to vote at the Meeting, present in person or represented by proxy at
the Meeting, voting separately.
THE BOARD OF DIRECTORS DEEMS THE PROPOSAL CONTAINED IN ITEM 3
TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS
AND RECOMMENDS A VOTE "<*>FOR</*>" APPROVAL THEREOF.
20
<PAGE>
ITEM 4
PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO ELIMINATE PREEMPTIVE RIGHTS
The Board of Directors has adopted an Amendment to the Company's Certificate
of Incorporation, subject to shareholder approval, which would eliminate
preemptive rights currently available to shareholders. The Amendment states:
"To accomplish said amendment, a new Paragraph 6 is added to the Certificate
of Incorporation as follows:
6. No holder of any class of common stock of the Corporation shall be
entitled to any preemptive rights to purchase any capital stock of the
Corporation or to acquire any option, warrant, right or other instrument
(including debt instruments) entitling the holder thereof to acquire any
capital stock of this Corporation upon the exercise, conversion or exchange
thereof or otherwise."
EXISTING PREEMPTIVE RIGHTS
Under Section 622 of the BCL, unless a corporation's Certificate of
Incorporation provides otherwise, holders of that corporation's outstanding
equity shares (I.E., shares having unlimited dividend rights) or voting shares
(I.E.,shares having the right to vote for the election of one or more directors)
have, respectively, the preemptive right to subscribe for any new or increased
shares of any class of equity shares or voting shares of the corporation, or any
rights or options to purchase such shares or any securities convertible into
such shares, which may be issued by the Board of Directors for any purpose,
except that such preemptive rights do not apply to any shares, rights, options
or convertible securities: (i) issued to effect any merger or consolidation or
offered or subjected to rights or options for consideration other than cash,
(ii) granted or issued to directors, officers or employees after authorization
by a vote of the holders of a majority of the outstanding shares entitled to
vote thereon or granted pursuant to a plan authorized by such shareholder vote,
(iii) issued to satisfy conversion or option rights theretofore granted by the
corporation, (iv) issued from the treasury of the corporation, or (v) issued by
the corporation pursuant to a plan of reorganization under federal law. Holders
of the Company's Common Stock have the foregoing preemptive rights. These
preemptive rights afford the holders of Common Stock (except in the five
situations described above) the opportunity to purchase shares of Common Stock
on a PRO RATA basis upon terms not less favorable than the terms upon which such
shares would otherwise be sold to others, whether as shares of Common Stock,
rights or options to purchase such shares or any securities convertible into
such shares.
REASON FOR THE PROPOSAL
The Board of Directors has determined that amending the Company's
Certificate of Incorporation to eliminate preemptive rights in all circumstances
is in the best interests of the Company.
The existing preemptive rights do not, in the judgment of the Board of
Directors, serve the best interests of the Company's shareholders. Preemptive
rights procedures are administratively burdensome and would involve substantial
delay and expense to the Company in effecting any offering of new shares of
dividend-bearing or voting stock, or any rights or options to purchase such
stock or debt instruments or other securities convertible into such stock. In
addition, the existence of preemptive rights could limit the Company's ability
to accomplish the transactions described in Items 2 and 3. Specifically, it is
in the Company's best interests to issue shares of Class A Common Stock to those
certain holders of Class B Common Stock described in Item 2 and to issue Class B
Common Stock and newly-created Class C Common Stock to CHNLI in order to
effectuate the transactions described in Items 2 and 3. If the Amendment is
adopted, the Company would be able to issue, without burdensome restrictions,
such shares of Common Stock as the Board of Directors deems advisable.
21
<PAGE>
APPRAISAL RIGHTS
Holders of shares of the Company's Common Stock who do not vote for the
proposal described in Item 4 to amend the Certificate of Incorporation to
eliminate preemptive rights will have the right to dissent and to receive
payment for their shares provided they comply with the provisions of Section 623
of the BCL. Any such shareholder electing to demand an appraisal of his or her
shares must file written objection to this Item with the Company, before the
meeting of shareholders or at such meeting but before the vote on this Item.
Attached hereto as Exhibit F is the full text of Section 623 setting forth the
shareholders' statutory right of appraisal and the provisions thereof with which
they must be in strict compliance in order to effectively exercise such right.
VOTE REQUIRED FOR APPROVAL
The Amendment described in Item 4 will be adopted if the Second Certificate
of Amendment to the Company's Certificate of Incorporation is approved by the
affirmative vote of the holders of a majority of the issued and outstanding
shares of the Class A Common Stock entitled to vote at the Meeting, present in
person or represented by proxy at the Meeting, and a majority of the issued and
outstanding shares of the Class B Common Stock entitled to vote at the Meeting,
present in person or represented by proxy at the Meeting, voting separately. The
Form of Second Certificate of Amendment of the Certificate of Incorporation of
the Company is annexed hereto as Exhibit E. The Amendment will become effective
upon the filing of the Second Certificate of Amendment with the Secretary of
State of the State of New York.
THE BOARD OF DIRECTORS DEEMS THE ELIMINATION OF PREEMPTIVE RIGHTS
TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS
AND RECOMMENDS A VOTE "<*>FOR</*>" ITEM 4.
22
<PAGE>
ITEM 5
PROPOSAL TO APPROVE THE APPOINTMENT OF COOPERS & LYBRAND LLP
AS THE COMPANY'S AUDITORS FOR THE 1997 FISCAL YEAR
The accounting firm Coopers & Lybrand LLP (C&L) is presently serving as the
Company's independent auditors. C&L also served as the Company's independent
auditors during the fiscal year ended December 31, 1995. The Board of Directors
believes it is desirable and in the best interests of the Company to continue
employment of that firm. A representative of C&L will be present at the Meeting
to make a statement if he or she desires and to respond to appropriate questions
presented at the Meeting.
BENEFICIAL OWNERSHIP
OF COMMON STOCK BY CERTAIN PERSONS
The following table sets forth certain information as of [December 1], 1996,
regarding the beneficial ownership of the Common Stock of the Company of (a)
each person known by the Company to own more than five percent of the Company's
outstanding Class A Common Stock or its Class B Common Stock, (b) each director
and officer of the Company and (c) all officers and directors of the Company as
a group. Except as otherwise indicated, the named owner has sole voting and
investment power of the shares listed.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
-------------------------- ------------------------
TITLE OF CLASS BENEFICIAL OWNER CLASS A CLASS B CLASS A CLASS B
- -------------------------- ------------------------------------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Common Stock.............. LIPH Bridge Partners, Inc. 0 500(2) 0 11.6
Common Stock.............. David J. Weissberg, M.D. 1 502(3) * 11.6
Common Stock.............. M.A. Mirza, M.D. 1 2 * *
Common Stock.............. Babu Easow, M.D. 1 502(3) * 11.6
Common Stock.............. Paul Kolker, M.D. 1 502(3) * 11.6
Common Stock.............. Eli Anker, M.D. 1 2 * *
Common Stock.............. Jeffrey R. Ashkin, M.D. 1 2 * *
Common Stock.............. Marion Bergman, M.D. 1 2 * *
Common Stock.............. Charles A. Calabrese, M.D. 1 2 * *
Common Stock.............. Salvatore J. Caravella, M.D. 1 2 * *
Common Stock.............. Anthony P. Caruso, M.D. 1 2 * *
Common Stock.............. Lew E. Cibeu, M.D. 1 1 * *
Common Stock.............. Martin B. Cohen, M.D. 1 1 * *
Common Stock.............. Alan Dietzek, M.D. 1 2 * *
Common Stock.............. Geri DiGiovanni, M.D. 1 1 * *
Common Stock.............. Jeffrey M. Epstein, M.D. 1 2 * *
Common Stock.............. Franco Gallo, M.D. 1 2 * *
Common Stock.............. Steven M. Goldberg, M.D. 1 2 * *
Common Stock.............. David T. Goldman, M.D. 1 1 * *
Common Stock.............. Linda Harkavay, M.D. 1 5 * *
Common Stock.............. Robert A. Jason, M.D. 1 502(3) * 11.6
Common Stock.............. Martin P. Kaplan, M.D. 1 1 * *
Common Stock.............. Steven Kobren, M.D. 1 2 * *
Common Stock.............. Amy Koreen, M.D. 1 2 * *
Common Stock.............. Michael Ladinsky, M.D. 1 1 * *
Common Stock.............. Steven A. Napoli, M.D. 1 2 * *
Common Stock.............. Andrew A. Pastewski, M.D. 1 2 * *
Common Stock.............. Asvin M. Patel, M.D. 1 1 * *
Common Stock.............. Ronald R. Perrone, M.D. 1 2 * *
Common Stock.............. Andrew J. Peters, M.D. 1 1 * *
Common Stock.............. Reed Phillips, M.D. 1 2 * *
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
-------------------------- ------------------------
TITLE OF CLASS BENEFICIAL OWNER CLASS A CLASS B CLASS A CLASS B
- -------------------------- ------------------------------------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Common Stock.............. Lynn Pierri, D.D.S., M.S. 0 20 0 *
Common Stock.............. Rosario Romano, M.D. 1 11 * *
Common Stock.............. Robert Sarnataro, M.D. 1 4 * *
Common Stock.............. Bruce A. Seideman, M.D. 1 2 * *
Common Stock.............. Jitendra Shah, M.D. 1 1 * *
Common Stock.............. William E. Shuell, M.D. 1 2 * *
Common Stock.............. Gary Wohlberg, M.D. 1 2 * *
Common Stock.............. All officers and directors as a group (37 37 597(3) 2.4 13.8
persons)
</TABLE>
- ------------------------
* Represents less than 1%.
(1) Percentages are computed on the basis of a total of [5,842 SHARES OF COMMON
STOCK (1,523 SHARES OF CLASS A COMMON STOCK AND 4,319 SHARES OF CLASS B
COMMON STOCK)] issued and outstanding on [December 1], 1996, plus the number
of shares, if any, which the named person has the right acquire directly or
indirectly within sixty (60) days.
(2) Several shareholders and directors of the Company, Drs. Weissberg, Kolker,
Easow and Jason, are also shareholders and directors of LIPH Bridge
Partners, Inc. ("Bridge Partners"). Collectively, the officers and directors
of Bridge Partners have the power to direct the disposition of the shares of
Common Stock owned by Bridge Partners.
(3) Includes 500 shares of the Company's Class B Common Stock beneficially owned
by Bridge Partners.
EXECUTIVE OFFICERS
Executive officers are elected at each Annual Meeting of the Board of
Directors and serve at the pleasure of the Company's Board of Directors. There
are no family relationships between any director or officer of the Company. The
following table sets forth as of the date hereof the names and ages of all
executive officers of the Company and all positions and offices they hold with
the Company.*
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
David J. Weissberg, M.D. .................. 41 Chairman of the Board and President
M. A. Mirza, M.D. ......................... 51 Director and Vice President
Babu Easow, M.D. .......................... 47 Director and Secretary
Paul Kolker, M.D. ......................... 60 Director and Treasurer
</TABLE>
- ------------------------
* The principal employment for at least the last five years for each of the
Company's officers is set out under the caption "Item 1--Election of
Directors" above.
EXECUTIVE COMPENSATION
The officers of the Company did not receive any cash compensation during
Fiscal 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The Company has no SARs outstanding. No stock options were exercised by any
executive officer during Fiscal 1995.
In Fiscal 1995, the Company's Board of Directors determined to set aside
1,115 shares of Class B Common Stock for the issuance of options to be granted
to certain organizers of the Company including certain members of the Board of
Directors in recognition of their efforts in the organization of the
24
<PAGE>
Company. The number of shares for which each such organizer would be granted an
option was not determined as of the end of Fiscal 1995 but has since been
determined by the Board. Directors of the Company were granted options to
purchase 616 shares of Class B Common Stock. The following tables summarize the
allocation of the 616 options which were reserved during Fiscal 1995 as if
granted during Fiscal 1995 and the value of the options at the end of Fiscal
1995. All options are to acquire shares of Class B Common Stock.
OPTION GRANTS IN LAST YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PERCENT OF
TOTAL OPTIONS EXERCISE FAIR MARKET
GRANTED TO OF BASE VALUE ON
OPTIONS EMPLOYEES IN PRICE DATE OF GRANT EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) ($/SH) DATE
- -------------------------------------------------- ------------- ----------------- --------- --------------- -----------
David J. Weissberg, M.D. ......................... 18 1.6% $ 2,000 $ 0 7/01/05
M. A. Mirza, M.D. ................................ 15 1.3 2,000 0 7/01/05
Babu Easow, M.D. ................................. 18 1.6 2,000 0 7/01/05
Paul Kolker, M.D. ................................ 18 1.6 2,000 0 7/01/05
Eli Anker, M.D. .................................. 18 1.6 2,000 0 7/01/05
Jeffrey R. Ashkin, M.D. .......................... 18 1.6 2,000 0 7/01/05
Marion J. Bergman, M.D. .......................... 18 1.6 2,000 0 7/01/05
Charles A. Calabrese, M.D. ....................... 18 1.6 2,000 0 7/01/05
Salvatore Caravella, M.D. ........................ 18 1.6 2,000 0 7/01/05
Anthony P. Caruso, M.D. .......................... 18 1.6 2,000 0 7/01/05
Lew E. Cibeu, M.D. ............................... 9 .8 2,000 0 7/01/05
Martin B. Cohen, M.D. ............................ 12 1.1 2,000 0 7/01/05
Anthony DiBlanda, D.C. ........................... 9 .8 2,000 0 7/01/05
Geri E. DiGiovanna, D.O. ......................... 9 .8 2,000 0 7/01/05
Alan M. Dietzek, M.D. ............................ 15 1.3 2,000 0 7/01/05
Jeffrey M. Epstein, M.D. ......................... 18 1.6 2,000 0 7/01/05
Franco Gallo, M.D. ............................... 18 1.6 2,000 0 7/01/05
David Goldman, M.D. .............................. 18 1.6 2,000 0 7/01/05
Steven M. Goldberg, M.D. ......................... 12 1.1 2,000 0 7/01/05
Linda Harkavay, M.D. ............................. 15 1.3 2,000 0 7/01/05
Robert A. Jason, M.D. ............................ 15 1.3 2,000 0 7/01/05
Gregory Kalmar, D.D.S. ........................... 12 1.1 2,000 0 7/01/05
Martin P. Kaplan, M.D. 12 1.1 2,000 0 7/01/05
Steven Kobren, M.D. .............................. 15 1.3 2,000 0 7/01/05
Amy R. Koreen, M.D. .............................. 18 1.6 2,000 0 7/01/05
Michael Ladinsky, D.O. ........................... 9 .8 2,000 0 7/01/05
Steven A. Napoli, M.D. ........................... 18 1.6 2,000 0 7/01/05
Andrew A. Pastewski, M.D. ........................ 18 1.6 2,000 0 7/01/05
Asvin M. Patel, M.D. ............................. 12 1.1 2,000 0 7/01/05
Ronald R. Perrone, M.D. .......................... 18 1.6 2,000 0 7/01/05
Andrew Peters, M.D. .............................. 12 1.1 2,000 0 7/01/05
Reed E. Phillips, M.D. ........................... 15 1.3 2,000 0 7/01/05
Lynn Pierri, D.D.S. .............................. 15 1.3 2,000 0 7/01/05
Bala Hari Pillai, M.D. ........................... 15 1.3 2,000 0 7/01/05
Rosario J. Romano, M.D. .......................... 18 1.6 2,000 0 7/01/05
Robert E. Sarnataro, M.D. ........................ 15 1.3 2,000 0 7/01/05
Bruce A. Seideman, M.D. .......................... 15 1.3 2,000 0 7/01/05
Jitendra Shah, M.D. .............................. 15 1.3 2,000 0 7/01/05
William E. Shuell, M.D. .......................... 15 1.3 2,000 0 7/01/05
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES
OF STOCK PRICE
APPRECIATION FOR
OPTION TERM(2)
- -------------------------------------------------- ----------------------
<S> <C> <C>
NAME 5% ($) 10% ($)
- -------------------------------------------------- ---------- ----------
David J. Weissberg, M.D. ......................... $ 18,000 $ 36,000
M. A. Mirza, M.D. ................................ 15,000 30,000
Babu Easow, M.D. ................................. 18,000 36,000
Paul Kolker, M.D. ................................ 18,000 36,000
Eli Anker, M.D. .................................. 18,000 36,000
Jeffrey R. Ashkin, M.D. .......................... 18,000 36,000
Marion J. Bergman, M.D. .......................... 18,000 36,000
Charles A. Calabrese, M.D. ....................... 18,000 36,000
Salvatore Caravella, M.D. ........................ 18,000 36,000
Anthony P. Caruso, M.D. .......................... 18,000 36,000
Lew E. Cibeu, M.D. ............................... 9,000 18,000
Martin B. Cohen, M.D. ............................ 12,000 24,000
Anthony DiBlanda, D.C. ........................... 9,000 18,000
Geri E. DiGiovanna, D.O. ......................... 9,000 18,000
Alan M. Dietzek, M.D. ............................ 15,000 30,000
Jeffrey M. Epstein, M.D. ......................... 18,000 36,000
Franco Gallo, M.D. ............................... 18,000 36,000
David Goldman, M.D. .............................. 18,000 36,000
Steven M. Goldberg, M.D. ......................... 12,000 24,000
Linda Harkavay, M.D. ............................. 15,000 30,000
Robert A. Jason, M.D. ............................ 15,000 30,000
Gregory Kalmar, D.D.S. ........................... 12,000 24,000
Martin P. Kaplan, M.D. 12,000 24,000
Steven Kobren, M.D. .............................. 15,000 30,000
Amy R. Koreen, M.D. .............................. 18,000 36,000
Michael Ladinsky, D.O. ........................... 9,000 18,000
Steven A. Napoli, M.D. ........................... 18,000 36,000
Andrew A. Pastewski, M.D. ........................ 18,000 36,000
Asvin M. Patel, M.D. ............................. 12,000 24,000
Ronald R. Perrone, M.D. .......................... 18,000 36,000
Andrew Peters, M.D. .............................. 12,000 24,000
Reed E. Phillips, M.D. ........................... 15,000 30,000
Lynn Pierri, D.D.S. .............................. 15,000 30,000
Bala Hari Pillai, M.D. ........................... 15,000 30,000
Rosario J. Romano, M.D. .......................... 18,000 36,000
Robert E. Sarnataro, M.D. ........................ 15,000 30,000
Bruce A. Seideman, M.D. .......................... 15,000 30,000
Jitendra Shah, M.D. .............................. 15,000 30,000
William E. Shuell, M.D. .......................... 15,000 30,000
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS EXERCISE FAIR MARKET
GRANTED TO OF BASE VALUE ON
OPTIONS EMPLOYEES IN PRICE DATE OF GRANT EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH) ($/SH) DATE
- -------------------------------------------------- ------------- ----------------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Joseph Tamburrino, D.P.M. ........................ 4 .4 2,000 0 7/01/05
Gary Wohlberg, M.D. .............................. 18 1.6 2,000 0 7/01/05
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES
OF STOCK PRICE
APPRECIATION FOR
OPTION TERM(2)
- -------------------------------------------------- ----------------------
NAME 5% ($) 10% ($)
- -------------------------------------------------- ---------- ----------
<S> <C> <C>
Joseph Tamburrino, D.P.M. ........................ 4,000 8,000
Gary Wohlberg, M.D. .............................. 18,000 36,000
</TABLE>
- ------------------------
(1) Options generally become exercisable commencing July 1, 1998.
(2) Amounts represent hypothetical gains that could be achieved for options if
exercised at the end of the option term. These gains are based on assumed
rates of stock price appreciation of 5% and 10% annually from the date the
options are granted.
VALUE OF UNEXERCISED OPTIONS AT FY-END
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END AT FY-END
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- --------------- ----------------- --------------- -----------------
David J. Weissberg, M.D. ................................. 0 18 $ 0 $ 0
M. A. Mirza, M.D. ........................................ 0 15 0 0
Babu Easow, M.D. ......................................... 0 18 0 0
Paul Kolker, M.D. ........................................ 0 18 0 0
Eli Anker, M.D. .......................................... 0 18 0 0
Jeffrey R. Ashkin, M.D. .................................. 0 18 0 0
Marion J. Bergman, M.D. .................................. 0 18 0 0
Charles A. Calabrese, M.D. ............................... 0 18 0 0
Salvatore Caravella, M.D. ................................ 0 18 0 0
Anthony P. Caruso, M.D. .................................. 0 18 0 0
Lew E. Cibeu, M.D. ....................................... 0 9 0 0
Martin B. Cohen, M.D. .................................... 0 12 0 0
Anthony DiBlanda, D.C. ................................... 0 9 0 0
Geri E. DiGiovanna, D.O. ................................. 0 9 0 0
Alan M. Dietzek, M.D. .................................... 0 15 0 0
Jeffrey M. Epstein, M.D. ................................. 0 18 0 0
Franco Gallo, M.D. ....................................... 0 18 0 0
David Goldman, M.D. ...................................... 0 18 0 0
Steven M. Goldberg, M.D. ................................. 0 12 0 0
Linda Harkavay, M.D. ..................................... 0 15 0 0
Robert A. Jason, M.D. .................................... 0 15 0 0
Gregory Kalmar, D.D.S. ................................... 0 12 0 0
Martin P. Kaplan, M.D. ................................... 0 12 0 0
Steven Kobren, M.D. ...................................... 0 15 0 0
Amy R. Koreen, M.D. ...................................... 0 18 0 0
Michael Ladinsky, D.O. ................................... 0 9 0 0
Steven A. Napoli, M.D. ................................... 0 18 0 0
Andrew A. Pastewski, M.D. ................................ 0 18 0 0
Asvin M. Patel, M.D. ..................................... 0 12 0 0
Ronald R. Perrone, M.D. .................................. 0 18 0 0
Andrew Peters, M.D. ...................................... 0 12 0 0
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END AT FY-END
---------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Reed E. Phillips, M.D. ................................... 0 15 0 0
Lynn Pierri, D.D.S. ...................................... 0 15 0 0
Bala Hari Pillai, M.D. ................................... 0 15 0 0
Rosario J. Romano, M.D. .................................. 0 18 0 0
Robert E. Sarnataro, M.D. ................................ 0 15 0 0
Bruce A. Seideman, M.D. .................................. 0 15 0 0
Jitendra Shah, M.D. ...................................... 0 15 0 0
William E. Shuell, M.D. .................................. 0 15 0 0
Joseph Tamburrino, D.P.M. ................................ 0 4 0 0
Gary Wohlberg, M.D. ...................................... 0 18 0 0
</TABLE>
CERTAIN TRANSACTIONS
The Company has issued to certain organizers 1,115 options to purchase
shares of Class B Common Stock at $2,000.00 per share exercisable at any time
after July 1, 1998, subject to acceleration in the event of certain merger or
sale of asset transactions of which the transactions referred to in Item 3
herein are not included. The options are non-transferable and expire on July 1,
2005. Among the persons who have received said options are certain members of
the Company's Board of Directors. The directors who were granted options and the
number of options they were granted are set out under the caption "Executive
Compensation--Option Grants in Last Year."
The Company has entered into a Management Services Agreement with NextStage
Healthcare Management of New York, Inc. ("NextStage"). This agreement provides,
among other things, that NextStage will provide management and consulting
services to MDNY, the Company and CHNLI for a five year period ending October
10, 2000. NextStage will perform most administrative services on behalf of MDNY.
Under the terms of the agreement, MDNY presently provides NextStage with a
management fee equal to 100% of costs incurred. Once MDNY's covered lives exceed
50,000, fees charged by NextStage will be based on a percentage of MDNY's
premium revenues. Management fee expenses incurred in 1995 were $2,990,836 and
the amount due to NextStage at December 31, 1995 was $1,079,586. As of June 30,
1996, MDNY had incurred an additional $3,771,461 in management fees to NextStage
for a year-to-date total of $6,702,297, of which $136,310 presently remains
outstanding.
Management fee expenses included charges for the following:
<TABLE>
<S> <C>
Consulting and professional fees................................ $1,330,827
Salaries and related costs...................................... 884,146
General and administrative expenses............................. 595,808
Marketing expenses.............................................. 180,055
---------
$2,990,836
</TABLE>
Previously, Mr. Richard Radoccia, Mr. Jay Kossman and Mr. John Gaines were
retained by the Company as consultants in connection with the structure,
formation and organization of the Company and its subsidiaries pursuant to which
they received a monthly fee paid by the Company plus reimbursement of expenses.
These three individuals received $208,750 in aggregate consulting fees in Fiscal
1995. Messrs. Radoccia, Kossman and Gaines are shareholders of NextStage
Holdings, Inc., which owns 33 1/3% of the issued and outstanding shares of
NextStage Healthcare Resources, Inc., the parent company of NextStage
("Resources"). Messrs. Radoccia and Kossman are employees of Nextstage serving
as part of its
27
<PAGE>
management staff. As of December 31, 1995, the Company had a receivable from
NextStage of approximately $711,357 that represents funds advanced to NextStage
to meet expenses paid on behalf of MDNY. These advances have since been repaid
to the Company.
Prior to the release of the proceeds of the LIPH Common Stock offering from
escrow, the Company borrowed $850,000 from Founding Physicians Association, Inc.
("Founding Physicians") and $1,000,000 from LIPH Bridge Partners, Inc. ("Bridge
Partners") in order to meet working capital needs during its start-up period.
Both of these lenders were newly-formed corporations owned by certain physicians
who are shareholders and directors of the Company. The following directors of
the Company are beneficial owners of Founding Physicians: Drs. Anker, Ashkin,
Bergman, Caravella, Caruso, Epstein, Kaplan, Koreen, Kolker, Napoli, Pastewski,
Phillips, Pillai, Romano, Shuell, Shah, Weissberg and Wohlberg. The following
directors of the Company are beneficial owners of Bridge Partners: Drs.
Weissberg, Kolker, Easow and Jason. The loan from Founding Physicians has been
repaid. Under the terms of the Bridge Partners loan, the debt was converted into
500 shares of Class B Common Stock of the Company issued to Bridge Partners at
the stated offering price of $2,000.00 per share.
Presently, each of the Company, CHNLI and NextStage Holdings, Inc. owns
twenty (20) shares of common stock of Resources. The Company's interest in
Resources will be transferred to LIPH, LLC in connection with the LIPH
Restructuring.
In addition, Resources issued options to purchase additional shares of its
common stock to the Company and NextStage Holdings, Inc. and issued options to
purchase shares to Bridge Partners. The Company's fifteen (15) options are
exercisable in groups of five (5) shares, with exercise prices per share of
$10,000, $15,000 and $25,000, respectively. NextStage Holdings, Inc.'s twenty
(20) options are exercisable in groups of five shares with an exercise price per
share of $10,000, $15,000, $20,000 and $25,000, respectively. Bridge Partners'
five (5) options have an exercise price of $20,000 per share. All of the above
options may be exercised in whole or in part at any time on or prior to March 1,
2006.
Reference is made to the subcaption "Continuance of Certain Relationships"
under Item 3 for information with regard to the Management Services Agreement
among the Company, MDNY, CHNLI and NextStage.
CERTAIN REPORTS
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who beneficially own more than ten percent of a
registered class of the Company's equity securities ("Principal Owners") to file
by specific dates with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. The Company's officers, directors and Principal
Owners were not subject to these requirements during Fiscal 1995.
ANNUAL REPORT
All shareholders of record on the Record Date have been sent, or are
concurrently herewith being sent, a copy of the Company's 1995 Annual Report,
which contains certified financial statements of the Company for Fiscal 1995.
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the proxy materials to be
distributed in connection with the next Annual Meeting of Shareholders of the
Company in the event the MDNY Restructuring is not completed, shareholder
proposals for such meeting should be sent to the Secretary of the Company at 275
Broadhollow Road, Melville, New York 11747 and must be received by the Company
no later than ,
28
<PAGE>
1997 [not less than 120 days before meeting date] and must comply with all the
requirements of Rule 14a-8 under the Securities Exchange Act of 1934.
OTHER MATTERS
As of the date of this Proxy Statement, management knows of no matters other
than those set forth herein that will be presented for consideration at the
Meeting. If any other matter or matters are properly brought before the Meeting
or any adjournment thereof, the persons named in the accompanying Proxy will
have discretionary authority to vote, or otherwise act, with respect to such
matters in accordance with their judgment.
The Board of Directors of the Company would appreciate the prompt return of
the enclosed Proxy, signed and dated. You may revoke your Proxy by giving
written notice to the Company prior to the Meeting, or by execution of a
subsequent proxy which is presented to the Meeting, or you may vote by ballot if
you are present at the Meeting.
Dated: _________, 1996
29
<PAGE>
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
275 BROADHOLLOW ROAD
MELVILLE, NEW YORK 11747
PROXY--SOLICITED BY THE BOARD OF DIRECTORS
THE UNDERSIGNED SHAREHOLDER OF LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
("COMPANY") HEREBY APPOINTS DRS. DAVID J. WEISSBERG, M.A. MIRZA, AND PAUL KOLKER
AND EACH OR EITHER OF THEM, THE PROXY OR PROXIES OF THE UNDERSIGNED, WITH FULL
POWER OF SUBSTITUTION, TO VOTE AS SPECIFIED ON THIS PROXY FORM ALL SHARES OF
CLASS A COMMON STOCK AND/OR CLASS B COMMON STOCK OF SAID COMPANY WHICH THE
UNDERSIGNED IS ENTITLED TO VOTE AT THE ANNUAL MEETING OF SHAREHOLDERS OF SAID
COMPANY, TO BE HELD ON JANUARY 25, 1997 (THE "MEETING") AND AT ALL ADJOURNMENTS
OF SUCH MEETING, WITH ALL POWERS THE UNDERSIGNED WOULD POSSESS IF PERSONALLY
PRESENT.
This Proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THE
PROXY WILL BE VOTED FOR EACH OF THE NOMINEES FOR DIRECTOR DESCRIBED IN ITEM 1
AND FOR THE PROPOSALS DESCRIBED IN ITEMS 2, 3, 4 AND 5 AND AS TO ANY OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED IN THE
DISCRETION AND IN THE BEST JUDGMENT OF THE PROXIES. This Proxy may be revoked at
any time prior to the voting thereof.
ITEM 1--Election of the following forty directors:
FOR A TERM ENDING WITH THE 1999 ANNUAL MEETING--David J. Weissberg, M.D., M. A.
Mirza M.D., Babu Easow, M.D., Paul Kolker, M.D., Salvatore J. Caravella, M.D.,
Amy Koreen, M.D., Ronald R. Perrone, M.D., Bruce A. Seideman, M.D., Eli Anker,
M.D., Jeffrey R. Ashkin, M.D., Marion Bergman, M.D., Charles A. Calabrese, M.D.,
Anthony P. Caruso, M.D., and Gregory Kalmar, D.D.S.
FOR A TERM ENDING WITH THE 1998 ANNUAL MEETING--Lew E. Cibeu, M.D., Martin
B. Cohen, M.D., Alan Dietzek, M.D., Geri DiGiovanni, D.O., Jeffrey M. Epstein,
M.D., Franco Gallo, M.D., Steven M. Goldberg, M.D., David T. Goldman, M.D.,
Linda Harkavay, M.D., Robert A. Jason, M.D., Martin P. Kaplan, M.D., and Joseph
Tamburrino, D.P.M.
FOR A TERM ENDING WITH THE 1997 ANNUAL MEETING--Steven Kobren, M.D., Michael
Ladinsky, D.O., Steven A. Napoli, M.D., Andrew A. Pastewski, M.D., Asvin M.
Patel, M.D., Andrew J. Peters, M.D., Reed Phillips, M.D., Lynn Pierri, D.D.S,
M.S., Rosario Romano, M.D., Robert Sarnataro, M.D., Jitendra Shah, M.D., William
E. Shuell, M.D., Gary Wohlberg, M.D., and Anthony DiBlanda, D.C.
FOR / / WITHHOLD / /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
________________________________________________________________________________
(PLEASE DATE AND SIGN ON THE REVERSE SIDE.)
<PAGE>
(CONTINUED FROM THE OTHER SIDE)
ITEM 2--Proposal to approve Amendments to the Company's By-Laws to permit the
exchange of one share of Class B Common Stock held by certain non-voting
shareholders for one share of Class A Common Stock and to permit certain
practitioners to serve on the Board of Directors.
FOR / / AGAINST / / ABSTAIN / /
ITEM 3--Proposal to approve a proposed restructuring and recapitalization of the
Company and MDNY Healthcare, Inc. pursuant to an Agreement and Plan of Merger
and Amendments to the Company's Certificate of Incorporation and By-Laws.
FOR / / AGAINST / / ABSTAIN / /
ITEM 4--Proposal to approve an Amendment to the Company's Certificate of
Incorporation to eliminate preemptive rights.
FOR / / AGAINST / / ABSTAIN / /
ITEM 5--Proposal to approve the appointment of Coopers & Lybrand LLP as the
Company's auditors for the 1997 fiscal year.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "<*>FOR</*>" EACH NOMINEE FOR DIRECTOR
AND "FOR" ITEMS 2, 3, 4 AND 5.
Dated: _____________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature or Signatures
Executors, administrators, trustees, guardians, attorneys and agents should give
their full titles and
submit evidence of appointment unless previously furnished to the Company or its
transfer agent.
<PAGE>
EXHIBIT A
BY-LAWS
OF
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
ARTICLE III - SHAREHOLDERS
SECTION 1. LIMITATION ON HOLDERS OF VOTING STOCK:
(a) The certificate of incorporation of LIPHC authorizes the
issuance of 2,500,000 shares of Class A Common Stock, par value $.001 per share
(the "Class A Common Stock"). The Class A Common Stock has full voting rights.
Except as set forth in Subsection 1(c) below, the opportunity to hold shares of
Class A Common Stock shall be extended to bona fide residents of New York State
who are primary care physicians and specialty care physicians duly licensed by
the State of New York, who are office-based practitioners on Long Island and who
are not full-time employees of a facility or organization licensed under
Articles 28 or 44 of the Public Health Law of the State of New York. For
purposes of these by-laws, a "Primary Care Physician" shall include any family
medicine, general internal medicine, emergency medicine or pediatric
practitioner otherwise meeting the above requirements for holding shares of
Class A Common Stock. A "Specialty Care Physician" is any other physician,
psychiatrist and oral and maxillofacial surgeon who otherwise meets the above
requirements for holding shares of Class A Common Stock.
(b) No holder of Class A Common Stock shall be entitled to hold
more than one (1) share of Class A Common Stock at any time. In the event that
any holder of LIPHC Common Stock or any other person or entity should acquire
any shares of Class A Common Stock and such shareholder or other person or
entity already owns a share of Class A Common Stock, any subsequently acquired
shares of Class A Common Stock automatically shall be exchanged for a like
number of shares of Class B Common Stock of LIPHC.
(c) The opportunity to hold shares of Class A Common Stock shall
be extended to bona fide residents of New York who are psychologists, general
dentists, specialty dentists (other than oral and maxillofacial surgeons),
podiatrists and chiropractors who are members in good standing of one of the
Practice Associations affiliated with LIPHC, and are office-based, New York
state licensed practitioners not employed on a full-time basis by any facility
or entity licensed by Articles 28 or 44 of the Public Health Law of the State of
New York ("Non-physician").
(d) The certificate of incorporation of LIPHC, as amended,
authorizes the issuance of 2,500,000 shares of Class C Common Stock, par
value $.001 per share (the "Class C Common Stock"). The Class C Common Stock
has voting rights except that holders of Class C Common Stock cannot vote for
the election of directors of LIPHC. The opportunity to hold shares of Class
C Common Stock may be extended only to stockholders of MDNY Healthcare, Inc.,
a New York corporation, on terms approved by the shareholders of the
Corporation.
<PAGE>
ARTICLE IV - BOARD OF DIRECTORS
SECTION 1. NUMBER, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS:
The Board of Directors of the Corporation shall consist of forty (40)
members. To the extent practicable, it shall be the objective to nominate a
Board that is representative of both Primary Care Physicians and Specialty Care
Physicians. Non-physicians cannot, as a group, hold more than twenty (20%)
percent of the seats on the Corporation's Board of Directors. The number of
directors may be increased or decreased by action of a majority of the entire
board subject to the limitation that no decrease shall shorten the term of any
incumbent director.
Each director shall be a shareholder of the Corporation, and shall
serve a term as director of three years, unless such director is removed or
resigns in accordance with applicable statutes, the certificate of incorporation
or these by-laws.
<PAGE>
EXHIBIT B
BY-LAWS
OF
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
ARTICLE VI - SHARES
SECTION 4. TRANSFER RESTRICTIONS:
(a) GENERAL TRANSFER RESTRICTIONS. Except as specifically
permitted by these by-laws, no shares of the Corporation's capital stock nor any
interest therein may be validly sold, assigned, encumbered or otherwise
transferred for consideration or otherwise, and no purported transferee will be
recognized as a shareholder of the Corporation for any purpose whatsoever unless
the purported transfer has been made in accordance with applicable Federal and
state securities laws and the terms and conditions of the transfer restrictions
set forth below. Any assignment, encumbrance, disposition or other attempt to
transfer any of the Corporation's shares other than as provided for herein shall
be void and of no effect, and the Corporation may refuse to carry out such
transaction on its books, attempt to set aside the transaction and/or exercise
any other legal remedy. It will be a condition to the Corporation transferring
any shares on its books and issuing a new share certificate evidencing such
transferred shares in the name of the transferee that (i) the transferee shall
execute any and all documents and take any and all actions, including applying
for and being accepted as a member of the appropriate Practice Association, as
the Corporation
<PAGE>
may reasonably require to ensure that the rights of the Corporation and its
shareholders are adequately protected, and (ii) the Corporation satisfies itself
that such transfer complies in all respects with the requirements imposed by all
applicable Federal and state securities laws.
Notwithstanding anything set forth herein to the contrary, any
shareholder who is no longer an active member in good standing with a Practice
Association affiliated with the Corporation or any HMO established or caused to
be established by the Corporation may not hold any voting shares of the
Corporation. In the event any such non-member shareholder does own a voting
share of the Corporation, such voting share shall be exchanged for a non-voting
share upon such non-member shareholder's termination or retirement from the
Practice Association, or two years from the date of death of such shareholder
all as more fully set forth below.
(b) TRANSFER UPON DEATH OF A SHAREHOLDER. Upon the death of a
shareholder, the decedent's estate shall have two years from the date of death
within which it may sell shares of the Corporation to the purchaser of the
decedent's practice; PROVIDED, that any potential purchaser of the shares shall
otherwise meet the criteria for share ownership and membership in the
appropriate Practice Association before any sale of decedent's shares of the
Corporation is consummated; and PROVIDED, FURTHER, that in the event that the
decedent's practice is purchased by an individual shareholder who already holds
one share of Class A Common Stock of the Corporation, any share of Class A
Common Stock held by the estate and proposed to be sold in connection with the
sale of the decedent's practice shall automatically be exchanged for one share
of Class B Common Stock immediately prior to the consummation of any sale.
During this two-year period, the executor (or administrator) of the decedent's
estate shall be entitled to vote any share of voting stock held by the decedent.
If, after the passage of two years from the date of the shareholder's
death, the estate has been unable or unwilling to find a purchaser for the
practice, or the estate has found a purchaser but such purchaser either does not
otherwise qualify for share ownership in the Corporation , the Corporation shall
have the right, but not the obligation, to purchase any or all of the decedent's
shares of Corporation stock from the estate. The Corporation's right to
purchase such shares may be exercised in whole or in part and may be exercised
by giving written notice of such exercise to the estate no later than sixty (60)
days following the expiration of the two-year period following the decedent's
death. The purchase price for the shares of stock that the Corporation elects
to purchase shall be equal to the per share value for such shares determined by
the Corporation's independent certified public accountants at the end of the
most recent fiscal year completed prior to such purchase.
In the event that the Corporation elects to purchase none or less than
all of the shares of the Corporation held by the estate, the estate may offer
and sell the shares remaining after the Corporation's election to any other
member of any Practice Association affiliated with the Corporation or any HMO
established or caused to be established by the Corporation; in such event,
however, any share of Class A Common Stock previously held by the decedent shall
automatically be exchanged for one share of Class B Common Stock immediately
prior to the consummation of any sale.
(c) TRANSFER UPON TERMINATION FROM MEMBERSHIP IN PRACTICE
ASSOCIATION. In the event that any shareholder's membership in one of the
Practice Associations is terminated for any reason other than retirement of such
shareholder from the active practice of such shareholder's health care
profession (such reasons to include, but not be limited to, voluntary
termination by the shareholder), the Corporation shall have the right, but not
the obligation, to purchase any or all of the terminated shareholder's shares
from the shareholder. The Corporation's right to purchase such shares may be
exercised in whole or in part, and may be exercised by giving written notice of
such exercise to the shareholder no later than sixty (60) days following the
effective date of termination of the shareholder from the Practice Association.
The purchase price for the shares of stock that the Corporation elects to
purchase
- 2 -
<PAGE>
shall be equal to the per share value for such shares determined by the
Corporation's independent certified public accountants at the end of the most
recent fiscal year completed prior to such purchase.
In the event that the Corporation elects to purchase none or less than
all of the shares of the Corporation held by the terminated shareholder, the
terminated shareholder may offer and sell the shares remaining after the
Corporation's election to any other member of any Practice Association; in such
event, however, any share of Class A Common Stock previously held by the
terminated shareholder shall automatically be exchanged for one share of Class B
Common Stock immediately prior to the consummation of any sale.
(d) RETIREMENT FROM PROFESSIONAL PRACTICE. In the event that
any shareholder retires from the active practice of his or her chosen health
care profession (and is thus no longer eligible for membership in the
appropriate Practice Association), the retiring shareholder may either (i) sell
the shares of Corporation stock owned by such shareholder to any purchaser of
such retiring shareholder's practice; PROVIDED, that any potential purchaser of
the shares shall otherwise meet the criteria for share ownership and membership
in the appropriate Practice Association before any sale of such retiring
shareholder's shares of the Corporation be consummated; and PROVIDED, FURTHER,
that in the event that the retiring shareholder's practice is purchased by an
individual shareholder who already holds one share of Class A Common Stock of
the Corporation, any share of Class A Common Stock held by the retiring
shareholder and proposed to be sold in connection with the sale of the retiring
shareholder's practice shall automatically be exchanged for one share of Class B
Common Stock immediately prior to the consummation of any sale; or (ii) make a
written request addressed to the President of the Corporation that any share of
Class A Common Stock held by such retiring shareholder be exchanged for one
share of Class B Common Stock, and the retiring shareholder shall be able to
continue to hold all such shares of Class B Common Stock of the Corporation; or
(iii) make a written request addressed to the President of the Corporation that
any share of Class A Common Stock held by such retiring shareholder be exchanged
for one share of Class B Common Stock, and the retiring shareholder shall be
entitled to sell any or all shares of Class B Common Stock held by such retiring
shareholder to any other member of a Practice Association affiliated with the
Corporation and any HMO established or caused to be established by the
Corporation.
(e) Until December 31, 1996, no transfer of shares may be made
to any person who is not a BONA FIDE resident of the State of the New York.
- 3 -
<PAGE>
EXHIBIT C
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December ___, 1996 (the
"Merger Agreement") by and among Long Island Physician Holdings Corporation, a
New York corporation ("LIPH"), MDNY Holdings, LLC, a New York limited liability
company ("Holdings"), and MDNY Holdings Delaware, Inc., a Delaware corporation
and wholly-owned subsidiary of Holdings ("MergerCo").
WHEREAS, on the date hereof, LIPH has authority to issue 12,500,000
shares of Common Stock, par value $.001 per share, consisting of 2,500,000
shares of the Class A Common Stock (the "Class A Common Stock") and 10,000,000
shares of the Class B Common Stock (the "Class B Common Stock"). There are a
total of 5,842 shares of Common Stock issued and outstanding consisting of 1,523
shares of Class A Common Stock and 4,319 shares of Class B Common Stock;
WHEREAS, on the date hereof, Holdings, as a limited liability company,
has authority to issue an unlimited amount of Class A Membership Interests,
Class B-1, B-2 and B-3 Membership Interests and Class C-1 Membership Interests
(the "Membership Interests"), none of which are issued and outstanding;
WHEREAS, on the date hereof, MergerCo has authority to issue 200
shares of Common Stock, par value $.01 per share, all of which are issued and
outstanding and owned by Holdings;
WHEREAS, LIPH presently owns approximately 66-2/3% of the Common Stock
of MDNY Healthcare, Inc., a health maintenance organization incorporated in New
York ("MDNY"), and the Catholic Healthcare Network of Long Island, Inc., a New
York not-for-profit corporation ("CHNLI"), owns approximately 33-1/3% of the
Common Stock of MDNY;
WHEREAS, in order to enable MDNY to make certain ancillary services
available to its potential subscribers which cannot be offered by MDNY directly
or through a subsidiary, but may be offered by an entity that is under common
ownership with MDNY, LIPH, MDNY and CHNLI have agreed that the equity interests
in MDNY should be owned by Holdings;
WHEREAS, the respective Boards of Directors of LIPH and MergerCo and
the Board of Managers of Holdings have determined that it is advisable and in
the best interests of each of such companies that LIPH merge with and into
MergerCo and that MergerCo then merge with and into Holdings upon the terms and
conditions set forth herein for the purpose of effecting the restructuring of
the equity ownership of MDNY (the "Merger");
WHEREAS, immediately prior to the Merger, CHNLI will exchange its
shares of MDNY Common Stock for shares of Class B Common Stock and newly-created
Class C Common Stock of LIPH in proportions that will preserve the relative
equity and voting rights of CHNLI and LIPH in MDNY;
WHEREAS, the respective Boards of Directors of LIPH and MergerCo and
the Board of Managers of Holdings have, by resolutions duly adopted, approved
this Merger Agreement;
WHEREAS, Holdings has approved this Merger Agreement as the sole
shareholder of MergerCo; and
<PAGE>
WHEREAS, the Board of Directors of LIPH has directed that this Merger
Agreement be submitted to a vote of its shareholders at a meeting to be held on
January 25, 1997, or at any and all adjournments thereof;
NOW, THEREFORE, in consideration of the mutual agreements and
covenants herein contained, LIPH, Holdings and MergerCo hereby agree as follows:
SECTION 1. MERGER. As part of a single transaction, LIPH will be
merged into MergerCo and MergerCo will then be merged into Holdings. Holdings
will be the surviving entity (the "Surviving Entity"). The Merger will become
effective upon the date and time of the filing of an appropriate certificate of
merger, providing for the Merger, with the Secretary of State of the State of
New York and an appropriate certificate of merger, providing for the Merger,
with the Secretary of State of the State of Delaware, whichever later occurs
(the "Effective Time").
SECTION 2. GOVERNING DOCUMENT. The Amended and Restated Operating
Agreement of MDNY Holdings, LLC (the "Operating Agreement") as in effect
immediately prior to the Effective Time, shall be the Operating Agreement of the
Surviving Entity without change or amendment until thereafter amended in
accordance with the provisions thereof and applicable law.
SECTION 3. SUCCESSION. At the Effective Time, the separate corporate
existence of LIPH and MergerCo shall cease, and Holdings shall succeed to all of
the assets and property, rights, privileges, franchises, immunities and powers
of LIPH and MergerCo, and Holdings shall assume and be subject to all of the
duties, liabilities, obligations and restrictions of every kind and description
of LIPH and MergerCo, including, without limitation, all outstanding
indebtedness of LIPH and MergerCo.
SECTION 4. BOARD OF MANAGERS AND OFFICERS. The Board of Managers and
Officers of the Surviving Entity shall be elected as set forth in the Operating
Agreement.
SECTION 5. CONVERSION OF SECURITIES. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof:
(a) Each share of MergerCo Common Stock issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and no shares of LIPH Common Stock or other securities shall be issued in
respect thereof.
(b) Each share of LIPH Common Stock issued and outstanding
immediately prior to the Effective Time shall no longer be outstanding, shall
automatically be cancelled and retired and shall cease to exist, and shall be
converted into and exchanged for the right to receive Membership Interests in
Holdings in such amounts as between the Class B and Class C shareholders that
will reflect the relative equity and voting rights of CHNLI and LIPH in MDNY at
the Effective Time.
(c) As a result of the Merger, holders of LIPH Class A
Common Stock and Class B Common Stock will receive Class A non-voting Membership
Interests and Class B-1 voting Membership Interests in Holdings in exchange for
their LIPH Common Stock.
(d) As a result of the Merger, holders of LIPH Class A
Common Stock and Class C Common Stock will receive Class A non-voting Membership
Interests and Class C-1 voting Membership Interests in Holdings in exchange for
their LIPH Common Stock.
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<PAGE>
SECTION 6. DISSENTING SHAREHOLDER. Notwithstanding the provisions of
Section 5 hereof, any outstanding shares of LIPH stock held by a shareholder who
shall have elected to dissent from the Merger and who shall have exercised and
perfected appraisal rights with respect to such shares in accordance with
Section 623 of the New York Business Corporation Law (a "Dissenting
Shareholder") shall not be converted into Membership Interests as a result of
the Merger, but Dissenting Shareholders shall be entitled to receive in lieu
thereof only such consideration as shall be provided by Section 623.
SECTION 7. CONVERSION OF OPTIONS. Each option to purchase shares of
LIPH Common Stock granted to certain LIPH shareholders which is outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become an option or right to acquire (and Holdings hereby assumes the obligation
to deliver) the equivalent number of Holdings Class A Membership Interests at a
comparable price per Interest, and upon the same terms and conditions as pertain
to the LIPH options as in effect immediately prior to the Effective Time.
Holdings hereby assumes, as of the Effective Time, all obligations of LIPH in
connection with the outstanding options.
SECTION 8. CONDITIONS TO THE MERGER. The consummation of the Merger
and the other transactions herein provided is subject to:
(a) Receipt prior to the Effective Time of the requisite
approval of the Merger, this Merger Agreement and the Amendments to the LIPH
Certificate of Incorporation and By-Laws necessary to effectuate the Merger, by
the shareholders of LIPH pursuant to the New York Business Corporation Law; and
(b) The exchange by CHNLI of all of its shares of MDNY
Common Stock for shares of LIPH Class B Common Stock and LIPH Class C Common
Stock immediately prior to the Merger.
SECTION 9. CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates which immediately prior thereto represented shares of
LIPH Common Stock shall be deemed for all purposes to evidence ownership of and
to represent the Holdings Membership Interests into which the shares of LIPH
Common Stock represented by such certificates have been converted as herein
provided and shall be so registered on the books and records of the Surviving
Entity or its transfer agent. The registered owner of any such outstanding
certificate shall, until such certificate shall have been surrendered for
transfer or otherwise accounted for to the Surviving Entity or its transfer
agent, have and be entitled to exercise any voting and other rights with respect
to, and to receive any dividends and other distributions upon, the Holdings
Membership Interests, as the case may be, evidenced by such outstanding
certificate, as above provided.
SECTION 10. AMENDMENT. The parties hereto, by mutual consent of
their respective Boards of Directors and Board of Managers, may amend, modify or
supplement this Merger Agreement prior to the Effective Time; provided, however,
that no amendment, modification or supplement may be made after the adoption of
this Merger Agreement by the shareholders of LIPH which changes this Merger
Agreement in a way which, in the judgment of the Board of Directors of LIPH
would have a material adverse effect on the shareholders of LIPH, unless such
amendment, modification or supplement is approved by such shareholders.
SECTION 11. TERMINATION. This Merger Agreement may be terminated,
and the Merger and the other transactions provided for herein may be abandoned,
at any time prior to the Effective
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<PAGE>
Time, whether before or after approval of this Merger Agreement by the
shareholders of LIPH, by action of the Board of Directors of LIPH if:
(b) The conditions specified in Section 8 hereof shall not
have been satisfied or waived; or
(c) The Board of Directors of LIPH determines for any
reason, in its sole judgment and discretion, that the consummation of the Merger
would be inadvisable or not in the best interests of LIPH and its shareholders.
SECTION 12. COUNTERPARTS. This Merger Agreement may be executed in
one or more counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 13. GOVERNING LAW. This Merger Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, LIPH, Holdings and MergerCo have caused this
Merger Agreement to be executed and delivered as of the date first above
written.
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
By:
---------------------------------------
Name:
--------------------------------
Title:
--------------------------------
MDNY HOLDINGS, LLC
By:
---------------------------------------
Name:
---------------------------------
Title:
---------------------------------
MDNY HOLDINGS DELAWARE, INC.
By:
---------------------------------------
Name:
---------------------------------
Title:
---------------------------------
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<PAGE>
EXHIBIT D-1
CERTIFICATE OF RESTATED
ARTICLES OF ORGANIZATION
OF
MDNY HOLDINGS, LLC
Under Section 214 of the Limited Liability Company Law.
FIRST: The name of the limited liability company is: MDNY HOLDINGS,
LLC.
SECOND: The date of the filing of the Articles of Organization is May
31, 1996.
THIRD: The Articles of Organization are hereby restated with
amendments to effect one or more of the amendments authorized by this chapter.
(a) Paragraph Second of the Articles of
Organization dealing with the latest day on which the limited liability company
is to dissolve is deleted.
(b) Paragraph Fifth of the Articles of
Organization dealing with the managers of the limited liability company is
amended as Paragraph Fourth to provide for management of the limited liability
company by classes of managers.
(c) Paragraph Fifth is added to the Articles of
Organization to provide for classes and voting of members.
(d) Paragraph Sixth is added to the Articles of
Organization to provide for classes and voting of managers.
The text of the Articles of Organization is hereby restated as amended
to read as follows:
ARTICLES OF ORGANIZATION
OF
MDNY HOLDINGS, LLC
Under Section 203 of the New York Limited Liability Company Law
FIRST: The name of the limited liability company is: MDNY
HOLDINGS, LLC.
SECOND: The county within this state in which the office of the
limited liability company is to be located is: Suffolk County.
THIRD: The Secretary of State is designated as agent of the limited
liability company upon whom process against it may be served. The post office
address within or without this state to which the Secretary of State shall mail
a copy of any process against the limited liability company served upon him or
her is: c/o Paul Kolker, 275 Broadhollow Road, Melville, New York 11747.
<PAGE>
FOURTH: The limited liability company is to be managed by (check
appropriate box):
/ / 1 or more members
/ / A class or classes of members
/ / 1 or more managers
/X/ A class or classes of managers
FIFTH: The members of the limited liability company will be divided
into classes of members having such relative rights, powers, preferences and
limitations as the operating agreement of the limited liability company may
provide. Additional classes of members may be created in the future, in the
manner provided in the operating agreement, having such relative rights, powers,
preferences and limitations as may from time to time be established pursuant to
the operating agreement, including rights, powers, preferences, and limitations
senior to existing classes of members.
SIXTH: The members of the limited liability company will be divided
into classes of managers having such relative rights, powers, preferences and
limitations as the operating agreement of the limited liability company may
provide. Additional classes of managers may be created in the future, in the
manner provided in the operating agreement, having such relative rights, powers,
preferences and limitations as may from time to time be established pursuant to
the operating agreement, including rights, powers, preferences, and limitations
senior to existing classes of managers.
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<PAGE>
EXHIBIT D-2
AMENDED AND RESTATED OPERATING AGREEMENT
- OF -
MDNY HOLDINGS, LLC
A NEW YORK LIMITED LIABILITY COMPANY
This AMENDED AND RESTATED OPERATING AGREEMENT (the "Agreement") is
entered into as of the ____ day of _________, 1996, among those persons who have
executed and delivered this Agreement, pursuant to the provisions of the New
York Limited Liability Company Law, on the following terms and conditions.
Certain capitalized terms are defined in Section 2 of this Agreement.
RECITALS
WHEREAS, the Company was formed on May 31, 1996 as a limited liability
company pursuant to Articles of Organization filed with the Secretary of State
of New York (the "Articles of Organization");
WHEREAS, the Company is to be treated as an association taxable as a
corporation for federal and state tax purposes; and
WHEREAS, the Company's Member-Managers have caused its Articles of
Organization and Operating Agreement to be amended, this Amended and Restated
Operating Agreement shall be binding upon all persons who are now or at any time
hereafter become, Members of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth herein, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereby agree as follows:
Section 1
ORGANIZATION
1.1 FORMATION. The Members agree to continue the Company as a
limited liability company pursuant to the provisions of the Act and upon the
terms and conditions set forth in this Agreement.
1.2 NAME. The name of the Company is MDNY Holdings, LLC, a New
York limited liability company, and all business of the Company shall be
conducted in such name.
1.3 PURPOSE. The Company is formed for any lawful business
purpose or purposes for which limited liability companies may be organized in
the State of New York including, without limitation, to, directly or indirectly
through one or more entities, purchase, invest in, own, operate, or dispose of
interests in a certain health maintenance organization, and engage in such
additional business endeavors as the Board of Managers may determine.
1.4 PRINCIPAL PLACE OF BUSINESS. The principal place of business
of the Company shall be at c/o Paul Kolker, MD, at 275 Broadhollow Road,
Melville, New York 11747, or such other place within or without the State of New
York as the Members may determine.
<PAGE>
1.5 TERM. The term of the Company commenced on May 31, 1996, the
date the Articles of Organization were filed in the office of the Secretary of
State of New York in accordance with the Act and shall continue until May 30,
2096, unless dissolved or liquidated prior thereto pursuant to the Act or
pursuant to this Amended Agreement.
1.6 FILINGS.
(a) The Board of Managers caused the Articles of
Organization to be filed on May 31, 1996 in the office of the Secretary of State
of New York in accordance with the provisions of the Act. The Board of Managers
shall take any and all other actions reasonably necessary to perfect and
maintain the status of the Company as a limited liability company under the laws
of New York. The Board of Managers shall cause amendments to the Articles of
Organization to be filed whenever required by the Act.
(b) The Board of Managers shall execute and cause to be
filed original or amended Articles of Organization and shall take any and all
other actions as may be reasonably necessary to perfect and maintain the status
of the Company as a limited liability company or similar type of entity under
the laws of any other states or jurisdictions in which the Company engages in
business.
(c) Upon the dissolution of the Company, the Board of
Managers shall promptly execute and cause to be filed articles of dissolution in
accordance with the Act and the laws of any other states or jurisdictions in
which the Company has filed Articles of Organization.
1.7 TITLE TO PROPERTY. All real and personal property owned by
the Company shall be owned by the Company as an entity and no Member shall have
any ownership interest in such property in his individual name or right, and
each Member's Membership Interest shall be personal property for all purposes.
Except as otherwise provided in this Agreement, the Company shall hold all of
its real and personal property in the name of the Company and not in the name of
any Member.
Section 2
DEFINITIONS
Capitalized words and phrases used in this Agreement shall have the
following meanings:
(a) "Act" means the New York Limited Liability Company Law,
as amended from time to time (or the corresponding provisions of any succeeding
law).
(b) "Articles of Organization" shall mean the articles of
organization of the Company as originally filed with the New York Secretary of
State on May 31, 1996, as they may from time to time be amended.
(c) "Agreement" means this Amended and Restated Operating
Agreement, as amended and restated from time to time.
(d) "Board of Managers" means the Persons serving on the
Board of Managers of the Company, including any other Persons that succeed them
in that capacity, duly elected in accordance with the terms of this Agreement.
References to the Manager in the singular or as him, her, it, itself, or other
like references shall also, where the context so requires, be deemed to include
the plural or the masculine or feminine reference, as the case may be.
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<PAGE>
(e) "Capital Contribution" means, with respect to any
Member, the amount of money and the fair market value of any other property
contributed to the Company with respect to the Membership Interest held by such
Member.
(f) "Class A Interests" mean the Class A Non-Voting
Membership Interests issued by the Company to shareholders of Long Island
Physician Holdings Corporation ("LIPH") and to The Catholic Healthcare Network
of Long Island, Inc. ("CHNLI") in certain restructuring transactions; by the
Company to members of Queens Physician Holdings, LLC ("QPH") pursuant to an
Intrastate Prospectus; by the Company to members of Hudson Valley Physician
Holdings LLC ("HVPH") pursuant to an Intrastate Prospectus; and by the Company
in future offerings and/or acquisitions.
(g) "Class A Member" means a Member holding a Class A
Interest.
(h) "Class B Interest" means Class B Voting Membership
Interests, including Class B-1 Interests, Class B-2 Interests and Class B-3
Interests and other series of Class B Voting Membership Interests that may be
offered by the Company to Health Care Providers and Participating Providers in
the future.
(i) "Class B Member" means a Member holding a Class B
Interest.
(j) "Class B-1 Interests" mean the Class B-1 Voting
Membership Interests, with the voting rights more fully described herein, issued
by the Company to LIPH shareholders pursuant to the merger of LIPH into the
Company.
(k) "Class B-1 Member" means a Member holding a Class B-1
Interest.
(l) "Class B-2 Interests" mean the Class B-2 Voting
Membership Interests, with the voting rights more fully described herein, issued
by the Company to members of QPH pursuant to an Intrastate Prospectus.
(m) "Class B-2 Member" means a Member holding a Class B-2
Interest.
(n) "Class B-3 Interests" mean the Class B-3 Voting
Membership Interests, with the voting rights more fully described herein, issued
by the Company to members of HVPH pursuant to an Intrastate Prospectus.
(o) "Class B-3 Member" means a member holding a Class B-3
Interest.
(p) "Class C Interests" means Class C Voting Membership
Interests, including Class C-1 Interests and other series of Class C Voting
Membership Interests that may be issued by the Company in connection with the
acquisition of, or entering into service arrangements with, entities affiliated
with hospitals.
(q) "Class C-1 Interests" means the Class C-1 Voting
Membership Interests, with the voting rights more fully described herein, issued
by the Company to CHNLI in certain restructuring transactions.
(r) "Class C-1 Member" means a member holding a Class C-1
Interest.
(s) "Code" means the Internal Revenue Code of 1986, as
amended from time to time (or any corresponding provisions of succeeding law).
(t) "Company" means the limited liability company formed by
this Agreement pursuant to the Act.
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<PAGE>
(u) "Dividend" means any cash or other property paid or
distributed by the Company with respect to an outstanding Membership Interest.
(v) "Fiscal Year" shall mean the fiscal year of the Company,
which shall be the year ending December 31st.
(w) "Health Care Provider" means primary care physicians,
medical and surgical specialty care physicians, psychologists, psychiatrists,
chiropractors, podiatrists and dentists practicing in an office or hospital
located in New York State and who qualify and are accepted as Participating
Providers in a Practice Association.
(x) "Hospital Entities" mean entities that own, operate or
promote the interests of hospitals located in New York State and, which are, or
are expected to, contract to provide hospital services to MDNY enrollees.
(y) "HVPH" means Hudson Valley Physician Holdings LLC, a New
York limited liability company.
(z) "LIPH" means Long Island Physician Holdings Corporation,
a physician-owned New York corporation.
(aa) "Member" means any person who meets the requirements of
Section 3.1 herein, who is or hereafter becomes a Member pursuant to the terms
of this Agreement, and who holds a Membership Interest in the Company.
Reference to a Member in the singular or as him, her, himself or herself or
other like references shall also, where the context so requires, be deemed to
include the plural or the masculine or feminine reference, as the case may be.
(bb) "Membership Interest" shall mean an equity interest in
the Company, including, but not limited to, all classes and subclasses of the
Class A Interests, Class B Interests and Class C Interests.
(cc) "MDNY" means MDNY Healthcare, Inc., a New York
corporation, a health maintenance organization and a wholly-owned subsidiary of
the Company, that has operated as MDLI Healthcare, Inc., but which will operate
as MDNY Healthcare, Inc., going forward.
(dd) "MDNY Common Stock" means the MDNY Class A common
stock, together with the MDNY Class B common stock and any other class of MDNY
common stock, all of the issued and outstanding shares of which will be owned by
the Company.
(ee) "Participating Practice" means a BONA FIDE group
practice which is accepted into a Practice Association.
(ff) "Participating Providers" mean Health Care Providers
who (i) meet and continue to meet the credentialing criteria and are accepted
into a Practice Association, or (ii) are members of a Participating Practice and
who, individually, meet and continue to meet the credentialing criteria of that
Practice Association.
(gg) "Person" means any individual, corporation,
professional corporation, governmental authority, limited liability company,
limited liability partnership, partnership, trust, unincorporated association or
other entity.
(hh) "Practice Association" means an independent practice
association owned by a regional holding company (including HVPH, LIPH, LLC, a
New York limited liability company, and QPH) which contracts with MDNY to
provide health care services to the enrollees of MDNY.
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<PAGE>
(ii) "Practitioner Entity" means Health Care Providers,
groups of Health Care Providers, entities owned by Health Care Providers,
Practice Associations, or entities that own, directly or indirectly, through one
or more majority owned subsidiaries, such groups or Practice Associations each
under contract to provide health care services to MDNY's enrollees.
(jj) "QPH" means Queens Physician Holdings, LLC, a New York
limited liability company.
(kk) "Voting Interest" means those Membership Interests in
the Company entitling the Member to vote on all matters relating to the Company.
(ll) "Voting Member" means a Member holding a Voting
Interest.
Section 3
MEMBERS
3.1 MEMBERS.
(a) Only Participating Providers and Hospital Entities, may
be Members, except that subscribers of Membership Interests who are not admitted
into a Practice Association for any reason may continue to hold Class A
Interests and be Class A Members.
(b) An individual Class B Member must maintain his status as
a Participating Provider in order to hold a Class B Voting Interest in the
Company.
(c) Participating Providers in a Participating Practice must
maintain their status as Participating Providers in order for that Participating
Practice to continue providing services to MDNY and in turn in order to continue
to hold Voting Interests in the Company.
(d) Class B Interests may only be owned by Participating
Providers. Class C Interests may only be owned by Hospital Entities.
(e) No individual Class B Member may own more than one Class
B Interest, but can own an unlimited number of Class A Interests, subject to
availability and the discretion of the Board of Managers.
3.2 ADDITIONAL CAPITAL CONTRIBUTIONS. Each Member may contribute
from time to time such additional money or other property, subject to the
provisions of Section 3.1, as the Board of Managers may agree.
3.3 OTHER MATTERS RELATING TO CAPITAL CONTRIBUTIONS.
(a) Except as otherwise provided in this Agreement, no
Member shall have the right to demand or receive a return of his Capital
Contributions. Under circumstances requiring a return of any Capital
Contributions, no Member shall have priority over any other Member nor the right
to receive property other than cash, except as may be specifically provided
herein.
(b) No Member shall receive any interest, salary, or
drawing with respect to his Capital Contributions or for services rendered on
behalf of the Company or otherwise in his capacity as a Member, except as
otherwise provided in this Agreement.
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<PAGE>
(c) Provided that the Members act in accordance with the
terms of this Agreement, the Members shall not be liable for the debts,
liabilities, contracts, or any other obligations of the Company. Except as
otherwise provided by mandatory provisions of applicable state law, a Member
shall be liable only to make his Capital Contributions and shall not be required
to lend any funds to the Company or, after his original Capital Contribution has
been made, to make any additional Capital Contributions to the Company, except
as provided herein.
3.4 ISSUANCE OF OTHER MEMBERSHIP INTERESTS AND DEBT OBLIGATIONS.
(a) In order to raise additional capital funds to acquire
interests in other health care-related business opportunities or for any other
purpose related to the operation of the Company, the Board of Managers, subject
to the voting requirements of Section 4.5(a), is authorized to cause other
Membership Interests in the Company, or warrants, options or other rights to
acquire such, to be issued from time to time to Members or other Persons, and to
admit such other Persons as additional Members with respect to the issuance of
any Membership Interest in the Company. Except as otherwise provided herein,
the Board of Managers shall have sole and complete discretion in determining the
consideration and terms and conditions with respect to any such issuance.
(b) Additional Membership Interests in the Company may be
issued in one or more classes or series with such designations and preferences
and relative, participating, optional or other special rights as, to the fullest
extent permitted by law, may be fixed by the Board of Managers in their sole
discretion, subject to the provisions of this Agreement and the voting
requirements of Section 4.5(a), including variations among classes of Membership
Interests in the Company in the following relative rights and preferences:
(i) the right to Dividends; (ii) the rights upon dissolution and liquidation of
the Company, (iii) if redeemable, the price at, and the terms and conditions on
which, they are redeemable, (iv) if convertible, the rate at, and the terms and
conditions on which, they may be converted into any class of Membership Interest
in the Company; (v) the issuance thereof and matters relating to the assignment
thereof; and (vi) the rights of holders to vote on matters relating to the
Company and this Agreement; provided that (x) no such class or series shall be
issuable except as set forth in Section 3.1, and (y) a class or series of
Membership Interests shall provide the same designations, preferences and
rights, including voting rights, for each Membership Interest within such class
or series, and (z) Hospital Entities are not permitted to own Voting Interests
equal to more than 50% of the outstanding Voting Interests held by Participating
Providers (i.e., not more than 33 1/3% of all outstanding Voting Interests).
(c) All additional Membership Interests will be issued
subject to the requirement that the Member agree to be bound by the terms of
this Agreement and grant a power of attorney to the officers of the Company to
execute this Agreement on his behalf.
(d) Upon the issuance of any additional Membership
Interests in the Company, including any new class of Membership Interests, or
upon the issuance of any option, warrant or other right to acquire a Membership
Interest in the Company, the Board of Managers, without the consent of any
Member, may amend any provision of this Agreement and execute, prepare and
record such other documents as may be required in connection therewith or as may
be necessary or desirable to reflect such issuance. In connection with any such
issuance, the Board of Managers shall do all things necessary to comply with the
Act and may take such other actions deemed to be necessary or advisable.
(e) The Board of Managers is also authorized, subject to
the voting requirements of Section 4.5(a), to cause the issuance of unsecured
and secured debt obligations of the Company and debt obligations of the Company
convertible into Membership Interests in the Company from time to time to
Members or other Persons on terms and conditions established by the Board of
Managers in its sole discretion.
3.5 NO PREEMPTIVE RIGHTS. No Member shall have any preemptive right
to purchase or subscribe for any new or additional Membership Interests in the
Company by reason of the issuance of any new or additional Membership Interests
in the Company, including the issuance of any new class of Membership Interests,
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<PAGE>
any options, warrants or rights to acquire any new or additional Membership
Interests in the Company or any debt obligations of the Company, whether
convertible into Membership Interests in the Company or otherwise.
3.6 MEETINGS OF MEMBERS.
(a) The Class B Interests and Class C Interests entitle the
holders thereof to vote on all matters to be voted on by Members of the Company,
including, but not limited to, the election of Managers. The Class A Interests
do not entitle their holders to voting rights, except as may be provided by this
Agreement or the Act.
(b) Meetings of the Class B Members and Class C Members are
required to be held annually for the election of Managers and the transaction of
such other business as may come before the meeting. Annual meetings of the
Members, commencing in 1997, shall be held at a time and on a day between April
1 and May 20 to be selected by the Board of Managers. All meetings shall be
held within or without the State of New York, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof. In order for a
meeting of the Members to be considered duly held with regard to a particular
matter, a majority of the Members which are entitled to vote at such meeting on
the particular question must be present, in person or by proxy, in order to
constitute a quorum for the transaction of business. If a quorum is not present
or represented at any meeting of the Members, the Members entitled to vote
thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting, without notice other than announcement at the meeting,
until a quorum is present or represented. At such adjourned meeting at which a
quorum is present or represented, any business may be transacted at the meeting
as originally noticed.
(c) Any action to be taken at a meeting of the Members, or
any action which may be taken at a meeting of the Members, may be taken without
a meeting if a consent in writing, setting forth the action to be taken, shall
be signed by Members holding the minimum number of Membership Interests
necessary to authorize such action by vote at a meeting at which all Members
entitled to vote were present and voted, and such consent shall have the same
force and effect as a vote of the Members entitled to vote on the particular
question. Every written consent shall bear the date of signature of each Member
who signs the consent and no written consent shall be effective to take the
action referred to therein unless, within sixty (60) days of the earliest dated
consent delivered in the manner required by this Section 3.6 to the Company,
written consents signed by a sufficient number of Members to take the action are
delivered to the Company, to the attention of the President, at the Company's
principal place of business. Delivery made to the office of the Company shall
be by hand or by certified or registered mail, return receipt requested. Prompt
written notice of the taking of such action by less than unanimous written
consent shall be given to those Members who would have been entitled to vote
thereon and who have not consented in writing.
(d) Special meetings of the Members may be called for any
purpose by the President, or the Board of Managers or at the request in writing
of a majority of the Managers, or at the request in writing of at least ten
(10%) percent of all the Voting Interests entitled to vote at the meeting. A
request directed to either the President or the Secretary shall state the
purpose of the proposed meeting and business transacted at any special meeting
of the Members shall be confined to the purpose stated in the notice of the
meeting.
(e) For purposes of determining the Members entitled to
vote or act at any meeting or adjournment thereof, the Managers may fix in
advance a record date which shall not be greater than sixty (60) days nor fewer
than (10) days before the date of any such meeting. If the Managers do not so
fix a record date, the record date for determining Members entitled to notice of
or to vote at a meeting of Members shall be at the close of business on the
business day immediately preceding the day on which notice is given, or if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(f) The record date for determining Members entitled to
give consent to action in writing without a meeting, (1) when no prior action of
the Managers has been taken, shall be the day on which the
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first written consent is given or (2) when prior action of the Managers has been
taken, shall be (a) such date as determined for that purpose by the Managers,
which record date shall not precede the date upon which the resolution fixing it
is adopted by the Managers and shall not be more than 20 days after the date of
such resolution or (b) if no record date is fixed by the Managers the record
date shall be the close of business on the day on which the Managers adopt the
resolution relating to that action.
(g) Only Members of record on the record date as herein
determined shall have any right to vote or to act at any meeting or give consent
to any action relating to such record date, provided that no Member who
transfers all or part of such Member's Interest after a record date (and no
transferee of such Interest) shall have the right to vote or act with respect to
the transferred Interest as regards the matter for which the record date was
set.
(h) At least ten (10) days before each meeting of Members,
and at least ten (10) days before each written consent by Members, or such
shorter period if time does not permit, a complete list of the Members entitled
to vote at the meeting, arranged in alphabetical order, with the address of each
and the amount of Membership Interests held by each, shall be prepared by the
officer or agent having charge of the books. For a period of ten (10) days
prior to the meeting, the list shall be kept on file at the principal office of
the Company and shall be subject to inspection by any Member at any time during
usual business hours. The list also shall be produced and kept open at the time
and place of the meeting and shall be subject to inspection by any Members
during the whole time of the meeting.
(i) Written notice stating the place, day and hour of the
meeting and the general nature of the purpose or purposes for which the meeting
is called, shall be deposited in the United States mail or delivered within
fifteen (15) days after the receipt of any request for a meeting. Any such
meeting shall be held on a date not less than twenty (20) nor more than sixty
(60) days after the date of such mailing or delivery of the notice of the
meeting. Any such mailing or delivery of notice shall be by or at the direction
of the President, the Secretary, or the officer or person calling the meeting,
to each Member of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the Member at his address as it appears on the
books of the Company. The date of notice for such a meeting and the meeting
date may each be extended for a period of up to an additional sixty (60) days,
if in the opinion of the President such additional time is necessary to permit
preparation of proxy or information statements or other documents required to be
delivered in connection with such meeting by any regulatory authorities.
(j) When a quorum is present at any meeting, generally, the
vote of the majority of the Voting Interests, present in person or represented
by proxy, shall decide any question brought before such meeting, unless the
question is one upon which a different vote is required by the Act or this
Agreement. Those matters requiring the affirmative vote of a majority of the
entire Board of Managers and a separate vote of the majority of the Practitioner
Managers and the majority of the Hospital Managers as provided in Section 4.5(a)
may be voted and acted upon by the Members only by the separate majority votes
of the holders of all Class B Interests voting as a class and of the holders of
all Class C Interests voting as a class. The Members present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Members to leave less than a quorum.
Any dispute relating to the number of votes cast on a particular matter shall be
determined by an Inspector of Elections duly appointed by the Board of Managers
or if no Inspector of Election is appointed by the regularly employed
independent certified accountants of the Company, whose determination shall be
final and binding for all purposes.
3.7 PROXIES. A Member may issue or withhold his vote by proxy
executed in writing by the Member or by a duly authorized attorney-in-fact.
Unless a proxy provides otherwise and complies with the requirements of state
law relating to irrevocable proxies, no proxy shall be valid after the
expiration of eleven (11) months from the date thereof. Every proxy, unless by
its terms irrevocable, shall be revocable at the pleasure of the Member
executing it.
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3.8 VOTING AGREEMENTS. An agreement between two or more Members, if
in writing and signed by the parties thereto, may provide that in exercising any
voting rights, the Membership Interests held by them shall be voted as therein
provided, or as they may agree, or as determined in accordance with a procedure
agreed upon by them.
3.9 LIST OF THE MEMBERS. An alphabetical list of the names,
addresses, and business telephone numbers of the Members of the Company along
with the number and designation of Membership Interests held by each of them
(the "Member List") shall be maintained as part of the books and records of the
Company and shall be available for inspection by any Member or such Member's
designated agent, for any proper purpose related to such Member's Membership
Interest, at the principal office of the Company upon the request of the Member.
The Member List shall be updated at least quarterly to reflect changes in the
information contained therein. A copy of the Member List shall be mailed to any
Member requesting the Member List within ten (10) days of the request. A
reasonable charge for copy work may be charged by the Company. The purposes for
which a Member may request a copy of the Member List include, without
limitation, matters relating to Members' voting rights. If the Board of
Managers wrongfully neglects or refuses to exhibit, produce, or mail a copy of
the Member List as properly requested, the Board of Managers shall be liable to
any Member requesting the Member List for the costs, including attorneys' fees,
incurred by that Member for compelling the production of the Member List, and
for actual damages suffered by any Member by reason of such refusal or neglect.
The use of the Member List for any commercial purposes, including without
limitation, the selling of such list or a portion thereof, shall not be a proper
purpose for inspection thereof. The Board of Managers may require the Member
requesting the Member List to represent that the Member List is not requested
for a commercial purpose unrelated to the Member's Membership Interest in the
Company. The remedies provided hereunder to Members requesting copies of the
Member List are in addition to, and shall not in any way limit, other statutory
remedies available to a Member.
Section 4
MANAGEMENT
4.1 GENERAL. The Board of Managers shall be responsible for the
management of the Company, its assets and the disposition thereof, and is
responsible for the general policies of the Company and the general supervision
of the Company's activities conducted by its officers, agents, employees,
advisors or independent contractors as may be necessary in the course of the
Company's business, and shall devote to the business affairs of the Company such
time and effort as the Board of Managers may from time to time deem necessary.
The Managers shall not be obligated to devote their time exclusively to the
business of the Company. Individual Managers may only take action on behalf of
the Company as authorized by the Board of Managers.
4.2 COMPOSITION OF THE BOARD OF MANAGERS.
(a) The number of Managers constituting the entire Board of
Managers shall consist of twenty-nine (29) persons, eight (8) of whom ("Hospital
Managers") will be designated by Designating Hospital Entities (as hereinafter
defined) and twenty-one (21) of whom ("Practitioner Managers") will be
designated by Designating Practitioner Entities (as hereinafter defined).
(b) Effective on the date hereof, the Board of Managers
shall be comprised of the fourteen (14) persons currently serving as directors
of MDNY. Prior to the 1997 Annual Meeting of Holdings Members (the "1997
Meeting"), at the time of each sale or issuance of more than $1,000,000 of
Membership Interests to Health Care Providers or a Practitioner Entity, the
Practitioner Entity with which the holders of such series of Membership
Interests are associated (each such Practitioner Entity and LIPH or any
successor to LIPH's ownership of the Practice Associations currently owned by
it, being a "Designating Practitioner Entity") shall have the right to
designate, and the Board of Managers will elect to serve until the 1997 Meeting,
such number of Practitioner Managers as shall bear, as near as possible, the
same ratio to 10 as the total dollar amount of the consideration paid
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or contractually committed to be paid for Class A and Class B Membership
Interests acquired or contracted to be acquired by such associated holders bears
to the total consideration paid by or contractually committed to be paid by LIPH
or its shareholders for shares of MDNY or Membership Interests; provided
however, that no present Practitioner Manager will be required to resign from
the Board of Managers prior to the 1997 Meeting to effect such election; and
provided further that except as provided in Section 4.2(b), no Practitioner
Manager vacancies currently existing will be filled prior to the 1997 Meeting.
(c) Prior to the 1997 Meeting, at the time of each sale or
issuance of more than $1,000,000 of Membership Interests to a Hospital Entity
(each such Hospital Entity and CHNLI being a "Designating Hospital Entity"),
such Designating Hospital Entity shall have the right to designate, and the
Board of Managers will elect to serve until the 1997 Meeting, such number of
Hospital Managers as shall bear, as near as possible, the same ratio to 4 as the
total dollar amount of the consideration paid or contractually committed to be
paid for Class A and Class C Membership Interests acquired or contracted to be
acquired by such Hospital Entity bears to the total consideration paid or
contractually committed to be paid by CHNLI for shares of MDNY; provided
however, that no present Hospital Managers will be required to resign from the
Board of Managers prior to the 1997 Meeting to effect such election; and
provided further that except as provided in this Section 4.2(c) no Hospital
manager vacancies currently existing will be filled prior to the 1997 Meeting.
(d) The Board of Managers will, commencing with the 1997
Meeting, be elected by the holders of series B-1, B-2, B-3 and any other series
of Class B and of series C-1 and any other series of Class C Membership
Interests entitled to elect one or more Managers as set forth in this Section
4.2. All Managers will be elected by a plurality of votes cast by holders of
each such series at a meeting at which a quorum is present; provided, however,
that, if so specified by a Designating Practitioner Entity or a Designating
Hospital Entity, the Managers to be elected by the owners of Voting Membership
Interests associated with it shall be elected by Cumulative Voting. As more
fully set out elsewhere in this Section 4.2, the Person(s) each series of each
Class of Membership Interests shall be entitled to elect, voting separately,
will be nominated by the Board of Managers based upon directions from the
governing boards of the Designating Hospital Entities and, in the case of each
series of Class B Membership Interests, the Designating Practitioner Entities
with which the holders of such series are associated. Such Persons, unless they
decline to serve or are found by the Board of Managers to be unqualified for
reasons of character or fitness (in which case the respective Designating
Practitioner Entity or Designating Hospital Entity will designate a substitute),
will be nominated for election and proxies to vote for their election will be
solicited by the Board of Managers. While this Section 4.2(d) determines the
nominees for whom the Company will solicit proxies, it is not the exclusive
method by which a Person may be nominated to be elected as a Practitioner
Manager.
(e) Commencing with the 1997 Meeting and subsequent
thereto, the twenty-one (21) Practitioner Managers shall be comprised of sixteen
(16) primary care physicians or specialty care physicians other than
psychiatrists ("Physician Practitioner Managers"), and five (5) other Health
Care Providers that will consist to the extent practicable of one psychiatrist,
one psychologist, one dentist, one chiropractor and one podiatrist (together
with the Physician Practitioner Managers, the "Practitioner Managers"). If any
specialty among the five (5) other Health Care Providers is unfilled or has a
limited number of constituents, the Board of Managers shall have the authority
to reallocate that Practitioner Manager seat to another specialty within this
group. Every Practitioner Manager must be a Participating Provider in one of
the Practice Associations.
(f) Not less than 90 days prior to the anticipated date of
the 1997 Meeting and each Annual Meeting thereafter, the Board of Managers shall
(I) allocate the twenty-one (21) seats reserved for Practitioner Managers
(including the sixteen (16) seats for Physician Practitioner Managers) among
each of the series of Class B Interests whose holders are associated with a
Designating Practitioner Entity, in proportion, as near as possible, to the
total dollar amount of the consideration paid or contractually committed to be
paid for Class A and Class B Membership Interests purchased from the Company by
the owners of all such series; provided, however, that in making such
calculation, the holders of Class B-1 Membership Interests will be deemed to
have acquired or contracted to acquire an amount of Class A and Class B
Membership Interests equal to the dollar amount of such
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consideration contributed by LIPH for Class A Common Stock of MDNY, and in no
event will the holders of the Class B-1 Membership Interests be allocated less
than two (2) Physician Practitioner Managers or the holders of any series of
Class B Interests for whom a Practitioner Entity has qualified as a Designating
Practitioner Entity be allocated less than one (1) Practitioner Manager; and
(II) allocate the eight (8) seats reserved for Hospital Managers among the
series of Class C Interests held by the Designating Hospital Entities, in
proportion, as near as possible, to the total dollar amount of the consideration
paid or contractually committed to be paid for Class A and Class C Membership
Interests purchased from the Company by such Designating Hospital Entities;
provided, however, that in making such calculation, CHNLI, as the owner of Class
C-1 Membership Interests, shall be deemed to have acquired or contracted to be
acquired an amount of Class A and Class C Membership Interests equal to the
dollar amount of such consideration contributed by CHNLI for Class B Common
Stock of MDNY, and in no event will CHNLI be allocated less than two (2)
Hospital Managers or the holders of any series of Class C Interests for whom a
Hospital Entity has qualified as a Designating Hospital Entity be allocated less
than one (1) Hospital Manager.
(g) The Board of Managers shall, not less than 90 days
prior to the anticipated date of the 1997 Meeting and each Annual Meeting
thereafter, notify each Designating Practitioner Entity and Designating Hospital
Entity of the number of Managers to be elected by it or its associated owners.
Each such Designating Practitioner Entity or Designating Hospital Entity shall
have the right to designate the allocated number of Persons as nominees for
membership on the Board of Managers. Such designation shall be made not later
than fifteen days after receipt of Notice. The Board of Managers shall promptly
notify the appropriate Designating Practitioner Entity or Designating Hospital
Entity of any designee found unqualified for reasons of character or fitness so
as to permit a substitute to be submitted and approved not later than 60 days
prior to the scheduled Annual Meeting dates. If necessary, the Board of
Managers will consult with the respective managing bodies of each of the
Designating Practitioner Entities concerning their proposed nominees to attempt
to arrive at a consensus among them so as to achieve the required distribution
of Board seats among the different classes of practitioners set forth in
Subsection 4.2(e). To the extent the Board of Managers is unable to obtain a
consensus, a lottery will be held to determine an order and sequence in which
each of the Designating Practitioner Entities will designate nominees to Board
seats to the extent necessary to achieve the required allocation.
(h) If, subsequent to the 1997 Meeting, there are
additional sales of Membership Interests and the Company issues any additional
series of Class B or Class C Interests which would entitle the holders of such
series to elect, voting as a separate class, one or more Practitioner Managers
or Hospital Managers, the associated Designating Practitioner Entity or
Designating Hospital Entity will be entitled, during the interim between such
sale and the next Annual Meeting of Members to have up to two (2) Persons attend
and participate, without voting, in all meetings of the Company's Board of
Managers and of MDNY's Board of Directors.
4.3 VACANCIES. After the 1997 Meeting any vacancy in the Board will
be filled by the Board of Managers as follows: (a) the governing Board of the
respective Designating Hospital Entity or Designating Practitioner Entity which
nominated the Manager whose resignation, removal or withdrawal gave rise to the
vacancy shall designate a person to fill such vacancy, (b) such Person, unless
he or she declines to serve or is found by the Board of Managers to be
unqualified for reasons of character or fitness (in which case the respective
Designating Practitioner Entity or Designating Hospital Entity will designate a
substitute), will be elected a Manager by the Board to fill the vacancy. A
Manager elected to fill a vacancy shall serve the unexpired term of the Manager
being replaced.
4.4 RIGHTS AND POWERS OF THE BOARD OF MANAGERS. The Board of
Managers shall have full charge of the overall management, conduct and operation
of the Company in all respects and in all matters and shall have the authority
to act on behalf of the Company in all matters respecting its businesses and
assets, subject to any limitations in or contrary provisions of this Agreement.
The power and authority of the Board of Managers pursuant to this Agreement
shall be liberally construed to encompass all acts and activities in which a
limited liability company may engage under the Act. The Board of Managers,
subject to the voting requirements of Section 4.5(a), is empowered to perform
any acts they deem necessary, appropriate or desirable for the furtherance of
the Company
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and its purposes that are not specifically prohibited by this Agreement or
applicable law including, without limitation, the power to:
(a) Make investments, either directly or through
subsidiaries, by purchase, lease, exchange or otherwise as may be necessary,
convenient or incidental to the accomplishment of the purposes of the Company,
including any transaction the Board of Managers deems advisable;
(b) Operate, maintain, finance, improve, own, grant options
with respect to, sell, convey, assign, mortgage, exchange or lease Company
property or assets, as may be necessary, convenient or incidental to the
accomplishment of the purposes of the Company;
(c) Enter into and execute all agreements, contracts,
instruments and related documents necessary or appropriate in connection with
the operation of the Company's business, including, without limitation, billing,
management and administrative agreements and contracts with Persons performing
such services for the Company's business;
(d) Purchase and maintain, in its sole discretion and at
the expense of the Company, liability, indemnity and any other insurance
sufficient to protect the Company, the Members, the Board of Managers, the
Company's officers, employees, agents, partners or any other Person, from those
liabilities and hazards which may be insured against in the conduct of the
business and in the management of the business and affairs of the Company;
(e) Employ and dismiss Persons in the operation and
management of the Company's business on such terms and for such compensation as
the Board of Managers shall reasonably determine;
(f) Borrow money, including, without limitation, borrowings
from any affiliate of the Company, and issue evidences of indebtedness, and as
security therefor to mortgage or encumber any or all of the Company's property
or assets;
(g) Negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any other action
on behalf of the Company with respect to any lease or sublease;
(h) Employ and dismiss attorneys, accountants, investment
bankers and other professional advisors on behalf of the Company;
(i) Pay, extend, renew, modify, adjust, submit to
arbitration, prosecute, defend or compromise, upon such terms as may be
determined and upon such evidence as may be deemed sufficient, any obligation,
suit, liability, cause of action, or claim, including taxes, either in favor of
or against the Company, including amendment of the Company tax returns and
amendment of this Agreement to permit operation of the Company in accordance
with any such settlement of tax issues;
(j) Establish, from the proceeds of the sale of Membership
Interests in the Company and from income derived from the Company's operations,
such reserves as the Board of Managers, in its sole discretion, shall deem
reasonable to meet anticipated Company expenses or for other business purposes
and consistent with the Company's operating philosophy that (i) MDNY's
marketplace is highly competitive and market share and continued expansion are
vital to the success of MDNY; (ii) substantial reserves are necessary to compete
effectively and MDNY should accumulate a "war chest of reserves" during its
initial years of operation, and (iii) after sufficient reserves are obtained,
the medical payout ratio may be progressively increased to 90%;
(k) Deposit, withdraw, invest, pay, retain and distribute
the Company's funds in any manner consistent with the provisions of this
Agreement;
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(l) Execute and file with any state tax authority, if
necessary or appropriate to comply with or minimize withholding obligations
under the laws of that state, a statement on behalf of Members and holders of
other equity interests in the Company acknowledging and confirming their
obligations to file tax returns with such state;
(m) Subject to the provisions of this Agreement, in the
Board's sole discretion, admit additional Members upon the purchase of a
Membership Interest;
(n) Subject to the provisions of this Agreement, cause the
Company to issue additional classes of Membership Interests in the Company, and
other securities and debt or equity interests in the Company which may be
different in any respect from the previously issued Membership Interests in the
Company, all on such terms and at such prices as the Board of Managers may
determine in its sole discretion;
(o) Make, execute, assign, acknowledge and file on behalf
of the Company all documents or instruments of any kind which the Board of
Managers may deem necessary or appropriate in carrying out the business of the
Company, including, without limitation, powers of attorney, agreements of
indemnification, sales contracts, deeds, options, loan obligations, mortgages,
deeds of trust, notes, documents or instruments of any kind or character and
amendments thereto;
(p) Make any election on behalf of the Company, as is or
may be permitted under the Code or under the taxing statute or rule of any
state, local, foreign or other jurisdiction, and to supervise the preparation
and filing of all tax and information returns which the Company may be required
to file;
(q) In its sole discretion, declare and pay Dividends to
Members in accordance with this Agreement;
(r) Pursuant to the terms of this Agreement cause the
Company to repurchase Membership Interests in the Company or other equity
interests, or options, warrants or other rights to acquire such, which may be
outstanding from time to time or in privately negotiated transactions at prices
then agreed upon;
(s) Possess and exercise any additional rights and powers
of a Board of Managers under the Act (and any other applicable laws), to the
extent not inconsistent with this Agreement; and
(t) Engage in any kind of activity and perform and carry
out contracts of any kind necessary in connection with, or incidental to the
purposes of, the Company, as may be lawfully carried on or performed by a
limited liability company under the laws of each state in which the Company is
then formed or qualified.
4.5 MEETINGS OF THE BOARD OF MANAGERS.
(a) With the exception of those matters hereinafter set
forth in the Act, the vote of the majority of Managers voting together,
represented at a meeting at which a quorum is present, is required for Board
action. A majority of the total number of Managers will constitute a quorum for
the transaction of business. The following matters require the affirmative vote
of the majority of the entire Board, and, by separate vote, the majority of the
Practitioner Managers and the majority of the Hospital Managers (subject to the
limitations of Section 8):
(i) The dissolution, merger or consolidation of the
Company, or the sale, lease, exchange or other
disposition of all or substantially all of the assets
of the Company (each a "Fundamental Change");
(ii) A change in this Agreement;
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(iii) The sale of any shares of MDNY Common Stock owned by
the Company;
(iv) The establishment by the Company of a new line of
business other than the operation of an insurance
company, or the establishment of any subsidiary
(corporate or other) of the Company whose board of
directors (or similar managing body) does not reflect
the same proportion of Practitioner Managers (or their
designees) and Hospital Managers (or their designees)
as the Board of Managers of the Company;
(v) The issuance of additional Membership Interests; except
that (w) Hospital Entities may, without Board approval,
purchase, at unit prices comparable to those paid by
other Members, Membership Interests in order to
maintain or restore the ten percent (10%) ownership
required to preserve the rights and preferences of
Class C Interests as set forth in Section 8 herein; (x)
except that the issuance and sale of additional Class B
Interests to Participating Providers solely in
connection with a proposed expansion of the service
area of MDNY (which expansion has been approved by the
Board of Directors of MDNY) may be approved solely by
the affirmative vote of at least a majority of the
Practitioner Managers, and that the issuance and sale
of additional Class C Interests to Hospital Entities
solely in connection with a proposed expansion of the
service area of MDNY (which expansion has been approved
by the Board of Directors of MDNY) may be approved
solely by the affirmative vote of at least a majority
of the Hospital Managers; and (y) provided, however,
that if, in either case, such sales are made to persons
or entities whose practice or hospital is in a
geographic area in which MDNY has already contracted
for the provision of medical services or hospital
facilities, then a vote of the majority of the entire
Board and a separate vote of the Practitioner Managers
practicing in such geographic area or Hospital Managers
who were designated by the Hospital Entity where
affiliated hospital(s) are located in such geographic
area will be required.
(vi) The Company making any commitment of funds or assets,
including, but not limited to, entering into any
agreement, borrowing or making other financial
arrangements, with a value in excess of $1,000,000
("Major Commitment"); and
(vii) The determination of the amount of any dividends
received from MDNY which shall be distributed to the
Company's Members, which distribution shall be pro rata
in accordance with their Membership Interests.
(viii) Action which would result in any subsidiary of the
Company having, from the total number of its directors
or Managers appointed by the Company, a number of
Health Care Providers and representatives of Hospital
Entities disproportionate to the numbers of such
persons then serving as Managers of the Company.
In addition, (A) the vote of the majority of CHNLI's representatives on the
Board is required to approve any change or amendment to paragraph (b) of Article
II of MDNY's by-laws relating to ethical principles; and (B) any change
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in this Agreement which would alter the rights or privileges of the holders of
any Class or series of any Class of Membership Interests must be approved by a
majority of the Managers who own such Class or series.
(b) If a quorum shall not be present at any meeting of the
Board of Managers, the Managers present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. Regular or special meetings of the Board of Managers
may be held either within or without the State of New York.
(c) The Chairman of the Board, if one is elected by the
Board of Managers, shall preside at all meetings of the Board of Managers and
shall have such other powers and duties as may from time to time be prescribed
by the Board of Managers, based upon written direction given to him pursuant to
resolution duly adopted by the entire Board of Managers and separate majorities
of the Practitioner Managers and Hospital Managers.
(d) Regular meetings of the Board of Managers shall be held
quarterly for the purpose of the transaction of such business as may come before
the meeting. One such meeting shall be held following the Annual Meeting of
Members and at such meeting officers shall be elected. Regular meetings of the
Board may be held without notice at such time and place as shall from time to
time be determined by resolution of the Board of Managers.
(e) Special meetings of the Board of Managers may be called
by the Chairman of the Board or the President and shall be called by the
Secretary on the written request of two (2) Managers. Notice of the time, place
and general nature of the purpose or purposes of a special meeting of the Board
of Managers shall be given to each Manager at least five (5) days before the
date of the meeting.
(f) Attendance of a Manager at any meeting shall constitute
a waiver of notice of such meeting, except where a Manager attends for the
express purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called or convened. Except as may otherwise be
provided by the Act, or by this Agreement, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of Managers
need be specified in the notice or waiver of notice of such meeting.
(g) The majority of the Managers, together with separate
majorities of the Practitioner Managers and the Hospital Managers, may from time
to time designate certain of the Managers to constitute committees, including an
executive committee, which shall in each case consist of such number of
Managers, not less than one, and shall have and may exercise such powers as the
Managers may determine and specify in the respective resolutions appointing
them. A majority of all of the members of any such committee may determine its
action and fix the time and place of any meeting, unless the Managers shall
otherwise direct. The Managers shall have the power at any time to change the
number and the members of any such committee and to discharge any such
committee.
(h) Any action required or permitted to be taken at any
meeting of the Managers or executive committee may be taken without a meeting if
a consent in writing setting forth the actions so taken is signed by all the
Managers or all the members of such committee, as the case may be. If any
action is so taken by the Managers by written consent of less than all of the
Managers, prompt notice of the taking of such action shall be furnished to each
Manager who did not execute such written consent, provided that the
effectiveness of any such action shall not be impaired by any reasonable delay
in giving such notice.
(i) Members of the Board of Managers may participate in a
meeting of the Board by means of conference telephone or similar communications
equipment by means of which all members participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting.
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4.6 ELECTION OF THE BOARD OF DIRECTORS OF MDNY.
(a)(i) The Board of Directors of MDNY shall consist of
eighteen (18) members. Four (4) of the Board members must be enrollees in
MDNY's health care plans, eight (8) members will be Physician Practitioner
Managers of the Company, two (2) members will be other Health Care Providers who
are Practitioner Managers of the Company (together with the Physician
Practitioner Managers, the "Practitioner Directors"), and four (4), subject to
the limitations of Section 8 herein, shall be Hospital Managers of the Company
(the "Hospital Directors"). The Company shall make nominations and cast its
votes as a shareholder of MDNY such that, with the exception of the MDNY
enrollees, Members of MDNY's Board of Directors must be elected from and be
members of the Company's Board of Managers. The Hospital Directors on the MDNY
Board shall be nominated by and from the Hospital Managers of the Company and
the Practitioner Directors on the MDNY Board shall be nominated by and from the
Practitioner Managers of the Company. These Hospital Directors and Practitioner
Directors shall be elected for terms coextensive with their terms as Managers of
the Company.
(ii) Notwithstanding anything to the contrary set forth in
Section 4.6(a)(i), if the holders of a series of Class B Interests or Class C
Interests have elected one or more Practitioner Managers or Hospital Managers,
then at least one Manager elected by the holders of each such series shall be
elected as a Practitioner Director or Hospital Director, as applicable; provided
that if the holders of the Class B-1 Interests or the Class C-1 Interests have
not, for any reason, elected at least one Practitioner Manager or one Hospital
Manager, then a Person nominated by the Designating Practitioner Entity or
Designating Hospital Entity with which such series is associated shall be
elected as a Practitioner Director or Hospital Director, as applicable; and
provided, further, that the numbers and types of Directors provided for in
Section 4.6(a)(i) shall not be changed hereby. If the holders of a series of
Class B Interests or Class C Interests have elected more than one Practitioner
Manager or Hospital Manager, then a majority of the Managers elected by the
holders of such series shall designate which such Manager shall be elected as a
Practitioner Director or Hospital Director, as applicable, in accordance with
the preceding sentence. The remaining Practitioner Directors and Hospital
Directors shall be elected as provided for Section 4.6(a)(i).
(b) In determining the manner in which the Company will vote
its shares of MDNY Common Stock on certain matters, an affirmative vote of the
majority of all the Practitioner Managers and of the majority of all the
Hospital Managers voting separately (subject to the limitations of Section 8),
is required. These matters include, but are not limited to, the following:
(i) A Fundamental Change of MDNY;
(ii) The establishment, modification or change to the
risk-sharing methodology for funding hospital risk
pools, including the percentage of medical
expenses allocated to hospital risk pools and the
nature of items charged against hospital risk
pools;
(iii) Selection, inclusion or termination of hospitals
which are Participating Providers with MDNY or
with an independent Practice Association under
contract to MDNY;
(iv) A Major Commitment by MDNY;
(v) The issuance of additional shares of MDNY Common
Stock, except to the Company;
(vi) The establishment by MDNY of a new line of
business other than a health maintenance
organization, or the establishment of any
subsidiary (corporate or other) of MDNY whose
board of directors (or similar
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governing body) does not reflect the same
proportion of Practitioner Directors (or their
designees) and Hospital Directors (or their
designees) as the Board of Directors of MDNY;
(vii) A change in MDNY's Certificate of Incorporation;
and
(viii) A change in MDNY's by-laws affecting to or
relating to the purpose of MDNY or the selection,
term, termination and qualifications of
individuals comprising the MDNY Board or any
committee thereof; provided further, that any
change to the provision of MDNY's by-laws which
states that MDNY 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 each of
the CHNLI hospitals and/or CHNLI shall not derive
any economic benefit from the sale of such
coverage or from the provision of such services,
shall require the affirmative vote of a majority
of those MDNY Directors that are affiliated with
CHNLI.
In addition, if the matter in question would adversely affect MDNY's providers
or participants in a particular geographic region, the votes of the Practitioner
Directors and Hospital Directors must include the affirmative vote of a majority
of the Directors representing that region; that is, the Directors who are
associated with a Practitioner Entity or Hospital Entity whose associated
practitioners or hospitals operate in such subdivision. For purposes of this
provision, a matter would be deemed to "adversely affect" a geographic
subdivision if the matter involved a policy, financial arrangement or other
determination that would, on its face, treat, affect or otherwise apply to a
geographic subdivision in a different way such that the providers or
participants in such geographic subdivision were materially disadvantaged
thereby.
The Certificate of Incorporation of MDNY shall provide that each of
the matters provided for in this Section 4.6(b) as requiring the separate
majority vote of Practitioner Managers and Hospital Managers for determination
of the manner in which the Company will vote its shares of MDNY stock shall only
be acted upon by the directors of MDNY pursuant to the separate majority vote of
MDNY Practitioner Directors and MDNY Hospital Directors.
(c) Subject to the limitations of Section 8 herein, the
Board of Directors of MDNY, by resolution adopted by a majority of such Board,
shall designate from among its members: (i) a Finance Committee of such Board,
which shall be comprised of three (3) Practitioner Directors and three (3)
Hospital Directors; (ii) a Hospital Selection Committee which shall be comprised
of three (3) Practitioner Directors and three (3) Hospital Directors; (iii) a
Medical Delivery Committee, which shall be comprised of four (4) Hospital
Directors and eight (8) Practitioner Directors; (iv) a Customer Satisfaction
Committee, which shall be comprised of two (2) Practitioner Directors and four
(4) administrative staff representatives of MDNY; and (v) a Marketing and
Product Development Committee which shall be comprised of four (4) Practitioner
Directors and two (2) Hospital Directors. With the exception of the Finance
Committee, each of the foregoing committees of the MDNY Board of Directors shall
act solely in an advisory capacity with respect to the Board of Directors. The
Finance Committee, in addition to any other powers granted to it by resolution
of the MDNY Board of Directors, shall be vested with the authority to (i)
perform a full review of, and to approve, the annual budget of MDNY, and, only
after the budget is approved by the Finance Committee, shall the budget be
submitted to the entire Board of Directors of MDNY, which Board must either
adopt or reject such approved budget in its entirety, provided, however, that
if, after a diligent good faith effort, the Finance Committee shall be
deadlocked over the terms of the budget, the terms of the budget shall be
determined by the entire Board of MDNY and shall only become effective when
approved by a two-thirds (2/3) majority of all directors of MDNY, (ii) report on
the financial condition of MDNY to the MDNY Board, (iii) establish cash
management policy and assure maintenance of adequate reserves for MDNY, (iv)
review rate filing submissions by MDNY, and (v) review and approve any dividend
to be paid by MDNY to the Company.
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(d) MDNY shall undertake to establish a contractual
relationship with and make its network available to Fidelis, a prepaid health
service plan. Fidelis will, in turn, offer to the participating practitioners
and facilities in MDNY the opportunity to participate in its plan and shall
consider entering into other arrangements with MDNY that may be to the mutual
benefit of both parties. MDNY agrees not to establish its own medicaid-only
plan, provided that MDNY is not required, by state or federal law, regulation or
policy to establish its own plan and is not subject to any special tax,
surcharge or other assessment because it has not established its own
medicaid-only plan.
4.7 OTHER MATTERS CONCERNING THE BOARD OF MANAGERS.
(a) The Board of Managers may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, or other
paper or document believed by such members to be genuine and to have been signed
or presented by the proper party or parties.
(b) The Board of Managers may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisors selected by it and any opinion of any such Person as to
matters that the Board of Managers reasonably believes to be within such
Person's professional or expert competence shall be full and complete
justification and protection in respect of any action taken or suffered or
omitted by the Board of Managers hereunder in good faith and in reliance on such
opinion.
(c) The Board of Managers shall have the right, in respect
of any of its powers or obligations hereunder, to act through any of its duly
authorized officers or a duly appointed attorney or attorneys-in-fact. Each
such attorney shall, to the extent provided by the Board of Managers in the
power of attorney, have full power and authority to do and perform all and every
act and duty which is permitted or required to be done by the Board of Managers
hereunder.
4.8 LIMITATIONS ON AUTHORITY. The Board of Managers shall have
no authority to do any act prohibited by law nor shall the Board of Managers
have any authority to:
(a) Do any act in contravention of this Agreement or of the
Certificate of Incorporation of MDNY;
(b) Do any act which would make it impossible to carry on
the ordinary business of the Company;
(c) Possess Company property, or assign rights in specific
Company property, for other than a Company purpose; or
(d) Knowingly perform any act that would subject any Member
or holder of other equity interests to liability as a member of a limited
liability company in any jurisdiction.
4.9 WITHDRAWAL OF MANAGERS. A member of the Board of Managers shall
be deemed to have withdrawn from the position of Manager of the Company upon the
occurrence of any one of the events listed in this Section 4.9 (each such event
herein referred to as an "Event of Withdrawal"):
(a) The Manager voluntarily resigns or retires from the
position of Manager of the Company by giving 20 days' prior written notice to
the Company and to the Board of Managers.
(b) The Manager is removed pursuant to Section 4.10 hereof.
(c) The death of the Manager.
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(d) The insanity of the Manager.
(e) The Manager:
(i) makes a general assignment for the benefit of
creditors;
(ii) files a voluntary bankruptcy petition;
(iii) files a petition or answer seeking for himself a
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any law;
(iv) files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against him in a
proceeding of the type described in paragraphs (i) through (iii) of this
subsection; or
(v) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of all or any substantial part
or his properties.
(f) A final and non-appealable judgment is entered by a
court with appropriate jurisdiction ruling that the Manager is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the Manager, in each case under any
federal or state bankruptcy or insolvency laws as now or hereafter in effect.
(g) The withdrawal of the Manager as a Member pursuant to
Section 6.4 hereof.
If an Event of Withdrawal specified in subsections (e) or (f) of this Section
4.9 occurs, the withdrawing Manager shall give written notice to the other
Managers within 30 days after such occurrence. Only the Events of Withdrawal
described in this Section 4.9 shall result in withdrawal of a Manager from such
position. The withdrawal of a Manager will result in a vacancy to be filled in
the manner set forth in Section 4.3.
4.10 REMOVAL OF A MANAGER. A member of the Board of Managers may
be removed for cause by the vote of a majority of the Company's Voting
Interests. Any or all of the Managers may be removed without cause solely by
action of the holders of a majority of the series of Class B Interests or Class
C Interests associated with the Designating Practitioner Entity or Designating
Hospital Entity which nominated such Manager or Managers; provided, however,
that if less than all of the Managers nominated by such Designating Practitioner
Entity or Designating Hospital Entity are to be removed, no such individual
Manager may be removed if the Class B Interests or Class C Interests, as
applicable, voted against his removal would be sufficient to elect him if voted,
in such manner as would have been permissible under the governing instruments of
such Designating Practitioner Entity or Designating Hospital Entity at an
election at which (i) the same total number of votes were cast as at the vote on
removal and (ii) the entire number of Managers which the Designating
Practitioner Entity or Designating Hospital Entity is entitled to nominate were
being elected. Any removal pursuant to this Section 4.10 shall not affect the
Membership Interest in the Company owned by the removed Manager or otherwise
constitute the Manager's withdrawal as a Member. The removal of a Manager will
result in a vacancy to be filled in the manner set forth in Section 4.3.
4.11 OFFICERS. One or more individuals, including any Manager,
may be appointed by the Board of Managers as officers of the Company. Such
individuals shall have such titles and exercise and perform such powers and
duties as shall be assigned to them from time to time by the Board of Managers.
Officers appointed by the Board of Managers shall have such authority to bind
the Company as the Board of Managers shall determine. The officers shall not be
obligated to devote their time exclusively to the business of the Company. Any
officer may be removed by the Board of Managers at any time, with or without
cause. Each officer shall hold office until his
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or her successor is selected by the Board of Managers and qualified. Any number
of offices may be held by the same individual. The salaries and other
compensation of the officers shall be fixed by the Board of Managers.
4.12 COMPENSATION; EXPENSES. In the event that any Member
(including any Manager) performs services on behalf of the Company, such Member
shall receive such fees, salary, and commissions and shall be reimbursed for any
reasonable direct expenses incurred in connection with the Company's business as
the Board of Managers may determine.
4.13 CONSENT OF MEMBERS. To the fullest extent permitted by law,
the Members hereby consent to the exercise by the Board of Managers of the
powers conferred on them by this Agreement.
4.14 THIRD PARTY RELIANCE. Any Person dealing with the Company
as to any matter may rely solely on written advice from the Board of Managers
and such Person shall not be required to determine or inquire into the authority
or power of the Board of Managers to bind the Company or to execute, acknowledge
or deliver any and all documents in connection therewith. As to the authority
of the Board of Managers to act on behalf of the Company and as between the
Company or the Board of Managers, on the one hand, and such other Person, on the
other hand, the facts stated in any such written advice from the Managers will
be conclusive and binding on the Company and the Board of Managers.
4.15 LIMITATIONS ON LIABILITY; INDEMNIFICATION AND CONTRIBUTION.
(a) No Manager or officer of the Company shall be
personally liable, responsible or accountable in damages or otherwise to the
Company or any of the Members for any act or omission performed or omitted by
him in such capacity, or for any decision made in such capacity, except in the
case of a judgment or other final adjudication that establishes that his acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that with respect to a
distribution the subject of Section 508(a) of the Act, his acts were not
performed in accordance with Section 409 of the Act. For purposes of this
Section 4.15, the fact that an action, omission to act or decision is taken on
the advice of counsel for the Company shall be evidence of good faith and lack
of fraudulent conduct.
(b) The Company shall indemnify and hold harmless the Board
of Managers, the officers, employees and agents of the Company (individually, an
"Indemnitee") from and against any and all, joint and several, losses, claims,
demands, costs, damages, liabilities, expenses of any nature (including
attorneys' fees and disbursements), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which an Indemnitee may be
involved, or threatened to be involved, as a party or otherwise ("Liabilities"),
arising out of, in connection with or incidental to the business of the Company
including all liabilities under the Federal and state securities laws as
permitted by law, regardless of whether an Indemnitee continues to be a Manager,
or an officer, employee or agent of the Company, at the time any such liability
or expense is paid or incurred, if a judgment or other final adjudication
adverse to such Indemnitee establishes that (i) the Indemnitee's acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or (ii) the Indemnitee
personally gained in fact a financial profit or other advantage to which he was
not legally entitled. The termination of any action, suit or proceeding by
settlement or upon a plea of nolo contendere, or its equivalent, shall not, in
and of itself, create a presumption or otherwise constitute evidence that the
Indemnitee's actions constituted active or deliberate dishonesty, bad faith,
intentional misconduct, a knowing violation of law or that he gained a financial
profit or other advantage to which he was not legally entitled.
(c) Expenses (including legal fees and expenses) incurred
in defending any proceeding subject to subsection (a) of this Section 4.15 shall
be paid by the Company in advance of the final disposition of such proceeding
upon receipt of an undertaking (which need not be secured) by or on behalf of
the Indemnitee to repay
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such amount if it shall ultimately be determined, by a court of competent
jurisdiction or otherwise, that the Indemnitee is not entitled to be indemnified
by the Company as authorized hereunder.
(d) The indemnification provided in this Section 4.15 shall
be in addition to any other rights to which each Indemnitee may be entitled
under any agreement or vote of the Members, as a matter of law or otherwise, and
shall inure to the benefit of the heirs, successors, assigns, administrators and
personal representatives of the Indemnitee. Such indemnification, however,
shall only apply to Liabilities incurred by virtue of the Indemnitee's status as
a Manager, or officer, employee or agent of the Company, and not as to
Liabilities incurred in other capacities (for example, by virtue of contracting
with the Company).
(e) The Company may purchase and maintain insurance on
behalf of any one or more Persons against any Liabilities which may be asserted
against or expense which may be incurred by such Persons in connection with the
Company's activities, whether or not the Company would have the power to
indemnify such Person against such Liability under the provisions of this
Agreement.
(f) Any indemnification hereunder shall be satisfied only
out of the assets of the Company and no Member shall be subject to personal
liability by reason of these indemnification provisions.
(g) An Indemnitee shall not be denied indemnification in
whole or in part under this Section 4.15 because the Indemnitee had an interest
in the transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 4.15 are for the benefit
of the Indemnitees and the heirs, successors, assigns, administrators and
personal representatives of the Indemnitees and shall not be deemed to create
any rights for the benefit of any other Persons.
(i) Any Indemnitee that proposes to assert the right to be
indemnified under this Section 4.15 shall, promptly after receipt of notice of
any action which may be subject to indemnification hereunder, notify the Company
of the commencement of such action, enclosing a copy of all papers served. The
failure so to notify the Company of any such action shall not relieve it from
any liability that it may have to any Indemnitee hereunder, unless such
Indemnitee is prejudiced thereby. In case any such action shall be brought and
notice given to the Company of the commencement thereof, the Company shall be
entitled to participate in, and to assume the defense thereof, with counsel
reasonably satisfactory to the Indemnitee, and after notice from the Company to
such Indemnitee of its election so to assume the defense thereof, the Company
shall not be liable to such Indemnitee for any legal or other expenses except as
provided below and except for the reasonable costs of investigation subsequently
incurred by such Indemnitee at the request of the Company in connection with the
defense thereof. The Indemnitee shall have the right to employ separate counsel
and to participate in (but not control) any such action, but the fees and
expenses of such counsel shall be the expense of such Indemnitee unless (i) the
employment of counsel by such Indemnitee has been authorized by the Board of
Managers, (ii) the employment of separate counsel is necessitated by a
conflicting interest among Indemnitees, or (iii) the Company shall not in fact
have employed counsel to assume the defense of such action. In each case, the
fees and expenses of counsel shall be at the expense of the Company. The
Company shall not be liable for any settlement of any action or claims effected
without its written consent unless the Company has failed to assume the defense
of any such action or claims.
(j) If the indemnification provided for in this Section
4.15 is found to be unenforceable or is unavailable to the Indemnitee for any
reason whatsoever, the Company, in lieu of indemnifying the Indemnitee, shall
contribute to the amount incurred by the Indemnitee, whether for expenses,
judgments, fines, taxes, penalties and amounts paid in settlement in connection
with any action, suit or proceeding, in such proportion as is deemed fair and
reasonable in light of all the circumstances of such action by Board action,
arbitration or by the court before which such action was brought in order to
reflect (i) the relative benefits received by the Company and the Indemnitee as
a result of the event(s) and/or transaction(s) giving cause to such action;
and/or (ii) the relative
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faults of the Company (and its Managers, officers, Members, employees and
agents) and the Indemnitee in connection with such event(s) or transaction(s).
Section 5
ACCOUNTING, BOOKS AND RECORDS
5.1 ACCOUNTING, BOOKS AND RECORDS. The Company shall maintain at
its principal place of business separate books of account for the Company which
shall show a true and accurate record of all costs and expenses incurred, all
charges made, all credits made and received, and all income derived in
connection with the conduct of the Company and the operation of its business in
accordance with generally accepted accounting principles consistently applied.
Any Member or his designated representative shall have the right, at any
reasonable time, upon written request stating the purpose for such inspection,
to have access to and inspect and copy the contents of such books or records.
The Company shall file the Annual Reports required to be filed by the New York
Intrastate Financing Act with the Department of Law and mail a copy of this
Annual Report to the Members of the Company.
5.2 REPORTS. The Board of Managers shall be responsible for the
preparation of financial reports and tax and information returns of the Company
and the coordination of financial matters of the Company with the Company's
accountants. The Board of Managers shall ensure that the Company complies with
the reporting requirements of the Securities and Exchange Act of 1934, as
amended, and that within 90 days after the close of the Company's fiscal year,
the Company mails to each Member an annual report of its independent public
accountants containing audited financial statements of the Company.
Section 6
WITHDRAWAL OR OTHER TERMINATION OF PARTICIPATION
IN A PRACTICE ASSOCIATION
6.1 WITHDRAWAL OR TERMINATION. In the event (i) an individual
who is a Member withdraws from or otherwise ceases to be a member of a Practice
Association for any reason other than death or retirement; or (ii) a
Participating Practice with which such Member is associated becomes bankrupt,
dissolves or liquidates or ceases to be a member of a Practice Association for
any reason; or (iii) there is a suspension for more than 60 days of the hospital
services to MDNY promoted or sponsored by a Member; or (iv) a Member is
associated with a Practice Association whose contract with MDNY terminates; or
(v) the contract between MDNY and a Member or the contract between MDNY and a
Hospital Entity with which a Member is associated, for hospital services
promoted or sponsored by such Member or Hospital Entity is terminated, then, in
each such event, the Company shall have the right but not the obligation, to
purchase that Member's Membership Interests, in whole or in part.
Notwithstanding the foregoing, the Company shall not have the right to purchase
the Membership Interests of a Member if the event which would otherwise give
rise to such right is the transfer by a Member or a Hospital Entity with which
such Member is associated, of his or its Class C Interests to a Hospital Entity
approved by the Board of Managers, and such transferred Class C Interests shall
continue to be Class C Interests when owned by the transferee. Except as set
forth in the previous sentence, upon the occurrence of an event giving rise to
the Company's purchase rights hereunder, the affected Member's Voting Interest
shall automatically be converted into Class A Interests. The Member must
provide the Company with a writing (a "Notice") addressed to the Company's
President. The Notice shall be deemed to be an offer to sell that Member's
entire Membership Interest at a purchase price equal to the value of an Interest
determined by the Company's independent certified public accountants or an
independent consultant appointed by the Company at the end of the most recent
fiscal year completed prior to the date of the Member's offer to sell his
Membership Interest. The Company's right of purchase may be exercised in whole
or in part. In the event the Company shall decline to purchase any or all of a
Member's Membership Interests (or fail to respond) within ten (10) days after
receipt of the Notice, then subject to the provisions of this Agreement,
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the Member may offer any remaining Membership Interests to another member of a
Practice Association. In such event, however, any Voting Interest shall
automatically be converted into a Class A Interest. In the event a
Participating Provider that is a member of a Participating Practice withdraws
from a Practice Association but the Participating Practice is able to maintain
its membership in the Practice Association, and the Company does not purchase
any or all of his Membership Interests, he may sell his Membership Interests to
other members of the Participating Practice. If the purchaser is a Member
owning Voting Interests, the Voting Interest sold will automatically be
converted into Class A Interests.
7 DEATH OF A MEMBER. Upon the death of an individual Member,
the decedent's estate shall have two years from the date of death within which
to sell such decedent's medical practice or interest in a group practice. Once
the estate has secured a purchaser for the practice, such purchaser shall have
the right to join the appropriate Practice Association and purchase all of the
estate's Membership Interests upon satisfying the credentialing criteria of the
Practice Association. If after the passage of two years, either the estate has
been unable to find a purchaser of the decedent's practice, or if during the
two-year period, the estate finds a purchaser who either does not qualify for
participation in the appropriate Practice Association or does not want to
participate in the appropriate Practice Association, the Company shall have the
right, but not the obligation, to purchase the estate's Membership Interests, in
whole or in part. The Company's right to purchase the Membership Interests
shall be exercised in the same manner as that set out in Section 6.1 herein.
In the event the Company chooses not to purchase any or all of the
estate's Membership Interests, the estate may offer and sell the Membership
Interests to another Member of the Company. In such event, however, each Class
B Membership Interest shall be automatically converted into one Class A
Membership Interest to maintain the one Member-one vote structure. An estate of
a Member who was a member of a Participating Practice may then sell the
Membership Interests to the other members of the Participating Practice who are
Participating Providers, provided, however, that if any such Person becomes the
owner of more than one Class B Membership Interest, such excess will be
converted to Class A Membership Interests.
7.1 RETIREMENT OF A MEMBER. Upon the retirement of an individual
Member from his practice, the Member has three options: (i) request that his
Voting Interest be converted into a Class A Interest, in which case he can
continue to hold all of his Membership Interests, or (ii) sell the Membership
Interests owned by him to a Participating Provider who is already a Member of
the Company, provided, that his Class B Membership Interest sold shall be
automatically converted into a Class A Interest, or (iii) within two years of
the date of his retirement, find a purchaser for his practice or his interest in
his group practice and sell his Membership Interest to the purchaser of such
practice or Interest, subject to the purchaser joining the appropriate Practice
Association, satisfying the credentialing criteria of the Practice Association
and obtaining the consent of the Board of Managers. In the event such purchaser
is a Participating Provider in a Practice Association, any Class B Membership
Interest sold shall be automatically exchanged for one Class A Membership
Interest.
7.2 TRANSFER OF MEMBER'S INTEREST IN REGIONAL HOLDING COMPANIES.
In the event the interests of a Member in a regional holding company, including
HVPH, LIPH and QPH, are transferred, sold, assigned, etc. this transfer shall be
deemed a withdrawal from the Company by such Member and such Member's Membership
Interests will be subject to the provisions of Section 6.1.
7.3 EFFECTIVE DATE. Any admission of a Member pursuant to
Section 3.1, Section 3.4 or this Section 6 shall be deemed effective as of the
last day of the calendar month in which such admission occurs.
7.4 LIMITATION ON TRANSFER. No Member may sell, assign, transfer
or otherwise in any way dispose of all or any part of a Membership Interest or
any interest therein or grant or create any security interest in or lien, claim
or other encumbrance of any kind in a Membership Interest, whether voluntarily
or involuntarily, by operation of law or otherwise, except as expressly provided
in this Agreement
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<PAGE>
or as authorized by the Board of Managers. Any disposition or encumbrance of a
Membership Interest otherwise than as provided in this Agreement shall be void
AB INITIO, and the Company shall not reflect the same in its records or
otherwise recognize or give effect thereto.
Section 8
DISSOLUTION AND WINDING UP
8.1 LIQUIDATING EVENTS. The Company shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following
("Liquidating Events"):
(a) the expiration of the term provided in Section 1.5;
(b) the sale of all or substantially all of the Company's
assets;
(c) the vote of the Managers required under Section
4.5(a)(i) followed by the vote of at least seventy-five percent (75%) of the
then issued and outstanding Voting Interests including a majority of each class
of Voting Interests to dissolve, wind up, and liquidate the Company;
(d) the happening of any other event that makes it unlawful,
impossible, or impractical to carry on the business of the Company; or
(e) the entry of a decree of judicial dissolution under
Section 702 of the Act.
The Members hereby agree that: (i) the bankruptcy, death, dissolution,
expulsion, incapacity or withdrawal of any Member shall not constitute a
Liquidating Event, and (ii) notwithstanding any provision of the Act, the
Company shall not dissolve prior to the occurrence of a Liquidating Event.
8.2 WINDING UP. Upon the occurrence of a Liquidating Event, the
Company shall continue solely for the purposes of winding up its affairs in an
orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Members and no Member shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the Company's
business and affairs. To the extent not inconsistent with the foregoing, all
covenants and obligations in this Agreement shall continue in full force and
effect until such time as the Company property has been distributed pursuant to
this Section 7.2 and the Articles of Organization have been cancelled in
accordance with the Act. The President of the Company, under the direction of
the Board of Managers, shall be responsible for overseeing the winding up and
dissolution of the Company, shall take full account of the Company's liabilities
and property, shall cause the Company's property to be liquidated as promptly as
is consistent with obtaining the fair value thereof unless the Members
unanimously consent to Distributions of all or any part of the property in kind,
and shall cause the property or the proceeds therefrom, to the extent sufficient
therefor, to be applied and distributed in the following order:
(a) first, to the payment and discharge of all of the
Company's debts and liabilities to creditors including Members (to the extent
permitted by applicable law); and
(b) the balance, if any, among the Members in proportion to
their respective percentage ownership of Membership Interests.
8.3 RIGHTS OF MEMBERS. Except as otherwise provided in this
Agreement, (a) each Member shall look solely to the assets of the Company for
the return of his Capital Contribution and shall have no right or power to
demand or receive property other than cash from the Company, and (b) no Member
shall have priority over any other Member as to the return of his Capital
Contributions or the payment of Dividends by the Company.
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<PAGE>
Section 9
MODIFICATION OF RIGHTS AND PREFERENCES OF CLASS C INTERESTS
Notwithstanding anything to the contrary herein, if, after notice from
the Company that the Hospital Entities have ceased to own or be contractually
committed to acquire an aggregate of 10% of the outstanding equity interest in
the Company, the Hospital Entities shall fail to acquire sufficient additional
equity interests in the Company within one year thereafter so as to own or be
contractually committed to acquire an aggregate of not less than 10% of the
outstanding equity interest in the Company, then: (i) all rights and
preferences conferred on the Hospital Entities holding Class C Interests by the
following Sections of this Agreement shall be eliminated: Section 4.2; Section
4.3; Section 4.5(a); Section 4.6(a); Section 4.6(b); and Section 4.6(c), except
that as long as CHNLI has any Membership Interests in the Company it shall
retain the right to prevent any change to the provisions of MDNY's by-laws which
state that MDNY 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 each of the CHNLI hospitals and/or CHNLI shall not
derive any economic benefit from the sale of such coverage from the provision of
such services; and Section 4.10; (ii) the number of total seats on the Board of
Managers of the Company shall be reduced to twenty-one (21); and, (iii) Class C
Interests shall have the same voting rights as Class B Interests.
Section 10
GENERAL PROVISIONS
10.1 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified, or supplemented only by the Board of Managers pursuant to a
supermajority vote required by Section 4.5(a)(ii).
10.2 WAIVER OF COMPLIANCE. Any failure of a party to comply with
any obligation, covenant, agreement, or condition herein may be waived by the
other parties; provided, however, that any such waiver may be made only by an
instrument signed by the party(ies) granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement, or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
10.3 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the Company's Members and
their respective successors and permitted assigns. No party may assign any of
his rights hereunder except in accordance with the terms hereof. Nothing in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon any person other than the parties hereto, any successors and
permitted assigns, any rights, remedy, or claim under or by reason of this
Agreement or any provisions herein contained.
10.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (without regard
to its conflicts of law doctrines).
10.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument and shall become a binding
Agreement when one or more of the counterparts have been signed by each of the
parties and delivered to the other parties.
10.6 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given by registered or
certified mail (return receipt requested), by Federal Express or any other
generally recognized overnight delivery service, receipt acknowledged, or by
hand, to the parties at the addresses stated above (or at such other address for
a party as shall be specified by like notice).
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<PAGE>
10.7 SEVERABILITY. If any one or more provisions contained in
this Agreement shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal, or unenforceable provision had never
been contained herein.
IN WITNESS WHEREOF, the undersigned Member-Managers have duly executed
this Agreement as of the day and year first above written.
----------------------------------------
Paul Kolker, M.D.
----------------------------------------
David J. Weissberg, M.D.
Class A Members
By:
-------------------------------------
Attorney-in-Fact
Class A and B-1 Members
By:
-------------------------------------
Attorney-in-Fact
Class A and B-2 Members
By:
-------------------------------------
Attorney-in-Fact
Class A and B-3 Members
By:
-------------------------------------
Attorney-in-Fact
Class A and C-1 Members
By:
-------------------------------------
Attorney-in-Fact
<PAGE>
EXHIBIT E
FORM OF
SECOND CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
LONG ISLAND PHYSICIAN HOLDINGS CORPORATION
Under Section 805 of the Business Corporation Law
The undersigned, being the [PRESIDENT OR VICE-PRESIDENT] and
Secretary, respectively, of Long Island Physician Holdings Corporation, a New
York corporation (the "Corporation"), for the purpose of amending the Company's
Certificate of Incorporation pursuant to Section 805 of the Business Corporation
Law of the State of New York, does hereby certify:
1. The name of the Corporation is Long Island Physician Holdings
Corporation. The Corporation was originally incorporated as LIPH, Inc.
2. The Certificate of Incorporation of the Corporation was filed by
the Secretary of State of the State of New York on October 11, 1994. The
Certificate of Incorporation was amended pursuant to a Certificate of Amendment
filed on December 19, 1994.
3. The Certificate of Incorporation of the Corporation, as amended,
is hereby amended to provide for an increase in the aggregate number of shares
of common stock the Company is authorized to issue by authorizing a new class of
common stock. The Corporation is authorized to issue Twelve Million Five
Hundred Thousand (12,500,000) shares of common stock, par value $.001 per share,
Two Million Five Hundred Thousand (2,500,000) of which shares are designated
Class A Common Stock with full voting rights and Ten Million (10,000,000) of
which shares are designated Class B Common Stock with no voting rights. This
amendment to the Corporation's authorized capital shall be effected by changing
12,500,000 shares of the Corporation's authorized common stock to 15,000,000
shares, 2,500,000 of which shares shall be designated Class C Common Stock, par
value $.001 per share, with voting rights except that holders of the Class C
Common Stock may not vote in the election of the Corporation's Board of
Directors.
The Corporation's Certificate of Incorporation is hereby amended to
reflect the foregoing by deleting paragraph 4 of the Certificate of
Incorporation of the Corporation in its entirety and substituting the following
in lieu thereof:
"4. The aggregate number of shares which the Corporation shall have
authority to issue is Fifteen Million (15,000,000) shares consisting of:
(i) 2,500,000 shares of Class A Common Stock, par value
$.001 per share (the "Class A Common Stock"), all of which shares shall
have full voting rights; and
(ii) 10,000,000 shares of Class B Common Stock, par value
$.001 per share (the "Class B Common Stock") none of which shares shall
have any voting rights; and
(iii) 2,500,000 shares of Class C Common Stock, par value
$.001 per share (the "Class C Common Stock"), all of which shares shall
have voting rights except the right to vote for the election of the
Corporation's Board of Directors.
<PAGE>
In all other respects except voting, the shares of Class A Common
Stock, Class B Common Stock and Class C Common Stock shall be identical."
4. The foregoing amendment to the Certificate of Incorporation of
the Corporation was authorized by the Board of Directors of the Corporation
followed by the affirmative vote of the holders of a majority of the issued and
outstanding shares of the Class A Common Stock and a majority of the issued and
outstanding shares of the Class B Common Stock, present in person or represented
by proxy at the Annual Meeting of the Company's Shareholders.
5. The Certificate of Incorporation of the Corporation, as amended,
is hereby amended to eliminate preemptive rights currently available to the
Corporation's shareholders. The Corporation's Certificate of Incorporation is
hereby amended to reflect the foregoing by adding a new paragraph 6 to the
Certificate of Incorporation as follows:
"6. No holder of any class of common stock of the Corporation shall
be entitled to any preemptive rights to purchase any capital
stock of the Corporation or to acquire any option, warrant, right
or other instrument (including debt instruments) entitling the
holder thereof to acquire any capital stock of this Corporation
upon the exercise, conversion or exchange thereof or otherwise."
6. The foregoing amendment to the Certificate of Incorporation of
the Corporation was authorized by the Board of Directors of the Corporation
followed by the affirmative vote of the holders of a majority of the issued and
outstanding shares of the Class A Common Stock and a majority of the issued and
outstanding shares of the Class B Common Stock, present in person or represented
by proxy at the Annual Meeting of the Corporation's Shareholders.
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<PAGE>
EXHIBIT F
New York Business Corporation Law
Section 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES.
(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which
term as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares,
as to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such nominee
or fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid the
fair value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of
election must be accompanied by the return to the corporation of any advance
payment made to the shareholder as provided in paragraph (g). If a notice of
election is withdrawn, or the corporate action is rescinded, or a court shall
determine that the shareholder is not entitled to receive payment for his
shares, or the shareholder shall otherwise lose his dissenter's rights, he shall
not have the right to receive payment for his shares and he shall be reinstated
to all his rights as a shareholder as of the consummation of the corporate
action, including any intervening preemptive rights and the right to payment of
any intervening dividend or other distribution or, if any such rights have
expired or any such dividend or distribution other
<PAGE>
than in cash has been completed, in lieu thereof, at the election of the
corporation, the fair value thereof in cash as determined by the board as of the
time of such expiration or completion, but without prejudice otherwise to any
corporate proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or within
one month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate
bearing such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within
which shareholders may file their notices of election to dissent, or within
fifteen days after the proposed corporate action is consummated, whichever is
later (but in no case later than ninety days from the shareholders'
authorization date), the corporation or, in the case of a merger or
consolidation, the surviving or new corporation, shall make a written offer by
registered mail to each shareholder who has filed such notice of election to pay
for his shares at a specified price which the corporation considers to be their
fair value. Such offer shall be accompanied by a statement setting forth the
aggregate number of shares with respect to which notices of election to dissent
have been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the certificates
representing his shares to the corporation, as provided in paragraph (f), of an
amount equal to eighty percent of the amount of such offer, or (2) as to each
shareholder who has not yet submitted his certificates a statement that advance
payment to him of an amount equal to eighty percent of the amount of such offer
will be made by the corporation promptly upon submission of his certificates.
If the corporate action has not been consummated at the time of the making of
the offer, such advance payment or statement as to advance payment shall be sent
to each shareholder entitled thereto forthwith upon consummation of the
corporate action. Every advance payment or statement as to advance payment
shall include advice to the shareholder to the effect that acceptance of such
payment does not constitute a waiver of any dissenters' rights. If the
corporate action has not been consummated upon the expiration of the ninety day
period after the shareholders' authorization date, the offer may be conditioned
upon the consummation of such action. Such offer shall be made at the same
price per share to all dissenting shareholders of the same class, or if divided
into series, of the same series and shall be accompanied by a balance sheet of
the corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such balance
sheet or profit and loss statement or statements were previously furnished, not
if in connection with obtaining the shareholders' authorization for or consent
to the proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
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<PAGE>
(h) The following procedure shall apply if the corporation fails to
make such offer within such period of fifteen days, or if it makes the offer and
any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last mentioned,
institute a special proceeding in the supreme court in the judicial district in
which the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in the
case of merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this state, such proceeding shall be brought in
the county where the office of the domestic corporation, whose shares are to be
valued, was located.
(2) If the corporation fails to institute such proceeding within
such period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the expiration
of such twenty day period. If such proceeding is not instituted within such
thirty day period, all dissenter's rights shall be lost unless the supreme
court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation upon the price to be
paid for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the
corporation does not request any such determination or if the court finds that
any dissenting shareholder is so entitled, it shall proceed to fix the value of
the shares, which, for the purposes of this section, shall be the fair value as
of the close of business on the day prior to the shareholders' authorization
date. In fixing the fair value of the shares, the court shall consider the
nature of the transaction giving rise to the shareholder's right to receive
payment for shares and its effects on the corporation and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging in a
similar transaction under comparable circumstances and all other relevant
factors. The court shall determine the fair value of the shares without a jury
and without referral to an appraiser or referee. Upon application by the
corporation or by any shareholder who is a party to the proceeding, the court
may, in its discretion, permit pretrial disclosure, including, but not limited
to, disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law and
rules.
(5) The final order in the proceeding shall be entered against
the corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the corporate action
was consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of interest
which the corporation would have had to pay to borrow money during the pendency
of the proceeding. If the court finds that the refusal of any shareholder to
accept the corporate offer of payment for his shares was arbitrary, vexatious or
otherwise not in good faith, no interest shall be allowed to him.
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<PAGE>
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and fees
incurred by the corporation against any or all of the dissenting shareholders
who are parties to the proceeding, including any who have withdrawn their
notices of election as provided in paragraph (e), if the court finds that their
refusal to accept the corporate offer was arbitrary, vexatious or otherwise not
in good faith. The court may, in its discretion, apportion and assess all or
any part of the costs, expenses and fees incurred by any or all of the
dissenting shareholders who are parties to the proceeding against the
corporation if the court finds any of the following: (A) that the fair value of
the shares as determined materially exceeds the amount which the corporation
offered to pay; (B) that no offer or required advance payment was made by the
corporation; (C) that the corporation failed to institute the special proceeding
within the period specified therefor; or (D) that the action of the corporation
in complying with its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any determination as
provided in clause (A), the court may consider the dollar amount or the
percentage, or both, by which the fair value of the shares as determined exceeds
the corporate offer.
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder the amount
found to be due him, upon surrender of the certificates for any such shares
represented by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event
be deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and,
if it is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders, and if
it is not liquidated, retain his right to be paid for his shares, which right
the corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except that
this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
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<PAGE>
(l) Except as otherwise expressly provided in this section, any
notice to be given by a corporation to a shareholder under this section shall be
given in the manner provided in section 605 (Notice of meetings of
shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations).
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