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PROSPECTUS SUPPLEMENT NO. 6 FILED PURSUANT TO RULE 424(B)(3)
TO THE PROSPECTUS DATED JANUARY 24, 1997, REGISTRATION NO.: 333-1926
AS SUPPLEMENTED TO DATE
OPTION TO PURCHASE
33,000 SHARES
OF
CLASS B COMMON STOCK
This Prospectus Supplement relates to the issuance by Doctors Health
System, Inc., a Maryland corporation ("Doctors Health") of an Option (the
"Option") to purchase 33,000 shares of its Class B Common Stock par value $.01
per share ("the Class B Common Stock") pursuant to Option Agreement (the
"Option Agreement") to be entered into among Steven J. Adashek ("Physician") and
Doctors Health. This Prospectus Supplement should be read in conjunction with
the Prospectus dated January 24, 1997 and the Prospectus Supplement No. 1 dated
March 14, 1997 which contains the Company's Quarterly Report on Form 10-Q for
the period ended December 31, 1996.
Doctors Health's principal executive office is located at 10451 Mill Run
Circle, Tenth Floor, Owings Mills, Maryland 21117, telephone number (410)
654-5800.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER OF ANY
PERSON TO EXCHANGE OR SELL, OR A SOLICITATION FROM ANY PERSON OF AN OFFER TO
EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT FROM
ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS SUPPLEMENT RELATES SHALL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
THEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________
See "Risk Factors" referred to on page S-2 hereof for certain information
that should be considered in connection with an investment in securities of
Doctors Health.
The date of this Prospectus Supplement is March 26, 1997.
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RISK FACTORS
FINANCIAL PERFORMANCE OF DOCTORS HEALTH
Doctors Health has a limited operating history and for the fiscal year
ended June 30, 1996 and the six months ended December 31, 1996, recorded a net
loss of approximately $6.6 million and $6.7 million, respectively. Doctors
Health is likely to record a net loss for the fiscal year ending June 30, 1997.
There can be no assurance that after the competion of this transaction Doctors
Health will earn operating profits.
RISK FACTORS SET FORTH IN THE PROSPECTUS DATED JANUARY 24, 1997
The Risk Factors set forth in the Prospectus are incorporated herein by
reference and should be read carefully by investors.
PROPOSED OPTION AGREEMENT AMONG DOCTORS HEALTH AND STEVEN J. ADASHEK
The following description of the transactions contemplated by the Option
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Option Agreement, a copy of which is attached to this
Prospectus Supplement as Annex A and is incorporated herein. Physician is urged
to read the Option Agreement in its entirety.
VESTING
The Option shall vest and be exercisable upon the earlier to occur of March
2, 2002 or, if earlier, upon Physician's death or upon the occurrence of a
change in control of Doctors Health, unless the Option has earlier terminated
pursuant to the provisions of the Option Agreement.
GENERAL
Pursuant to the Option Agreement, Doctors Health has granted to Physician
an option to purchase 33,000 shares of Doctors Health Class B Common Stock for
an exercise price of $.01 per share.
TERMINATION
Options granted to Physician shall terminate with respect to any shares of
Class B Common Stock as to which the Option has not been exercised effective on
the date Physician is no longer employed by Doctors Health or an affiliate of
Doctors Health for any reason other than Physician's death or Disability (as
defined in Physician's employment agreement with Doctors Health dated March 1,
1997.
TAX LIABILITY ADVANCE
The Physician and Doctors Health understand that issuance of the Option is
not a taxable event. However, because the Internal Revenue Service may take a
different view, the Option Agreement provides that Doctors Health shall advance
the Physician sufficient funds (the "Advance") to pay any federal income tax
liability (the "Tax") caused by the issuance of the Option if the Internal
Revenue Service determines that the Physician received taxable income solely
because of the grant of the Option with an Option Price discounted from the fair
market value of the Class B Common Stock. Doctors Health's obligation shall
apply only if such Tax is incurred at a time when Physician's shares of DHS
Common Stock are NOT registered under Section 12 of the Securities Exchange Act
of 1934, as amended. Physician agrees to cooperate fully with Doctors
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Health to avoid the institution of any tax on the grant of the Option. Doctors
Health shall manage, at its expense, all negotiations, proceedings or litigation
deemed necessary by Doctors Health to avoid such tax liability. Physician shall
repay the Advance and accrued interest at the applicable federal rate for mid-
term investments, on the earlier to occur of (i) termination of Physician's
employment; (ii) a sale of all or a portion of such shares to a third party; or
(iii) within thirty days following the completion of a public offering of DHS's
securities registered under Section 12 of the Securities Exchange Act of 1934
which includes Physician's shares. Physician shall grant Doctors Health a
security interest in the shares to secure repayment of the Advance.
RESALE OF OPTION AND CLASS B COMMON STOCK
The Option and the Shares offered by this Prospectus Supplement have been
registered under the Securities Act. The shares issuable upon exercise of the
Option will be subject to the Stockholders Agreement attached hereto as Annex B
and therefore, will not be freely transferable. The Option is nontransferable.
In addition, there is no public market for the Option or the Class B Common
Stock.
LEGAL MATTERS
The validity of the Class B Common Stock offered hereby have been passed
upon for the Company by Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
ANNEXES
Annex A - Option Agreement between Doctors Health System, Inc. and Steven
J. Adashek.
Annex B - Stockholders Agreement dated January 31, 1997 (delivered to
Physician as Prospectus Supplement No. 2)
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ANNEX A
DOCTORS HEALTH SYSTEM, INC.
OPTION AGREEMENT
This Option Agreement (the "Option Agreement") is entered into this
___ day of March, 1997, by and between Doctors Health System, Inc., a Maryland
corporation ("DHS"), and Steven J. Adashek, M.D. ("Optionee").
RECITALS:
1. DHS has registered certain shares of its Class B Common Stock,
par value $.01 per share ("Class B Common Stock") and options to acquire Class B
Common Stock ("Options") with the Securities and Exchange Commission ("SEC") and
with certain applicable states.
2. Pursuant to such registration, DHS is offering of some or all of
such registered securities (the "Offering"), the terms of which are set forth in
a Prospectus and a Prospectus Supplement (together referred to herein as the
"Prospectus") that are part of the registration statement on Form S-1 filed with
the SEC (the "Registration Statement").
3. Optionee desires to acquire the securities offered pursuant to
the terms of the Offering and, in connection therewith has executed an
Employment Agreement with WomanCare IPA, Inc., a wholly owned subsidiary of DHS
dated March 7, 1997 (the "Employment Agreement").
4. Pursuant to the Offering and the Employment Agreement, the
Company has agreed to grant Optionee Options to purchase 33,000 shares of Class
B Common Stock.
AGREEMENTS:
In consideration of the foregoing and of the mutual agreements herein
contained and set forth in the Employment Agreement, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Option Agreement, the definitions set forth
in Sections 1.1 through 1.11 shall be applicable.
Section 1.1 AFFILIATE. "Affiliate" shall mean any entity, whether
now or hereafter existing, which controls, is controlled by, is under common
control with, or whose medical practice is affiliated with, the Corporation
(including, but not limited to, joint ventures, limited liability companies, and
partnerships). For this purpose, "control" shall mean ownership of 50% or more
of the total combined voting power of all classes of stock or interests of the
entity.
Section 1. 2 CLASS B COMMON STOCK. "Class B Common Stock" shall mean
shares of DHS's authorized but unissued Class B common stock, par value of one
cent ($0.01) per share.
Section 1. 3 EXERCISE DATE. "Exercise Date" shall mean the date on
which the Compensation Committee of DHS (the "Committee") receives the written
notice required under Section 3.2 of this Option Agreement that Optionee has
exercised the Option.
Section 1. 4 GRANT DATE. "Grant Date" shall mean the date on which
DHS issues an Option to Optionee pursuant to this Option Agreement.
Section 1. 5 OFFERING. "Offering" shall mean the offering of
securities by DHS pursuant to which Optionee is acquiring the Options, the terms
of which are set forth in the Prospectus.
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Section 1. 6 OPTIONS. "Options" shall mean those options to acquire
shares of Class B Common Stock of DHS granted to Optionee pursuant to this
Option Agreement, each such option, upon proper exercise, entitling the Optionee
to one share of Class B Common Stock pursuant to the terms set forth in the
Prospectus and this Option Agreement.
Section 1.7 FAIR MARKET VALUE. "Fair Market Value" of a share of the
Corporation's Common Stock for any purpose on a particular date shall be
determined in a manner such as the Committee shall in good faith determine to be
appropriate; provided, however, that if the Common Stock is publicly traded,
then Fair Market Value shall mean the last reported sale price per share of
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on a national
securities exchange or included for quotation on the Nasdaq-National Market, or
if the Common Stock is not so listed or admitted to trading or included for
quotation, the last quoted price, or if the Common Stock is not so quoted, the
average of the high bid and low asked prices, regular way, in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in use or, if
the Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices, regular way, as furnished by a professional market
maker making a market in the Common Stock as selected in good faith by the
Committee or by such other source or sources as shall be selected in good faith
by the Committee. If, as the case may be, the relevant date is not a trading
day, the determination shall be made as of the next preceding trading day. As
used herein, the term "trading day" shall mean a day on which public trading of
securities occurs and is reported in the principal consolidated reporting system
referred to above, or if the Common Stock is not listed or admitted to trading
on a national securities exchange or included for quotation on the
Nasdaq-National Market, any business day.
Section 1. 8 OPTION PRICE. "Option Price" shall mean the price per
share of Common Stock at which the Option may be exercised. "Aggregate Option
Price" shall mean the Option Price multiplied by the number of Options to be
exercised pursuant to a notice of exercise.
Section 1. 9 PROSPECTUS. "Prospectus" shall mean the Prospectus and
any Prospectus Supplements that are part of the Registration Statement filed on
Form S-1 by DHS and which set forth the terms of the Offering.
Section 1. 10 REGISTRATION STATEMENT. "Registration Statement" shall
mean the registration statement filed by DHS with the SEC with respect to the
registration of the securities of DHS, some or all of which are the subject of
the Offering.
Section 1. 11 CHANGE IN CONTROL. "Change in Control" shall mean (i)
a liquidating distribution to DHS shareholders (or similar event); (ii) a
combination, consolidation or merger where DHS is not the survivor; (iii) any
sale, exchange or other disposition of all or substantially all of DHS's assets;
or (iv) any public offering of DHS's Securities at a company value of at least
$25,000,000 with proceeds to DHS of at least $15,000,000.
ARTICLE 2
ISSUANCE OF OPTIONS
Section 2.1 ISSUANCE OF OPTIONS. DHS hereby grants to Optionee, as
of the date hereof (the "Grant Date") Thirty-Three Thousand (33,000) Options to
purchase shares of Class B Common Stock at an exercise price of one cent ($.01)
per share (the "Option Price"), or such adjusted number of Options at such
adjusted Option Price as may be established from time to time pursuant to the
provisions of Article 5 hereof. Each Option, upon proper exercise thereof in
accordance with this Option Agreement, entitles Optionee to purchase one share
of DHS Class B Common Stock.
ARTICLE 3
EXERCISE OF OPTIONS
Section 3.1 EXERCISABILITY OF OPTIONS. The Options shall be
exercisable, in whole or in part, at any time on or after March 25, 2002 or, if
earlier, upon Optionee's death or upon the occurrence of a Change in Control,
unless the Options have earlier terminated pursuant to the provisions of this
Option Agreement. The Option may not be exercised unless such action or consent
as may be required by federal or state law relating to the issuance or
distribution of securities shall have been taken or obtained.
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Section 3.2 MANNER OF EXERCISE. The Options may be exercised, in
whole or in part, by delivering written notice of exercise to DHS in such form
as DHS may require from time to time. Such notice shall specify the number of
Options being exercised, and shall be accompanied by full payment of the
Aggregate Option Price. In addition, such notice shall be accompanied by (i) a
written acknowledgment of the restrictions on the transferability of the shares
of Class B Common Stock executed in the form of the letter attached hereto and
marked Exhibit A and (ii) a signed copy of a Stockholders Agreement in such form
as DHS may prescribe. Notwithstanding anything herein to the contrary, all Class
B Common Stock issued pursuant to the Options shall be subject to the terms and
conditions of said Stockholders Agreement. Payment of the Aggregate Option Price
may be made (i) in cash, (ii) in a number of shares of Class B Common Stock
(including shares of Class B Common Stock acquired upon the exercise of an
option) having a total Fair Market Value on the Exercise Date equal to the
Aggregate Option Price, or (iii) by a combination of the foregoing.
Notwithstanding the foregoing, if the Common Stock is registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, unless the Committee
determines otherwise in its discretion, payment of the Option Price also may be
satisfied, in whole or in part, by delivery of a properly executed exercise
notice, together with irrevocable instructions; (i) to a brokerage firm approved
by the Committee to deliver promptly to DHS the aggregate amount of sale or loan
proceeds to pay the Option Price and any withholding tax obligations that may
arise in connection with the exercise, and (ii) to DHS to deliver the
certificates for such purchased shares directly to such brokerage firm. The
Options may be exercised only in multiples of whole shares of Class B Common
Stock and no partial shares shall be issued.
Section 3.3 ISSUANCE OF SHARES AND PAYMENT OF CASH UPON EXERCISE.
Upon exercise of the Options, in whole or in part, in accordance with the terms
of this Option Agreement and upon payment of the Aggregate Option Price, DHS
shall issue to Optionee the number of shares of Class B Common Stock equal to
the number of Options being exercised and for which payment was received, in the
form of fully paid and non-assessable Class B Common Stock.
Section 3.4 RESERVATION OF SHARES. DHS shall at all times reserve
and keep available for issuance upon the exercise of Options a number of its
authorized but unissued shares of Class B Common Stock that will be sufficient
to permit the exercise in full of all outstanding Options.
ARTICLE 4
TERMINATION OF OPTIONS
Section 4.1 UPON OPTIONEE'S DEATH. Unless such Options are earlier
terminated pursuant to the provisions of this Option Agreement, upon Optionee's
death Optionee's executor, personal representative or the person to whom the
Options shall have been transferred by will or the laws of descent and
distribution, as the case may be, may exercise all or any part of the Options
not previously exercised, provided such exercise occurs within twelve (12)
months after the date Optionee dies, but not later than the end of the stated
term of the Option and, provided further, that such person executes a
Stockholders Agreement in such form as DHS may prescribe.
Section 4.2 TERMINATION OF EMPLOYMENT FOR REASON OTHER THAN DEATH OR
DISABILITY. Unless earlier terminated pursuant to the provisions of this Option
Agreement, Options granted to Optionee shall terminate with respect to any
shares of Class B Common Stock as to which the Option has not been exercised, as
of the date Optionee is no longer employed by either DHS or an Affiliate for any
reason other than Optionee's death or Disability (as such term is defined in the
Employment Agreement).
Section 4.3 TERMINATION OF EMPLOYMENT BY REASON OF DISABILITY.
Unless the Options have earlier terminated pursuant to the provisions of this
Option Agreement, in the event that Optionee ceases to be an employee of DHS or
an Affiliate by reason of Disability, Options that have not yet been exercised
may be exercised in whole or in part at any time on or after the date of
Disability, but not later than the end of the stated term of the Option or as
otherwise provided by the provisions of Section 4.1 of this Option Agreement.
ARTICLE 5
ADJUSTMENTS
Section 5.1 ADJUSTMENT OF NUMBER OF OPTIONS; OPTION PRICE. Subject
to the provisions of this Article 5, the Option Price shall be subject to
adjustment as follows:
(a) In the event any change is made to the Class B Common Stock
(whether by reason of (i) a merger, consolidation, reorganization or
recapitalization of DHS or (ii) a stock dividend, stock split,
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combination of shares, exchange of shares or other change in capital structure
of DHS effected without receipt of consideration), then, appropriate adjustments
shall be made to the number of shares and Option Price of the Class B Common
Stock subject to the Options.
(b) If DHS is the surviving entity in any merger or other
business combination then the Options outstanding immediately after such merger
or other business combination, shall be appropriately adjusted to apply and
pertain to the number and class of securities that would be issuable to the
Optionee in the consummation of such merger or business combination if the
Options were exercised immediately prior to such merger or business combination,
and appropriate adjustments shall also be made to the Option Price.
ARTICLE 6
MISCELLANEOUS
Section 6.1 NO RIGHTS OF STOCKHOLDER. Optionee shall not have any of
the rights of a stockholder with respect to the shares of Class B Common Stock
that may be issued upon the exercise of the Options until such shares of Class B
Common Stock have been issued to Optionee upon the due exercise of the Options.
Section 6.2 NONTRANSFERABILITY OF OPTION. The Option shall be
nontransferable otherwise than by will or the laws of descent and distribution.
During the lifetime of Optionee, the Options may be exercised only by Optionee
or, during the period Optionee is under a legal disability, by Optionee's
guardian or legal representative.
Section 6.3 NON-GUARANTEE OF EMPLOYMENT. Nothing in the Offering, the
Main Agreement or this Option Agreement shall be construed as a contract of
employment between DHS (or an Affiliate) and Optionee, or as a contractual right
of Optionee to continue in the employ of DHS or an Affiliate, or as a limitation
of the right of DHS or an Affiliate to discharge Optionee at any time.
Section 6.4 WITHHOLDING TAXES. DHS or any Affiliate shall have the
right to deduct from any compensation or any other payment of any kind
(including withholding the issuance of shares of Class B Common Stock) due
Optionee the amount of any federal, state or local taxes required by law to be
withheld as the result of the exercise of the Option or the disposition of
shares of Class B Common Stock acquired pursuant to the exercise of the Option.
In lieu of such deduction, DHS may require Optionee to make a cash payment to
DHS or an Affiliate equal to the amount required to be withheld. If Optionee
does not make such payment when requested, DHS may refuse to issue any Class B
Common Stock certificate until arrangements satisfactory to the Company for such
payment have been made.
Section 6.5 AGREEMENT SUBJECT TO CHARTER AND BY-LAWS. This Agreement
is subject to the Charter and By-Laws of DHS, and any applicable federal or
state laws, rules or regulations.
Section 6.6 HEADINGS. The headings in this Option Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Option Agreement.
Section 6.7 NOTICES. All notices and other communications made or
given pursuant to this Option Agreement shall be in writing and shall be
sufficiently made or given if hand delivered or mailed by certified mail,
addressed to Optionee at the address contained in the records of DHS or an
Affiliate, or to DHS for the attention of its Secretary at its principal office.
Section 6.8 ENTIRE AGREEMENT; MODIFICATION. This Option Agreement
contains the entire agreement between the parties with respect to the subject
matter contained herein and may not be modified, except in a written document
signed by each of the parties hereto.
Section 6.9 COUNTERPARTS. This Option Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed to be
an original and all of which together shall constitute one and the same
instrument.
Section 6.10 GOVERNING LAW. This Option Agreement shall be governed
by and construed under the laws of the State of Maryland without regard to
conflicts of law.
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IN WITNESS WHEREOF, the parties have executed this Option Agreement as
of the date first above written.
DOCTORS HEALTH SYSTEM, INC.
By: _________________________
Stewart B. Gold, President
OPTIONEE
By: _________________________
Steven J. Adashek, M.D.
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EXHIBIT A
Doctors Health System, Inc.
10451 Mill Run Circle, 10th Floor
Owings Mills, Maryland 21117
Gentlemen:
I hereby exercise _________ Options granted to me on
____________________, 199____, by Doctors Health System, Inc. (the "Company"),
subject to all the terms and provisions of the Option Agreement dated
_________________, and notify you of my desire to purchase ____________ shares
of Class B Common Stock of DHS at a price of $___________ per share pursuant to
the exercise of said Options, for a total purchase price of $_________.
I hereby confirm that I am a party to a Stockholders Agreement with DHS
(or will be upon DHS's execution of the Stockholders Agreement executed by me
and attached hereto) pursuant to which I have agreed to certain restrictions on
the transferability of the shares of Class B Common Stock issued to me upon
exercise of the Options and other matters relating thereto, and the certificates
for the Shares to be issued to me shall contain a legend to that effect.
Total Amount Enclosed: $__________
Date:___________________________ ______________________________
(Optionee)
Received by Doctors Health System, Inc. on
______________________________, 19__
By: ________________________________
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ANNEX B
EXECUTION COPY
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT is executed as of this
31st day of January, 1997, by and among DOCTORS HEALTH SYSTEM, INC., a Maryland
corporation ("DHS"), STEWART GOLD ("GOLD"), SCOTT RIFKIN ("RIFKIN"), ALAN KIMMEL
("KIMMEL") (Gold, Rifkin and Kimmel being collectively, the "MANAGEMENT
STOCKHOLDERS" or individually, a "MANAGEMENT STOCKHOLDER"), MEDICAL HOLDINGS
LIMITED PARTNERSHIP, a Maryland limited partnership (the "LP"), ST. JOSEPH
MEDICAL CENTER, INC., a Maryland non-profit, non-stock corporation (the "SERIES
A INVESTOR"), MED-LANTIC MANAGEMENT SERVICES, INC., a Maryland corporation (the
"SERIES B INVESTOR"), and GENESIS HEALTH VENTURES, INC., a Pennsylvania
corporation (the "SERIES C INVESTOR") (the Management Stockholders, the LP, the
Series A Investor, the Series B Investor and the Series C Investor each being a
"STOCKHOLDER" and collectively being the "STOCKHOLDERS"). As used in this
Agreement, the terms "Stockholder" and "Stockholders" shall include any
successors, assigns, transferees (whether by sale, gift, or other disposition),
heirs, and personal representatives of a Stockholder, whether permitted by the
terms hereof or otherwise.
WHEREAS, DHS has authorized capital stock consisting of Twenty Million,
Seven Hundred Thousand (20,700,000) shares of Class A Common Stock, with a par
value of one cent ($0.01) per share, of which Eight Hundred Thousand (800,000)
shares are issued and owned by the Management Stockholders in the proportions
set forth on Exhibit 1 attached hereto and made a part hereof (the "CLASS A
COMMON STOCK"); Ten Million (10,000,000) shares of Class B Common Stock, with a
par value of one cent ($0.01) per share, of which Two Million Two Hundred
Thousand (2,200,000) shares are issued and owned by the LP (the "CLASS B COMMON
STOCK"); Twenty-Nine Million, Fifty Thousand (29,050,000) shares of Class C
Common Stock, with a par value of one cent ($0.01) per share, of which no shares
are issued or outstanding (the "CLASS C COMMON STOCK"); One Million (1,000,000)
shares of Series A Convertible Preferred Stock with a par value of Five Dollars
($5.00) per share, One Million (1,000,000) of which are owned by the Series A
Investor (the "SERIES A PREFERRED STOCK"); Three Hundred Fifty-Five Thousand
Five Hundred Fifty-Six (355,556) shares of Series B Convertible Preferred Stock
with a par value of Eleven Dollars and Twenty-Five Cents ($11.25) per share,
Three Hundred Fifty-Five Thousand Five Hundred Fifty-Six (355,556) of which are
owned by the Series B Investor (the "SERIES B PREFERRED STOCK"), One Million
Five Hundred Thousand (1,500,000) shares of Series C Convertible Preferred Stock
with a par value of Fourteen Dollars ($14.00) per share, Five Hundred
Seventy-One Thousand Four Hundred Twenty-Eight (571,428) of which are owned by
the Series C Investor (the "SERIES C PREFERRED STOCK") (the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock are
hereinafter collectively referred to as the "CONVERTIBLE PREFERRED STOCK"); and
One Million (1,000,000) shares of preferred stock, with a par value of One Cent
($0.01) per share, of which no shares are issued and outstanding (the Class A
Common Stock, the Class B Common Stock, the Class C Common Stock, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the preferred stock each being a "CLASS" and collectively being the "STOCK");
and
WHEREAS, the Stockholders own all of the issued and outstanding shares of
DHS and, with DHS, desire to assure continuity and to perpetuate harmony in
DHS's management, policies and operations; and
WHEREAS, each Stockholder desires to facilitate the prompt liquidation of
the Management Stockholders' Stock in the event of the death of a Management
Stockholder, or, if necessary, during such Management Stockholder's lifetime;
and
WHEREAS, the Stockholders desire to maintain ownership and control of DHS
among themselves for the purposes of insuring continuity of management among
themselves; and
WHEREAS, the Stockholders and DHS deem it in their best interests to impose
certain restrictions and obligations on themselves in order to effectuate the
foregoing purposes; and
WHEREAS, the Stockholders and DHS entered into a Stockholders Agreement
dated September 4, 1996 and in connection with the issuance of a convertible
subordinated note convertible into additional shares of Series C Preferred Stock
to an affiliate of the Series C Investor, the Stockholders and DHS wish to enter
into this Amended and Restated Stockholders Agreement.
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NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below, and other good and valuable consideration the receipt and
sufficiency of which are acknowledged, the parties, intending to be legally
bound, covenant and agree as follows:
1. RECITALS; DEFINITIONS.
(a) RECITALS. The foregoing recitals are made a part of this Agreement.
(b) CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean the earlier to occur of the following:
(i) a liquidating distribution to DHS' stockholders (or similar event); (ii) a
contribution, consolidation or merger where DHS is not the survivor; (iii) any
sale, exchange or other disposition of all, or substantially all, of DHS'
assets; or (iv) any public offering of DHS' securities at a company value of at
least $25,000,000 with proceeds to DHS of at least $15,000,000.
"DHS AMENDED AND RESTATED ARTICLES" shall mean the Articles of Amendment
and Restatement of DHS dated January 31, 1997 and filed with the Maryland State
Department of Assessments and Taxation on February 4, 1997.
(c) OTHER DEFINED TERMS. When used in this Agreement with its initial
letter capitalized, a word that is not defined in this Section 1 shall have the
meaning set forth elsewhere in this Agreement. When a word used in this
Agreement with its initial letter capitalized is not defined in this Agreement,
such word shall have the meaning set forth in the Definition Appendix attached
to this Agreement as APPENDIX A.
2. STOCK, WARRANTS AND OPTIONS COVERED; ADDITIONAL PARTIES. Except as
otherwise provided herein, all of the provisions of this Agreement shall apply
to, and the term "Stock" shall include, the Stock and all other shares of
capital stock and rights, including warrants and options, to acquire shares of
capital stock and all other equity securities now owned or which may be issued
hereafter to the Stockholders in consequence of any additional issuance,
purchase, exchange or reclassification of shares, corporate reorganization, or
any other form of recapitalization, consolidation, merger, share split, share
dividend, or which are acquired by Stockholders in any other manner. For
purposes of this Agreement, the term "Stock" shall include (i) beneficial
interests held by any beneficiary in any trust permitted to be a transferee
hereunder, (ii) that certain Stock Warrant No. 1 executed and delivered on
December 1, 1995 by DHS to the Series B Investor granting to the Series B
Investor the right to acquire Eighty Eight Thousand Eight Hundred Eighty Nine
(88,889) shares of the Class A Common Stock of the Company ("WARRANT NO. 1"),
(iii) that certain Stock Warrant No. 5 executed and delivered on January 31,
1997 by DHS to the Series C Investor granting to the Series C Investor the right
to acquire 250,000 shares of Class A Common Stock of the Company ("WARRANT NO.
5"), (iv) the option of the Series C Investor to purchase Two Hundred Fifty
Thousand (250,000) shares of Series C Preferred Stock from DHS pursuant to the
Amended and Restated Option Agreement dated as of January 31, 1997 between DHS
and the Series C Investor (the "OPTION"), and (v) the shares of Series C
Preferred Stock issuable upon conversion of the Convertible Subordinated 11%
Note dated January 31, 1997 issued by DHS to Genesis Holdings, Inc. (Warrant
No. 1 and Warrant No. 5 are collectively referred to as the "Warrant".) The
parties hereto acknowledge and agree that upon conversion of shares of
Convertible Preferred Stock into shares of Class C Common Stock all references
to "Stock" and all references to "Convertible Preferred Stock" herein shall
include all such shares of Class C Common Stock, and all references to "holders
of Convertible Preferred Stock" shall include "holders of Class C Common Stock."
DHS acknowledges and agrees that it will not issue any additional shares of its
capital stock (or options) to any person or entity which is not a party to this
Agreement without requiring, as a condition precedent to such issuance, that
such person or entity execute a counterpart to this Agreement (provided that
non-executive employees of DHS to whom shares of capital stock are issued
pursuant to any employment agreement or any stock option, stock purchase or
similar plan of DHS shall not be required to execute this Agreement so long as
DHS, as a condition of such issuance, retains rights to repurchase such shares
of capital stock under substantive terms and conditions consistent with those
granted to DHS herein), and any member of DHS' executive management team who is
granted shares (or options) shall be deemed a "Management Stockholder" for
purposes hereof.
3. PURCHASE AND SALE. DHS agrees to purchase and redeem, and each
Stockholder agrees to sell and transfer, the Stock in the manner and upon the
terms provided in this Agreement. No purchase, sale, gift, endorsement,
assignment, transfer, pledge, encumbrance or other disposition, whether
voluntary, involuntary or by operation of law, including, without limitation,
any transfer pursuant to a divorce decree, of any shares of Stock of any
Stockholder shall be valid and binding except as provided in, and in accordance
with, the terms and conditions of this Agreement. Any purported transfer by any
Stockholder of the Stock or issuance of capital stock by the Company other than
in accordance with this Agreement shall be null and void, and DHS shall refuse
to recognize any such transfer and shall not reflect on its records any change
in record ownership of the Stock pursuant to any such transfer. Any transferee
of the Stock becoming the owner of the Stock in compliance with this Agreement
shall thereafter
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be deemed a Stockholder. The personal representative of a deceased Stockholder
shall automatically be subject to the terms and conditions of this Agreement.
Notwithstanding the foregoing, the holders of Convertible Preferred Stock are
entitled, pursuant to the terms of the DHS Amended and Restated Articles, to
exercise rights to convert shares of Convertible Preferred Stock into shares of
Class C Common Stock, and to require DHS to purchase shares of Convertible
Preferred Stock under certain circumstances, and no such conversion or
redemption shall give any person any rights under this Agreement.
4. DEATH, DISABILITY AND TERMINATION OF EMPLOYMENT OF A MANAGEMENT
STOCKHOLDER; INVOLUNTARY TRANSFERS.
(a) GENERAL.
(i) Upon the occurrence of the termination of employment of any
Management Stockholder (except with respect to each of Rifkin and Kimmel,
the termination of whose employment is governed by Section 4(f) hereof)
with DHS for any reason, other than an "Involuntary Transfer" (as defined
below) including, but not limited to, death or "disability" (as defined in
Section 4(c) below), such Management Stockholder or other Stockholder, as
the case may be, shall sell, and DHS shall purchase, all of the Stock then
registered in such Stockholder's name at the price provided in Section 4(e)
or Section 6 hereof, as the case may be, and upon the terms provided in
Section 7 hereof.
(ii) Upon the occurrence of an "Involuntary Transfer" (as defined in
Section 4(d) below) of the Stock of any Stockholder (the "INVOLUNTARY
TRANSFER STOCKHOLDER"), DHS shall have the right, for a period of thirty
(30) days from the date of such occurrence, to purchase such Stock by
providing written notice to such effect to such Involuntary Transfer
Stockholder and to any court which has then exercised jurisdiction over
such Involuntary Transfer Stockholder with respect to its Stock, or to any
assignee, trustee in bankruptcy or successor in interest, as the case may
be, and such Involuntary Transfer Stockholder shall be obligated if DHS
elects to exercise its right to purchase such Stock to sell all but not
less than all of the Stock then registered in such Involuntary Transfer
Stockholder's name at the price provided in Section 6 hereof and upon the
terms provided in Section 7 hereof. If DHS elects not to exercise its
purchase pursuant to this Section 4(a)(ii) within such thirty (30) day
period, it shall immediately provide written notice to that effect to all
of the other stockholders (the "NON-INVOLUNTARY TRANSFER STOCKHOLDERS"),
who shall have the option to purchase, and such Involuntary Transfer
Stockholder shall be obligated to sell to the extent such option is
exercised, all of the shares of such Stock at the price provided in Section
6 hereof and upon the terms provided in Section 7 hereof. If more than one
Non-Involuntary Transfer Stockholder desires to so purchase, then they
shall purchase in such proportions as they may agree. In the absence of
agreement, each of the Non-Involuntary Transfer Stockholders desiring to
purchase such stock shall be entitled to purchase up to that number of
shares of such Stock which is equal to the product of his percentage
interest of all of the shares of DHS Capital Stock then held by such
Non-Involuntary Transfer Stockholders multiplied by the number of shares of
stock available for purchase hereunder. The Non-Involuntary Transfer
Stockholders shall have the right to exercise their respective options for
a period of thirty (30) days following their receipt of DHS' notice that it
has elected not to purchase such Stock by providing notice in the manner
required of DHS as otherwise set forth in this Section 4(a)(ii).
(b) FURTHER ASSURANCES. Each Management Stockholder hereby agrees
that he and/or his personal representative, and each trustee of any permitted
trust hereunder, shall be bound to take any and all action necessary to enable
DHS to purchase his Stock pursuant to the provisions of this Section 4.
(c) DISABILITY. For purposes of this Section 4, "DISABILITY" with
respect to a Management Stockholder shall have the meaning set forth in said
Management Stockholder's DHS Employment Agreement or other employment agreement
with DHS, and if no such agreement exists, as determined by DHS' Board of
Directors in the exercise of its reasonable discretion.
(d) INVOLUNTARY TRANSFERS; PAYMENT. For purposes of this Section 4,
the occurrence of any of the following events shall constitute an "INVOLUNTARY
TRANSFER": (i) if any portion of a Stockholder's Stock is attached or taken in
execution, or (ii) if a Stockholder applies for the benefit of, or files a case
under, any provision of the federal bankruptcy law or any other law relating to
insolvency or relief of debtors, or (iii) if a case or proceeding is brought
against a Stockholder under any provision of the federal bankruptcy law or any
other law relating to insolvency or relief of debtors which is not dismissed
within sixty (60) days after the commencement thereof, or (iv) if a Stockholder
makes an assignment for the benefit of creditors, or (v) if any portion of a
Stockholder's Stock is made subject to a charging order, or (vi) if any portion
of a Management Stockholder's Stock or other Stock held by a natural person is
transferred pursuant to a divorce decree. For purposes of this Section 4(d),
the occurrence of any of the foregoing
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events described in Sections 4(d)(i) through (v) above, (A) with respect to the
General Partner of the LP, shall constitute an Involuntary Transfer with respect
to the LP of the Class B Common Stock, (B) with respect to the Series A
Investor, shall constitute an Involuntary Transfer of the Series A Preferred
Stock or the Class C Common Stock, as the case may be, (C) with respect to the
Series B Investor, shall constitute an Involuntary Transfer of the Series B
Preferred Stock, the Warrant or the Class C Common Stock, as the case may be,
and (D) with respect to the Series C Investor, shall constitute an Involuntary
Transfer of the Series C Preferred Stock, the Option or the Class C Common
Stock, as the case may be. If any Stockholder has actual knowledge of an
Involuntary Transfer by a Stockholder of his or its Stock, such Stockholder
shall give written notice to such effect to DHS, and the giving of such written
notice shall constitute the occurrence of such event for purpose of the time
period set forth in this Section 4(d).
(e) PAYMENT UPON TERMINATION OF EMPLOYMENT OF MANAGEMENT STOCKHOLDER OTHER
THAN RIFKIN OR KIMMEL. If the employment of a Management Stockholder other than
Rifkin or Kimmel with DHS is terminated, then the Management Stockholders whose
employment with DHS has not been terminated shall have the option, for a period
of sixty (60) days from the date of such termination, to purchase (in such
proportions as they shall agree upon or, if they cannot agree, in proportion to
their ownership of DHS Class A Common Stock other than the stock of the
terminated Management Stockholder) and, if such option is accepted, such
terminated Management Stockholder shall sell all of the shares of Stock held by
such terminated Management Stockholder (the "TERMINATED MANAGER'S STOCK") on
terms substantially identical to those set forth in Section 7 hereof (other than
subsections (c) and (d) thereof) and for a price determined in accordance with
Subsections (i) and (ii) of this Section 4(e). If all of the Terminated
Manager's Stock is not purchased by the other Management Stockholders, DHS shall
purchase, within ninety (90) days after the date of said termination, and such
terminated Management Stockholder shall sell, all of the Terminated Manager's
Stock upon the following terms and at the following prices:
(i) if such Management Stockholder's employment is terminated (A) by
DHS for any of the specific reasons enumerated in Section 4.3(a) of such
Management Stockholder's DHS Employment Agreement, or, if no such agreement
is then in effect, for "good cause" under applicable law, or (B) by the
Management Stockholder for any reason not constituting "constructive
termination" as defined in Section 4.4(b) of such Management Stockholder's
DHS Employment Agreement, then at a price equal to the lower of such
Management Stockholder's acquisition cost for his Stock or One Dollar
($1.00) per share, and upon the terms set forth in Section 7 hereof; or
(ii) if such Management Stockholder's employment is terminated (A) by
death, or by "disability" (as defined herein), or (B) by expiration of the
term of such DHS Employment Agreement, or (C) by DHS without good cause as
contemplated by Section 4.3(b) of such Employment Agreement, or (D) by the
Management Stockholder for reasons constituting "constructive termination"
under such Agreement, then at the price set forth in Section 6 hereof, and
upon the terms set forth in Section 7 hereof.
If DHS is required, pursuant to the provisions of this Section 4(e), to purchase
the Terminated Manager's Stock at a price determined pursuant to Subsection (ii)
hereof, DHS shall, as a condition precedent to the closing of such purchase, on
or before the Closing Date for its acquisition of the Terminated Manager's
Stock, pay to (A) the Series A Investor all of the dividends then accrued but
unpaid on the Series A Preferred Stock plus all accrued and unpaid interest
thereon (whether by payment of cash or set off of any accrued but unpaid
interest under the Promissory Note issued by the Series A Investor to DHS), or
otherwise make provision for the payment of such dividends that is acceptable to
the Series A Investor, in its reasonable discretion, (B) the Series B Investor
all of the dividends then accrued but unpaid on the Series B Preferred Stock
plus all accrued and unpaid interest thereon or otherwise make provision for the
payment of such dividends that is acceptable to the Series B Investor, in its
reasonable discretion, and (C) the Series C Investor all of the dividends then
accrued but unpaid on the Series C Preferred Stock plus all accrued and unpaid
interest thereon or otherwise make provision for the payment of such dividends
that is acceptable to the Series C Investor, in its reasonable discretion.
Notwithstanding the foregoing, in the event DHS has paid the Series C Investor
as set forth in this paragraph prior to the consummation of a Qualified Public
Offering on or before August 30, 1998 as defined in the Articles of Amendment
and Restatement dated January 31, 1997, then on or before the consummation of a
Qualified Public Offering on or before August 30, 1998 (at a price per share not
less than the weighted average price paid or to be paid by the Series C Investor
for all shares of Series C Preferred Stock then outstanding) the Series C
Investor shall pay DHS an amount equal to the amount of dividends and interest
paid to the Series C Investor pursuant to this Section.
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(f) TERMINATION OF EMPLOYMENT, DEATH, DISABILITY OF RIFKIN AND KIMMEL.
(i) TERMINATION OF EMPLOYMENT WITHOUT GOOD CAUSE. Except as set
forth in the proviso to this sentence, if the employment of Rifkin or
Kimmel, as the case may be, with DHS is terminated (A) by DHS for any of
the specific reasons enumerated in Section 4.3(a) of his respective DHS
Employment Agreement (or, if no such agreement is then in effect, for "good
cause" under applicable law), or (B) by Rifkin or Kimmel, as the case may
be, for any reason not constituting "constructive termination" as defined
in Section 4.4(b) of such DHS Employment Agreement, then Rifkin or Kimmel,
as the case may be, shall sell, and DHS shall purchase, all of the stock
then registered in Rifkin's or Kimmel's name, as the case may be, at a
price equal to the lower of Rifkin's or Kimmel's, as the case may be,
acquisition cost for his Stock or One Dollar ($1.00) per share, and upon
the terms provided in Section 7 hereof; provided, however, that the
provisions of this paragraph 4(f)(i) shall not apply to any shares of
capital stock of DHS held by Rifkin or Kimmel on the date hereof (or
received as a distribution on or in respect of such shares after the date
hereof as the result of any recapitalization, stock split or similar
event).
(ii) DEATH; DISABILITY. Upon each of (A) the death of Rifkin or
Kimmel, as the case may be, and the appointment and qualification of such
deceased stockholder's personal representative, and (B) the "Disability" of
Rifkin or Kimmel (as such term is defined in each such shareholder's
current employment agreement with DHS or, if there is none, as reasonably
determined by the Board of Directors of DHS), as the case may be, such
personal representative, Rifkin or Kimmel, as the case may be, may, for a
period of sixty (60) days from the date of such appointment and
qualification or disability, as the case may be, offer to the other
Management Stockholders the option to purchase (in such proportions as they
shall agree upon or, if they cannot agree, in proportion to their ownership
of the DHS Class A Common Stock), all of the shares of Stock held by such
personal representative, Rifkin or Kimmel, as the case may be, on terms
substantially identical to those set forth in Section 7 hereof (other than
Subsections (c) and (d) thereof) and at a price determined in accordance
with the terms of Section 6 hereof. If the option to purchase all of the
shares of Stock so offered is not exercised or accepted within such sixty
(60) day period, then such personal representative, Rifkin or Kimmel, as
the case may be, shall be entitled to sell, by providing written notice to
DHS, and DHS shall be required to purchase upon receipt of such notice, all
or any portion of such shares of Stock held by Rifkin or Kimmel, as the
case may be, as such number of shares is set forth in such written notice,
at the price and upon the terms provided in Sections 6 and 7 hereof.
(iii) TERMINATION OF EMPLOYMENT UNDER OTHER CIRCUMSTANCES. If
Rifkin's or Kimmel's employment is terminated (A) by expiration of the term
of his respective DHS Employment Agreement, or (B) by DHS without good
cause as contemplated by Section 4.3(b) of such Employment Agreements, or
(C) by Rifkin or Kimmel, as the case may be, for reasons constituting
"constructive termination" under such Agreements, then DHS shall purchase,
within ninety (90) days after the date of such termination, and Rifkin and
Kimmel shall sell, as the case may be, those shares (and only those shares)
of capital stock of DHS acquired by Rifkin or Kimmel, as the case may be,
after the date hereof (other than as a distribution on or in respect of
shares held on the date hereof through a recapitalization, stock split, or
similar event) at the price set forth in Section 6 hereof, and upon the
terms set forth in Section 7 hereof.
If DHS is required, pursuant to the provisions of this Section 4(f), to purchase
the Terminated Manager's Stock at a price determined pursuant to Subsection (ii)
hereof, DHS shall, as a condition precedent to the closing of such purchase, on
or before the Closing Date for its acquisition of the Terminated Manager's
Stock, pay to (A) the Series A Investor all of the dividends then accrued but
unpaid on the Series A Preferred Stock plus all accrued and unpaid interest
thereon (whether by payment of cash or set off of any accrued but unpaid
interest under the Promissory Note issued by the Series A Investor to DHS), or
otherwise make provision for the payment of such dividends that is acceptable to
the Series A Investor, in its reasonable discretion, (B) the Series B Investor
all of the dividends then accrued but unpaid on the Series B Preferred Stock
plus all accrued and unpaid interest thereon or otherwise make provision for the
payment of such dividends that is acceptable to the Series B Investor, in its
reasonable discretion, and (C) the Series C Investor all of the dividends then
accrued but unpaid on the Series C Preferred Stock plus all accrued and unpaid
interest thereon or otherwise make provision for the payment of such dividends
that is acceptable to the Series C Investor, in its reasonable discretion.
Notwithstanding the foregoing, in the event DHS has paid the Series C Investor
as set forth in this paragraph prior to the consummation of a Qualified Public
Offering on or before August 30, 1998 as defined in the Articles of Amendment
and Restatement dated January 31, 1997, then on or before the consummation of a
Qualified Public Offering on or before August 30, 1998 (at a price per share not
less than the weighted average price paid or to be paid by the Series C Investor
for all shares of Series C Preferred Stock then outstanding) the Series C
Investor
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shall pay DHS an amount equal to the amount of dividends and interest paid to
the Series C Investor pursuant to this Section.
(g) PRICE ADJUSTMENTS FOLLOWING A CHANGE IN CONTROL OF DHS. If the
employment of a Management Stockholder other than Rifkin or Kimmel with DHS is
terminated pursuant to the provisions in Section 4(e)(ii)(C) or (D) above, and
there occurs a Change in Control of DHS within the first twenty-four months
following the date of such termination, DHS agrees to pay or cause to be paid to
such terminated Management Stockholder (or to his heirs, legatees and/or
guardians), in addition to the purchase price for such terminated Management
Stockholder's Stock as determined pursuant to Section 7 hereof, the value of
such terminated Management Stockholder's fair, allocative, share of any
consideration that would have been payable to such terminated Management
Stockholder (less any such consideration actually received by such Management
Stockholder as a result of a sale of his Stock, whether to another Management
Stockholder, DHS or another person) or to DHS upon, and as a result of, such a
Change in Control of DHS within such twenty-four month period. Such payment
shall be made by DHS when and as DHS or the other DHS Stockholders receive
consideration as a result of such a Change in Control, and shall be paid by DHS
based upon such terminated Management Stockholder's pro-rata equity interest in
DHS at the time of termination. Any payment by DHS pursuant to this Section
4(f) may, at DHS' option, be made by delivery of (i) cash, (ii) a promissory
note with a term of not more than ten years and interest at a rate calculated
pursuant to Section 1274(d) of the Internal Revenue Code of 1986, or (iii) an
appropriate in-kind distribution of any consideration received as a result of
such Change in Control. The parties hereto acknowledge and agree that each
Partner of the LP who has entered into a Professional Service Employment
Agreement with the LLC shall be entitled to receive, and pursuant to Section
7.3.3(i) of the Limited Partnership Agreement has received, the benefit of the
substantive provisions set forth in this Section 4(g), upon the sale of his
Limited Partner Interest in the LP due to the termination of his employment with
BMG resulting from a termination by the LLC without good cause or a
"constructive termination," as defined therein.
5. VOLUNTARY TRANSFERS OF STOCK.
(a) STOCK RESTRICTED. Subject to the rights of the holders of Convertible
Preferred Stock set forth in the DHS Amended and Restated Articles, each
Stockholder agrees that, during his lifetime or its corporate existence or
otherwise, he or it will not sell, transfer, exchange, assign or otherwise
dispose of (by sale, gift, or otherwise), or mortgage, hypothecate, lien,
pledge, encumber or otherwise cause a security interest to be created in any of
his or its Stock, except upon satisfaction of the conditions set forth in this
Section 5 and Section 4 above. Notwithstanding the foregoing, (i) each
Management Stockholder shall be entitled to transfer all or any portion of his
shares of Stock to a trust solely for the benefit of himself, his spouse and/or
his lineal descendants PROVIDED THAT, as a condition of said transfer, (A) the
agreement governing said trust requires transfers of any beneficial interests
therein (other than among such permitted persons) to be treated as transfers of
Stock hereunder and subject to the terms hereof, and (B) all trustees of said
trust execute and deliver to the parties hereto a counterpart of this Agreement
and otherwise agree to be bound by all of the terms and provisions hereof with
respect to the Stock, and (ii) each holder of Convertible Preferred Stock and of
Class B Common Stock may transfer its Convertible Preferred Stock or Class B
Common Stock, as the case may be, to any entity all of the ownership interests
in which are owned by such holder, provided that such transferee executes and
delivers to the parties hereto a counterpart of this Agreement and otherwise
agrees to be bound by all of the terms and provisions hereof.
(b) DELEGATION RIGHTS. If DHS is unable to exercise any of its purchase
rights hereunder, it shall be entitled to delegate such rights to such of the
Stockholders who desire to purchase stock upon the occurrence of the events set
forth in Sections 4(a)(i) or (ii) hereof, provided such stockholders, as a
condition of such obligation, shall be entitled to purchase such stock pro rata
as consolidated pursuant to Section 4(a)(ii) hereof.
(c) VOLUNTARY TRANSFERS BY MANAGEMENT STOCKHOLDERS.
(i) OPTION OF OTHER MANAGEMENT STOCKHOLDERS. A Management
Stockholder shall have the right to receive a bona fide offer to purchase
(which he is willing to accept) (a "MANAGEMENT OFFER") from any independent
third person capable of consummating such a sale of all, but not less than
all, of his Stock (the "MANAGEMENT OFFERED STOCK"). Before accepting a
Management Offer, such Management Stockholder shall first offer in writing
(the "MANAGEMENT STOCKHOLDER'S OFFER") to sell the Management Offered Stock
to the other Management Stockholders (the "OTHER MANAGEMENT STOCKHOLDERS")
at the price and on the terms on which such selling Management Stockholder
proposes to transfer the Management Offered Stock to the proposed third
party transferee. The Management Stockholder's Offer shall set forth (A)
the number of shares of the Management Offered Stock, (B) the name and
address of the proposed transferee, (C) the amount of consideration to be
received by the selling
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Stockholder, and (D) the method of proposed payment. A copy of the
Management Stockholder's Offer shall simultaneously also be sent to all of
the other Stockholders and to DHS.
The Other Management Stockholders shall have the option to acquire all
or any of the shares of Management Offered Stock at the price and upon the
terms provided in the Management Stockholder's Offer. If more than one
Other Management Stockholder desires to purchase the Management Offered
Stock, such Management Offered Stock shall be purchased by them in such
proportions as they may agree. In the absence of agreement, each of the
Other Management Stockholders desiring to purchase the Management Offered
Stock shall be entitled to purchase up to that number of shares of
Management Offered Stock which is equal to the product of such number of
shares of Management Offered Stock divided by the number of other
Management Stockholders desiring to purchase such shares of Stock. The
Other Management Stockholders shall have the right to exercise their
respective options to purchase the Management Offered Stock, for a period
of thirty (30) days following their receipt of the Management Stockholder's
Offer, by notifying the selling Management Stockholder in writing of their
respective intentions to purchase at Closing (as defined in Section 7(e)
hereof) all or any shares of the Management Offered Stock.
(ii) OPTION OF THE HOLDERS OF CLASS B COMMON STOCK. If the Other
Management Stockholders do not accept the Management Stockholder's Offer to
purchase all of the shares of Management Offered Stock within the period of
thirty (30) days provided in Section 5(c)(i), then the selling Management
Stockholder, immediately thereafter, shall be deemed to have made an offer
(the "MANAGEMENT STOCKHOLDER'S SECOND OFFER") to sell all of the remaining
shares of the Management Offered Stock (the "REMAINING MANAGEMENT OFFERED
STOCK") to the holders of Class B Common Stock at the price and upon the
terms provided in the Management Stockholder's Offer. The holders of the
Class B Common Stock shall have the option, for a period of fifteen (15)
days after the earlier to occur of (A) expiration of the thirty (30) day
period provided in Section 5(c)(i), or (B) notification by all of the Other
Management Stockholders to the holders of Class B Common Stock to the
effect that the Other Management Stockholders, in the aggregate, have
elected to purchase less than all of the shares of Management Offered Stock
as provided in Section 5(c)(i), to purchase all of the Remaining Management
Offered Stock, upon written notification to the selling Management
Stockholder, at the price and upon the terms provided in this Section 5(c).
If more than one holder of Class B Common Stock desires to purchase the
Remaining Management Offered Stock, such Remaining Management Offered Stock
shall be purchased by them in such proportions as they may agree. In the
absence of agreement, each of the holders of Class B Common Stock desiring
to purchase the Remaining Management Offered Stock shall be entitled to
purchase up to that number of shares of Remaining Management Offered Stock
which is equal to the product of his percentage interest of all of the
shares of Class B Common Stock held by all such holders of Class B Common
Stock times the number of shares of Remaining Management Offered Stock
available for purchase hereunder. The holders of Class B Common Stock
shall have the right to exercise their respective options to purchase the
Remaining Management Offered Stock by notifying the selling Management
Stockholder in writing of their respective intentions to purchase at
Closing (as defined in Section 7(e) hereof) all or any shares of the
Remaining Management Offered Stock.
(iii) OPTION OF THE HOLDERS OF CONVERTIBLE PREFERRED STOCK. If
the holders of Class B Common Stock do not accept the Management
Stockholder's Second Offer to purchase all of the shares of Remaining
Management Offered Stock within the period of fifteen (15) days provided in
Section 5(c)(ii), then the selling Management Stockholder, immediately
thereafter, shall be deemed to have made an offer (the "MANAGEMENT
STOCKHOLDER'S THIRD OFFER") to sell all of the remaining shares of the
Remaining Management Offered Stock (the "AVAILABLE MANAGEMENT OFFERED
STOCK") to the holders of Convertible Preferred Stock at the price and upon
the terms provided in the Management Stockholder's Offer. The holders of
Convertible Preferred Stock shall have the option, for a period of fifteen
(15) days after the earlier to occur of (A) expiration of the fifteen (15)
day period provided in Section 5(c)(ii), or (B) notification by all of the
holders of Class B Common Stock to the holders of Convertible Preferred
Stock to the effect that the holders of Class B Common Stock have elected
to purchase less than all of the shares of Remaining Management Offered
Stock as provided in Section 5(c)(ii), to purchase all of the Available
Management Offered Stock, upon written notification to the selling
Management Stockholder, at the price and upon the terms provided in this
Section 5(c). If more than one holder of Convertible Preferred Stock
desires to purchase the Available Management Offered Stock, such Available
Management Offered Stock shall be purchased by them in such proportions as
they may agree. In the absence of agreement, each of the holders of
Convertible Preferred Stock desiring to purchase the Available Management
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Offered Stock shall be entitled to purchase up to that number of shares of
Available Management Offered Stock which is equal to the product of his
percentage interest of all of the shares of Convertible Preferred Stock
held by all such holders of Convertible Preferred Stock times the number of
shares of Available Management Offered Stock available for purchase
hereunder. The holders of Convertible Preferred Stock shall have the right
to exercise their respective options to purchase the Available Management
Offered Stock by notifying the selling Management Stockholder in writing of
their respective intentions to purchase at Closing (as defined in Section
7(e) hereof) all or any shares of the Available Management Offered Stock.
(iv) OPTION OF DHS. If the holders of Convertible Preferred Stock do
not accept the Management Stockholder's Third Offer to purchase all of the
shares of Available Management Offered Stock within the period of fifteen
(15) days provided above in Section 5(c)(iii), then the selling Management
Stockholder, immediately thereafter, shall be deemed to have made an offer
(the "FINAL MANAGEMENT STOCKHOLDER'S OFFER") to sell all of the remaining
shares of the Available Management Offered Stock (the "FINAL MANAGEMENT
OFFERED STOCK") to DHS at the price and upon the terms provided in the
Management Stockholder's Offer. DHS shall have the option, for a period of
fifteen (15) days after the earlier to occur of (i) expiration of the
fifteen (15) day period provided in Section 5(c)(iii), or (ii) notification
by all of the holders of Convertible Preferred Stock to DHS to the effect
that the holders of Convertible Preferred Stock have elected to purchase
less than all of the shares of Available Management Offered Stock as
provided in Section 5(c)(iii), to purchase all or some of the Final
Management Offered Stock, upon written notification to the selling
Management Stockholder, at the price and upon the terms provided in the
Management Stockholder's Offer.
(v) TRANSFERS TO THIRD PARTIES. If (A) a Management Stockholder
elects to transfer all of his shares of Management Stock; (B) said
Management Stockholder strictly complies with the provisions of Sections
5(c)(i) through 5(c)(iv) above; (C) the Remaining Management Stockholders,
the holders of Class B Common Stock, the holders of Convertible Preferred
Stock and DHS elect to purchase, in the aggregate, less than all of the
shares of Management Offered Stock; and (D) the Management Stockholder who
desires to transfer the Management Offered Stock complies with the terms of
this Section 5(c)(v), then all of the Management Offered Stock remaining
unsold pursuant to the rights of refusal contained in this Section 5(c) may
be sold by the selling Management Stockholder to the third party named in
the Management Stockholder's Offer within a period of thirty (30) days
after the expiration of the fifteen (15) day period provided in Section
5(c)(iv). Such remaining Management Offered Stock may be transferred to
the third party named in the Management Stockholder's Offer; provided that
(X) such shares are sold at the price and on the terms set forth in the
Management Stockholder's Offer; (Y) the shares so transferred shall remain
subject to all of the provisions of this Agreement; and (Z) the third party
transferee shall execute an instrument acceptable to counsel for DHS,
pursuant to which such third party becomes a party to this Agreement and
agrees to be bound by all of the provisions and terms or conditions hereof.
(d) VOLUNTARY TRANSFERS BY THE HOLDERS OF CLASS B COMMON STOCK.
(i) OPTION OF OTHER STOCKHOLDERS. Each holder of Class B Common
Stock shall have the right to receive a bona fide offer to purchase (which
it is willing to accept) (a "CLASS B COMMON OFFER") from any independent
third person capable of consummating such a sale of all, but not less than
all, of its Class B Common Stock (the "CLASS B COMMON OFFERED STOCK").
Before accepting a Class B Common Offer, the holder of Class B Common Stock
shall first offer in writing (the "CLASS B COMMON STOCKHOLDER'S OFFER") to
sell the Class B Common Offered Stock to the other Stockholders (the "OTHER
STOCKHOLDERS") at the price and on the terms on which such selling Class B
Common Stockholder proposes to transfer the Class B Common Offered Stock to
the proposed third party transferee. The Class B Common Stockholder's
Offer shall set forth (A) the number of shares of the Class B Common
Offered Stock, (B) the name and address of the proposed transferee, (C) the
amount of consideration to be received by the holder of Class B Common
Stock, and (D) the method of proposed payment. A copy of the Class B
Common Stockholder's Offer shall simultaneously also be sent to DHS.
The Other Stockholders shall have the option to acquire all or any of
the shares of Class B Common Offered Stock at the price and upon the terms
provided in the Class B Common Stockholder's Offer. If more than one Other
Stockholder desires to purchase the Class B Common Offered Stock, such
Class B Common Offered Stock shall be purchased by them in such proportions
as they may agree. In the absence of agreement, each of the Other
Stockholders desiring to purchase the Class B Common Offered Stock shall be
entitled to purchase up to that number of shares of Class B Common Offered
Stock which is equal to the product of his
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percentage interest of all of the shares of DHS Capital Stock then held by
all such Other Stockholders times the number of shares of Class B Common
Offered Stock available for purchase hereunder. The Other Stockholders
shall have the right to exercise their respective options to purchase the
Class B Common Offered Stock, for a period of thirty (30) days following
their receipt of the Class B Common Stockholder's Offer, by notifying such
holder of Class B Common Stock in writing of their respective intentions to
purchase at Closing (as defined in Section 7(e) hereof) all or any shares
of the Class B Common Offered Stock.
(ii) OPTION OF DHS. If the Other Stockholders do
not accept the Class B Common Stockholder's Offer to purchase all of the
shares of Class B Common Offered Stock within the period of thirty (30)
days provided above in Section 5(d)(i), then the holders of Class B Common
Stock, immediately thereafter, shall be deemed to have made an offer (the
"FINAL CLASS B COMMON STOCK OFFER") to sell all of the remaining shares of
the Class B Common Offered Stock (the "REMAINING CLASS B COMMON OFFERED
STOCK") to DHS at the price and upon the terms provided in the Class B
Common Stockholder's Offer. DHS shall have the option, for a period of
fifteen (15) days after the earlier to occur of (i) expiration of the
thirty (30) day period provided in Section 5(d)(i), or (ii) notification by
all of the Other Stockholders to DHS to the effect that the Other
Stockholders have elected to purchase less than all of the shares of Class
B Common Offered Stock as provided in Section 5(d)(i), to purchase all of
the Remaining Class B Common Offered Stock, upon written notification to
such holder of Class B Common Stock, at the price and upon the terms
provided in the Class B Common Stockholder's Offer.
(iii) TRANSFERS TO THIRD PARTIES. If (A) the holder of Class B
Common Stock elects to transfer all of its shares of Class B Common Stock;
(B) the holder of Class B Common Stock strictly complies with the
provisions of Sections 5(d)(ii) and (iii); (C) the Other Stockholders and
DHS elect to purchase, in the aggregate, less than all of the shares of
Class B Common Offered Stock; and (D) the holder of Class B Common Stock
complies with the terms of this Section 5(c)(iii), then all of the
Class B Common Offered Stock may be sold by the holder of Class B Common
Stock to the third party named in the Class B Common Stockholder's Offer
within a period of fifteen (15) days after the expiration of the fifteen
(15) day period provided in Section 5(d)(ii). Such Class B Common Offered
Stock may be transferred to the third party named in the Class B Common
Stockholder's Offer; provided that (X) such shares are sold at the price
and on the terms set forth in the Class B Common Stockholder's Offer; (Y)
the shares so transferred shall remain subject to all of the provisions of
this Agreement; and (Z) the third party transferee shall execute an
instrument acceptable to counsel for DHS, pursuant to which such third party
becomes a party to this Agreement and agrees to be bound by all of the
provisions and terms or conditions hereof.
(e) VOLUNTARY TRANSFERS BY THE HOLDERS OF CONVERTIBLE PREFERRED STOCK.
Notwithstanding any other provision of this Agreement or any other agreement
to which DHS and either of the Series A Investor, the Series B Investor or
the Series C Investor are parties, no shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, as the case may be, may
be voluntarily transferred pursuant to this Section 5(e) or otherwise if, at
the time of such attempt to transfer, (1) the Series A Investor, the Series B
Investor or the Series C Investor, respectively, has not made full payment to
DHS in cash for all shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as the case may be, held by the Series A
Investor, the Series B Investor or the Series C Investor, respectively,
including all amounts of principal and interest under any note given in
partial consideration for such shares, or (2) any holder of Convertible
Preferred Stock proposing to sell such stock pursuant to this Section 5(e)
holds, at the time of such attempt at transfer, rights to purchase additional
shares of Convertible Preferred Stock.
(i) OPTION OF DHS. Except as otherwise herein
provided, each holder of Convertible Preferred Stock shall have the right
to receive a bona fide offer to purchase (which it is willing to accept)
(a "CONVERTIBLE PREFERRED STOCK OFFER"), from any independent third person
capable of consummating such a sale, any or all of its shares of
Convertible Preferred Stock (the "PREFERRED OFFERED STOCK"). Before
accepting a Convertible Preferred Stock Offer, the holder of
Convertible Preferred Stock shall first offer in writing (the
"CONVERTIBLE PREFERRED STOCKHOLDER'S OFFER") to sell the Preferred Offered
Stock to DHS at the price and on the terms on which the holder of
Convertible Preferred Stock proposes to transfer the Preferred Offered
Stock to the proposed third party transferee. The Convertible Preferred
Stockholder's Offer shall set forth (A) the number of shares of the
Preferred Offered Stock, (B) the name and address of the proposed
transferee, (C) the amount of consideration to be received by the holder of
Convertible Preferred Stock, and (D) the method of proposed payment.
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DHS shall have the option to acquire all, but not less than all, of
the shares of Preferred Offered Stock at the price and upon the terms
provided in the Convertible Preferred Stockholder's Offer. DHS shall have
the right to exercise its option to purchase the Preferred Offered Stock,
for a period of thirty (30) days following its receipt of the Convertible
Preferred Stockholder's Offer, by notifying all of the holders of
Convertible Preferred Stock in writing of its intention to purchase at
Closing (as defined in Section 7(e) hereof) all or any shares of the
Preferred Offered Stock.
(ii) OPTION OF THE HOLDERS OF CONVERTIBLE PREFERRED STOCK. If DHS
does not accept the Convertible Preferred Stockholder's Offer to purchase
all of the Shares of Preferred Offered Stock within the period of thirty
(30) days provided in Section 5(e)(i), then the selling holder of
Convertible Preferred Stock, immediately thereafter, shall be deemed to
have made an offer (the "SECOND CONVERTIBLE PREFERRED STOCKHOLDER'S OFFER")
to sell all of the remaining shares of the Preferred Offered Stock (the
"REMAINING PREFERRED OFFERED STOCK") to the other holders of Convertible
Preferred Stock at the price and upon the terms provided in the Convertible
Preferred Stockholder's Offer. The other holders of Convertible Preferred
Stock shall have the option, for a period of fifteen (15) days after the
earlier to occur of (A) expiration of the thirty (30) day period provided
in Section 5(e)(ii), or (B) notification by DHS to the holders of
Convertible Preferred Stock to the effect that DHS has elected to purchase
less than all of the shares of Remaining Preferred Offered Stock as
provided in Section 5(e)(ii), to purchase all of the Remaining Preferred
Offered Stock upon written notification to the selling holder of Remaining
Preferred Offered Stock, at the price and upon the terms provided in the
Convertible Preferred Stockholder's Offer. If more than one holder of
Convertible Preferred Stock desires to purchase the Remaining Preferred
Offered Stock, such Remaining Preferred Offered Stock shall be purchased by
them in such proportions as they may agree. In the absence of agreement,
each of the holders of Convertible Preferred Stock desiring to purchase the
Remaining Preferred Offered Stock shall be entitled to purchase up to that
number of shares of Remaining Preferred Offered Stock which is equal to the
product of his percentage interest of all of the shares of Convertible
Preferred Stock held by all such holders of Convertible Preferred Stock
times the number of shares of Remaining Preferred Offered Stock available
for purchase hereunder. The holders of Convertible Preferred Stock shall
have the right to exercise their respective options to purchase the
Remaining Preferred Offered Stock by notifying the selling holder of
Convertible Preferred Stock in writing of their respective intentions to
purchase at Closing (as defined in Section 7(e) hereof) all or any shares
of the Remaining Preferred Offered Stock.
(iii) TRANSFERS TO THIRD PARTIES. If (A) the holder of
Convertible Preferred Stock elects to transfer all of its shares of
Convertible Preferred Stock; (B) the holder of Convertible Preferred Stock
strictly complies with the provisions of Sections 5(e)(i) and (ii); (C) DHS
does not exercise its right to purchase all, but not less than all, of the
shares of Preferred Offered Stock and the holders of Convertible Preferred
Stock elect to purchase, in the aggregate, less than all of the shares of
the Remaining Preferred Offered Stock; and (D) the holder of Convertible
Preferred Stock complies with the terms of this Section 5(e)(iii), then
all, but not less than all, of the shares of the Remaining Preferred
Offered Stock may be sold by the holder of Convertible Preferred Stock to
the third party named in the Convertible Preferred Stockholder's Offer
within a period of thirty (30) days after the expiration of the fifteen
(15) day period provided in Section 5(e)(ii). Such Remaining Preferred
Offered Stock may be transferred to the third party named in the
Convertible Preferred Stockholder's Offer; provided that (X) such shares
are sold at the price and on the terms set forth in the Convertible
Preferred Stockholder's Offer; (Y) the shares so transferred shall remain
subject to all of the provisions of this Agreement; and (Z) the third party
transferee shall execute an instrument reasonably acceptable to counsel for
DHS, pursuant to which such third party becomes a party to this Agreement
and agrees to be bound by all of the provisions and terms or conditions
hereof.
(f) The closing for any purchase by a Stockholder or DHS of shares
proposed to be voluntarily transferred by a Stockholder pursuant to a BONA FIDE
third party offer under this Section 5 shall be held at 10:00 a.m. at the
principal offices of DHS in Owings Mills, Maryland, on the date set forth for
the closing in the BONA FIDE offer. In the event that no such date is set forth
in the BONA FIDE offer, the closing shall be held at the principal offices of
DHS in Owings Mills, Maryland, at 10:00 a.m., not later than the 30th day after
the last to expire of the time periods for giving of notice provided for under
this Section 5 and applicable to such proposed voluntary transfer.
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6. PURCHASE PRICE OF STOCK FOR PURPOSES OF INVOLUNTARY TRANSFERS AND
SECTIONS 4(E)(II) AND 4(F)(II).
(a) AGREEMENT OF THE PARTIES. With respect to purchases governed by the
provisions of Section 4(d), Section 4(e)(ii) and Section 4(f)(ii) hereof, if the
purchaser of Stock hereunder, on the one hand, and the transferring Stockholder,
on the other hand, agree in writing as to the purchase price for the Stock to be
sold pursuant to Section 4(d), 4(e)(ii) or Section 4(f)(ii) hereof, as the case
may be, such agreed price shall be the purchase price for such Stock. If no
agreement on the purchase price of such Stock can be reached within thirty (30)
days from the date of the occurrence of the applicable event under the
provisions of Section 4(d), or 4(e)(ii) or, with respect to the occurrence of an
event governed by Section 4(f)(ii), within thirty (30) days after the receipt of
the notice required to be determined thereunder, as the case may be (provided
that, with respect to the death of a Management Stockholder other than Rifkin or
Kimmel, such thirty (30) day period shall commence upon the appointment and
qualification of such deceased Management Stockholder's personal
representative), then the purchase price of said Stock shall be determined
pursuant to Section 6(b) hereof.
(b) APPRAISAL.
(i) If the purchase price of Stock to be sold pursuant to Section
4(d), 4(e)(ii) or 4(f)(ii) is not agreed upon as provided in Section 6(a)
within the time period stated therein, then within fourteen (14) days
thereafter an appraiser or appraisers shall be jointly selected by the
transferring Stockholder, on the one hand, and DHS on the other hand, and
such jointly selected appraiser or appraisers shall determine the "fair
market value of the Stock," which determination shall be binding and
conclusive upon all parties. For purposes of this Section 6(b), the "FAIR
MARKET VALUE OF THE STOCK" shall be an amount equal to the "Fair Market
Value Per Share" of the Class being sold and purchased hereunder,
multiplied by the number of shares of Stock of said Class of the
transferring Stockholder which are being sold and purchased hereunder.
"FAIR MARKET VALUE PER SHARE" shall be an amount as of the Disposition Date
as determined by appraisal using such methods as the appraisers appointed
hereunder determine, in the exercise of their sole discretion, is
appropriate pursuant to this Section 6(b), taking into account any
liquidation preferences or other rights attendant to such class, any
minority stockholder discount, majority stockholder premium or
marketability or other discount or premium, as the case may be.
"DISPOSITION DATE" shall be the last day of the calendar month immediately
preceding the event giving rise to the purchase of the Stock under Section
4 hereof.
(ii) If the transferring Stockholder, on the one hand, and DHS on the
other hand, do not agree upon the selection of an appraiser or appraisers,
as provided in Section 6(b)(i), within the period therein stated, then,
within seven (7) days after the expiration of the fourteen (14) day period
provided for in Section 6(b)(i) hereof, the transferring Stockholder shall
appoint an appraiser, and DHS shall appoint a second appraiser. The two
(2) appraisers so appointed shall appoint a third appraiser within seven
(7) days after both shall have been appointed. If either the transferring
Stockholder or DHS shall fail to so appoint an appraiser, the appraiser
duly appointed by the other shall serve as the sole appraiser and such
appraiser shall determine the fair market value of the Stock and such
determination shall be binding, final and conclusive on all parties. The
said appraisers so appointed (or the sole appraiser if any party fails to
select an appraiser as provided above), shall, within thirty (30) days
after the last appointment thereof determine the fair market value of the
Stock and the determination of such appraiser shall be determinative of the
fair market value of the Stock for the purposes of this Agreement and shall
be binding, final and conclusive on all parties. If the appraisers cannot
agree on the fair market value of the Stock, within the time allotted, then
such fair market value shall be the median of the two appraisals closest in
value to each other.
(iii) All expenses incurred in the appraisal process shall be
borne and paid equally by the transferring Stockholder, and DHS.
7. PAYMENT OF PURCHASE PRICE. The payment of any purchase price for
Stock transferred pursuant to Section 4 hereof may be made on such terms as are
agreed upon by the parties but, absent such agreement shall be made as follows:
(a) CASH PORTION. Subject to the terms of Section 7(d) hereof and, with
respect to any Involuntary Transfer, subject to such other terms and conditions
as may be required by any court which has then exercised jurisdiction over any
Involuntary Transfer Stockholder with respect to its Stock, or to any assignee,
trustee in bankruptcy or successor in interest, as the case may be, (i) in the
event of any transfer pursuant to Section 4 (other than as a result of the death
of a Management Stockholder), (A) where DHS is the purchaser, ten percent (10%)
of the total purchase price of the Stock shall be paid in cash by DHS on the
Closing Date, as defined in Section 7(e) hereof, and (B) where any party other
than DHS is the
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purchaser, the entire amount of the purchase price of the Stock shall be paid by
check by such purchaser(s) on the Closing Date, and (ii) in the event of any
transfer as a result of the death of a Management Stockholder, DHS shall pay by
check on the Closing Date the greater of (A) the proceeds of any life insurance
policy or policies (but not in excess of the purchase price to be paid by DHS
hereunder) owned by DHS on which the deceased Management Stockholder is the
named insured and DHS is the applicant, owner and beneficiary, and which policy
or policies were purchased for the purpose of using the proceeds thereof to
purchase the shares of Stock of the deceased Management Stockholder upon his
death (rather than to reimburse DHS for the loss of the services to be provided
to DHS by the deceased Management Stockholder), or (B) ten percent (10%) of the
total purchase price of the Stock held by such deceased Management Stockholder.
Notwithstanding the foregoing, if DHS is a purchaser hereunder but is unable,
under applicable law, to make all or any portion of any payment otherwise due
hereunder on the Closing Date, DHS shall pay such portion, if any, as applicable
law permits, and the balance of such payment shall be payable pursuant to the
provisions of Section 7(b) hereof.
(b) PROMISSORY NOTE. The balance of the purchase price shall be
represented by a promissory note of DHS, payable in seven (7) equal annual
installments of principal and interest, the first of which shall be due and
payable on the first anniversary of delivery of such note. The note shall be
substantially in the form of the promissory note attached hereto and made a part
hereof as EXHIBIT A, and contain terms and conditions substantially similar to
the terms and conditions contained therein. Interest shall accrue on, and be
payable with, the unpaid balance of said note from the Closing Date at a rate
equal to the applicable federal rate for long-term debt instruments then
existing on the date of issuance under Code Section 1274(d)(1). As security for
payment of the amounts due under such promissory note, DHS shall pledge to the
selling Stockholder such shares of Stock being acquired until such time as all
payments due thereunder have been paid in full, provided that such selling
Stockholder shall not be entitled to exercise any voting or other rights with
respect to such shares of Stock so long as DHS is not in default of any payment
due under such note.
(c) DEBT DUE FROM STOCKHOLDER. Any debt due by the transferring
Stockholder to DHS shall be payable according to its terms, as shall any debt
due by DHS to the transferring Stockholder; except, however, that, regardless of
the terms of any such debt due by the Stockholder to DHS, any cash payment due
under Section 7(a) hereof, as well as any insurance proceeds payable under
Section 8 hereof, with respect to the purchase of the transferring Stockholder's
Stock shall, instead of being paid to the transferring Stockholder, be first
applied to the discharge of any such indebtedness, until all such indebtedness
is fully discharged. The provisions of this Section 7(c) shall also apply to
any purchases of Stock by DHS pursuant to Section 5 hereof.
(d) INVOLUNTARY TRANSFERS. DHS shall settle with an assignee, trustee in
bankruptcy, attaching court or officer or successor in interest holding Stock
received in an Involuntary Transfer by taking any or all such Stock in execution
and paying to them the purchase price for each share of such Stock calculated
pursuant to Section 6, but not exceeding the Stockholder's indebtedness and
proper items of expense. The balance of the value of such Stock, if any, shall
be distributable to the Stockholder with such payments to be applied in the
order due in accordance with Section 7.
(e) CLOSING. Closing on the sale of any shares of Stock sold pursuant to
Section 4 of this Agreement shall, unless otherwise agreed to in writing by the
purchaser(s) and the transferring Stockholder, or otherwise provided in this
Agreement, be held at the principal place of business of DHS (i) thirty (30)
days from (A) the date that the last applicable period for exercising an
unexercised option to purchase has lapsed, (B) the date an option to purchase is
accepted or exercised, or (C) with respect to a sale as the result of the
disability of Rifkin or Kimmel pursuant to Section 4(f)(ii), the date of
delivery of the notice required thereunder, or (C) the occurrence of any event
set forth in Section 4(a) (other than death of a Management Stockholder), or
(ii) with respect to the death of a Management Stockholder, ninety (90) days
after the appointment and qualification of a deceased Management Stockholder's
personal representative (collectively, the "CLOSING DATE"); PROVIDED THAT, if an
appraiser or appraisers are appointed to determine the purchase price pursuant
to Section 6, then the Closing shall take place on a date no later than thirty
(30) days from the receipt by the selling Stockholder and the purchaser of the
determination of the fair market value of the Stock if such Closing Date would
occur later than the Closing Date otherwise determined pursuant to this Section
7(e). At the Closing, upon payment of the purchase price (including delivery of
the notes), the certificates representing the Stock to be purchased and sold
hereunder shall be delivered by the selling Stockholder (or his personal or
legal representatives, as the case may be) to the purchaser(s), appropriately
endorsed in blank for transfer. If the certificates representing any shares of
Stock to be so transferred have not been surrendered by the selling Stockholder,
all rights of the holder thereof with respect to said Stock (including voting
rights) nonetheless shall cease and terminate.
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8. LIFE INSURANCE.
(a) PURCHASE AND OWNERSHIP OF POLICIES. As soon as practicable following
the execution of this Agreement, DHS shall use its commercially reasonable best
efforts to purchase a life insurance policy on the life of each Management
Stockholder in such amounts, if any, as DHS' Board of Directors deems reasonable
and appropriate. DHS shall be the owner and beneficiary of each such policy,
and any proceeds received thereunder shall be held by DHS in trust for the
purposes of satisfying DHS' purchase obligations hereunder. Each Management
Stockholder agrees to cooperate with DHS in obtaining, and in keeping in full
force and effect, all such policies. Once a policy has been purchased, DHS
shall maintain all such insurance policies in full force and effect and shall
not, without the prior written consent of the respective Management Stockholder,
cancel any such policy or take or omit to take any action which might give rise
to the termination or cancellation thereof. DHS shall pay premiums on all
insurance policies as they become due. DHS may, when it deems appropriate,
apply any dividends declared and paid on such policies to the payment of
premiums. No party hereto shall have any obligations hereunder to the extent a
Management Stockholder is either uninsurable or may not be insured as herein
contemplated at upon commercially reasonable terms. Notwithstanding the
foregoing, DHS may, in lieu of or in addition to policies of insurance acquired,
owned and administered as set forth above, in the discretion of its Board of
Directors, provide as benefits to its employees, including Management
Stockholders, such other and additional policies of insurance or other insurance
benefit plans on such other or additional terms and conditions, including
ownership of policies of insurance in whole or in part by employees, including
Management Stockholders, as it deems reasonable and appropriate.
(b) Option to Purchase Policies. If a Management Stockholder transfers
all of his Stock during his lifetime pursuant to Sections 4 or 5, or if this
Agreement is terminated without being superseded by a similar agreement prior to
such Management Stockholder's death, such Management Stockholder, or any
designee of such Management Stockholder, shall have the right, during the sixty
(60) day period beginning with the date of transfer or termination of this
Agreement, to purchase any life insurance policy insuring his life owned by DHS
by paying DHS an amount equal to the cash surrender value of such policy
(determined after payment of all policy loans incurred to pay premiums due
thereunder and interest thereon) as of the date of purchase, plus the unearned
portion of any premiums which shall have been paid thereon.
9. VOTING BY STOCKHOLDERS.
(a) SALE OF STOCKHOLDER'S STOCK. If any vote, consent, determination or
other action is required or permitted to be made by the Stockholders and/or by
DHS pursuant to the terms of this Agreement in order to authorize and permit DHS
to exercise any of its rights hereunder, any Stockholder who would, upon
exercise of said rights by DHS, thereby become obligated to sell his Stock,
shall cast his vote and otherwise act, (i) as a Stockholder, by voting his stock
in the same manner as do the holders of a majority of shares of Stock other than
his own, and, (ii) as a director, by voting in the same manner as do a majority
of the directors other than himself. A Stockholder who becomes obligated to
sell his shares of Stock hereunder shall execute such instruments as may be
necessary or appropriate to effect any action required or permitted to be taken
by the Stockholders and the directors of DHS pursuant to the terms of this
Agreement.
(b) CLASS A DIRECTORS. Each of the present and future holders of Class A
Common Stock hereby agrees (i) to vote his shares of Stock to elect Stewart
Gold, Alan Kimmel, and Scott Rifkin, as three of DHS' Class A Common Stock
Directors for as long as their respective Employment Agreements with DHS are in
full force and effect, and (ii) if then serving as a Class A Common Stock
Director, to offer to resign as a director immediately upon termination of his
employment with DHS.
(c) ISSUANCE OF ADDITIONAL SHARES OF STOCK. Subject to such rights of the
Series A Preferred Stock Directors pursuant to Article IV, Section B.1(c) of the
DHS Amended and Restated Articles, to such rights of the Series B Preferred
Stock Directors pursuant to Article IV, Section C.1(c) of the DHS Amended and
Restated Articles, to such rights of the Series C Preferred Stock Directors
pursuant to Article IV, Section D.1(c) of the DHS Amended and Restated Articles,
to such rights of the holders of Series A Preferred Stock pursuant to Article
IV, Section B.1(e) of the DHS Amended and Restated Articles, to such rights of
the holders of Series B Preferred Stock pursuant to Article IV, Section C.1(e)
of the DHS Amended and Restated Articles, and to such rights of the holders of
Series C Preferred Stock pursuant to Article IV, Section D.1(e) DHS Amended and
Restated Articles, to exercise their respective rights with respect to the
matters set forth therein, each Stockholder agrees (i) to vote his or its shares
of Stock, (ii) to use commercially reasonable best efforts to cause his or its
Affiliates to vote their shares of Stock, and (iii) if serving as a Director of
DHS, to vote as a Director, to cause DHS to issue additional shares of stock to
the Persons and in the amounts as are necessary:
(1) to comply with the provisions of a public offering of DHS Common
Stock pursuant to a registration statement filed with the Securities and
Exchange Commission;
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(2) to fund or comply with the provisions of a stock option plan,
restricted option plan, employee stock purchase plan, stock bonus plan or other
employee stock plan or benefit approved and implemented by the Board for the
benefit of officers, directors or employees of DHS, provided that the aggregate
numbers of shares issued in respect of all such plans shall not exceed ten
percent (10%) of the fully diluted capital stock of DHS calculated as of the
time of the issuance and after giving effect thereto;
(3) upon conversion of any shares of Convertible Preferred Stock;
(4) for the acquisition of another corporation by DHS by merger,
purchase of substantially all of the assets of such corporation or other
reorganization resulting in the ownership by DHS of not less than fifty percent
(50%) of the voting power of such corporation;
(5) as a result of a stock split, stock dividend or reclassification
of shares of Common Stock distributable on a pro rata basis to all holders of
Common Stock, with respect to any shares of Stock which have been repurchased by
DHS and are being resold; and/or
(6) to permit BMGGP, Inc., as General Partner of the LP, to issue
Additional Limited Partner Interests upon acquisition of additional Medical
Practices from and after the time that there are sixty-six (66) physicians who
hold Limited Partner Interests in the LP (including options to purchase Limited
Partner Interests) directly or indirectly through their professional
corporations.
10. SPECIFIC PERFORMANCE. Because the shares of Stock cannot be readily
purchased or sold in the open market, irreparable damage would result in the
event this Agreement is not specifically enforced. Therefore, the rights to, or
obligations of, any party shall be enforceable in a court by a decree of
specific performance, and appropriate injunctive relief may be applied for and
granted in connection therewith. Such remedies, and all other remedies provided
for in this Agreement, shall, however, be cumulative and not exclusive and shall
be in addition to any other remedies which any party may have under this
Agreement or otherwise. Notwithstanding any other provision of this Agreement,
including, without limitation, the provisions of this Section 9, holders of
Convertible Preferred Stock shall have no obligation to vote for any matter
which requires the consent of such Stockholders or of the directors of DHS
elected by them under the Amended and Restated Articles of Incorporation of DHS.
11. GUARANTEE OF CERTAIN MANAGEMENT STOCKHOLDERS.
(a) Pursuant to the terms and conditions of Gold, Rifkin and Kimmel's
respective DHS Employment Agreements, such Management Stockholders are each
required to secure, or to assist the other officers and employees of DHS in
securing, financing for DHS to satisfy DHS' capital requirements as set forth in
its financial projections. The parties hereto have entered into the
transactions contemplated by the Practice Participation Agreement on the
assumption that DHS would receive cash as a result of equity financing in an
amount of not less than $5 million on or before February 28, 1998 (the "FINAL
MATURITY DATE").
(b) If DHS does not receive at least $5 million of cash as a result of
equity financing proceeds by the Final Maturity Date, the amount of equity
financing proceeds actually received by DHS on or before such date shall be
subtracted from $5 million (such positive difference being the "remainder"), and
each of Gold, Rifkin and Kimmel shall present to DHS for cancellation, and DHS
shall immediately cancel that number of shares of Class A Common Stock held by
each such Management Stockholder equal to the product of the number of fully
diluted shares of Class A Common Stock held by such Management Stockholder on
the Closing Date, times a fraction, (i) the numerator of which shall be such
remainder, and (ii) the denominator of which shall be 5 million.
(c) Each of the parties hereto acknowledges and agrees that any transfer
of shares of Class A Common Stock pursuant to the provisions of this Section 11
shall not be subject to the limitations and restrictions on transfer, and the
rights granted to the other Stockholders and DHS with respect to transfers, as
otherwise provided in Section 5 hereof.
(d) Each of the Management Stockholders and DHS hereby agree that the
provisions of this Section 11 shall be deemed to be amendments to each
Management Stockholder's respective DHS Employment Agreement, and hereby becomes
a part thereof.
(e) For purposes of this Section 11, an equity financing shall include any
transaction in which Capital Stock of DHS is issued in return for cash.
12. SEVERABILITY. It is the express intention of the parties that the
agreements contained herein shall have the widest application possible. If any
agreement contained herein is found by a court having jurisdiction to be
unreasonable in scope or character, the agreement shall not be rendered
unenforceable thereby, but the parties shall in good faith negotiate a
modification to the agreement that preserves the essence of the agreement of the
parties contained herein with retroactive effect to render such agreement
reasonable and such agreement shall be enforced as thus modified. If the court
having jurisdiction will not review the agreement, then the parties shall
mutually agree to a revision having an effect
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as close as permitted by law to the provision declared unenforceable. The
parties further agree that in the event a court having jurisdiction determines,
despite the express intent of the parties, that any portion of any covenant or
agreement contained herein is not enforceable, the remaining provisions of this
Agreement shall nonetheless remain valid and unenforceable.
13. ENDORSEMENT OF CERTIFICATE. Upon the execution of this Agreement,
each certificate of Stock of DHS now registered in the name of a Stockholder and
subject hereto shall be endorsed by the Secretary of Company as follows:
"This certificate is transferable only upon compliance with the
provisions of a restrictive agreement dated January 31, 1997, by and among
Doctors Health System, Inc. and certain of its stockholders, a copy of
which is on file in the office of the Secretary of DHS and is available
upon request of any stockholder without charge."
All certificates for any shares of Stock hereinafter issued to Stockholders
shall bear the same endorsement, and this Agreement shall cover all such stock.
14. TERM. Anything contained herein to the contrary notwithstanding,
this Agreement shall terminate, and all rights and obligations shall cease,
except for rights and obligations under any then extant promissory note pursuant
to Section 7 hereof, upon the occurrence of any of the following events:
(i) The written agreement of each of the then parties hereto; or
(ii) The cessation of DHS' business; or
(iii) The bankruptcy, liquidation, receivership, or dissolution
of, or assignment for the benefit of creditors by, DHS;
(iv) Any Change in Control of DHS; or
(v) The consummation of any public offering of DHS Capital Stock.
15. NOTICES. All notices, offers, acceptances, requests and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered or mailed by certified or registered mail to a
Stockholder, as may be required, at their addresses on DHS records, and to DHS
at DHS's principal place of business. Any party hereto may change his or its
address for notice by giving notice thereof in the manner hereinabove provided.
16. AMENDMENT. Any term or condition set forth in this Agreement may be
amended, modified or altered, and additional terms and conditions may be
incorporated into this Agreement only with the express written consent of all of
DHS and the Stockholders. All of such amendments, modifications, alterations or
additions shall be effective as of the date of such unanimous consent, shall be
in writing, and shall be provided to each of the parties hereto.
17. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof. This Agreement shall be binding upon, and inure to the benefit of, and
shall be enforceable by, the heirs, successors, assigns, and personal
representatives of the parties hereto. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland, without regard
to principles of conflicts of law. In case any term of this Agreement shall be
held invalid, illegal or unenforceable in whole or in part, neither the validity
of the remaining part of such term nor the validity of the remaining terms of
this Agreement shall in any way be affected thereby. Each of the parties agrees
that he will consent to and approve any amendments of the DHS Amended and
Restated Articles or by-laws of DHS which may be necessary or advisable in order
to conform any of the provisions of this Agreement or any amendments hereto to
the applicable laws of the State of Maryland as now or hereafter enacted. Each
Stockholder agrees to vote his shares of Stock in DHS and to execute and deliver
such documents as may be necessary in order to implement the provisions of the
preceding sentence. Nothing set forth or referred to herein expressed or
implied is intended or shall be construed to convey upon or give to any person
other than the parties and their successors or permitted assigns, any rights or
remedies under or by reasons of this Agreement. Each of the Stockholders agrees
that, if DHS is able to enter into any arrangement with a Management Stockholder
or another Stockholder, regarding the repurchase of such Management
Stockholder's or other Stockholder's capital stock that is manifestly more
favorable to DHS than the arrangements set forth herein, to execute and deliver
to an amendment to this Stockholders Agreement reflecting such arrangement.
18. INTERPRETATION. The parties and their respective legal counsel and
accountants actively participated in the negotiation and drafting of this
Agreement, and in the event of any ambiguity or mistake herein, or any dispute
among the parties with respect to the provisions hereof, no provision in this
Agreement shall be construed unfavorable against any of the parties on the
ground that it or its counsel was the drafter thereof.
19. WILLS. Each Management Stockholder shall promptly execute a will or
codicil to his will authorizing and directing his personal representatives to
perform all of his obligations under this Agreement, but the failure to execute
such a will shall not affect the rights of the remaining Stockholders or
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the obligations of their personal representatives, heirs, descendants, or
estates, as provided in this Agreement.
20. CANCELLATION OF PRIOR AGREEMENT. This Agreement supersedes and
replaces that certain Stockholders Agreement by and among DHS, the Management
Stockholders, the LP, the Series A Investor and the Series B Investor, dated
September 4, 1996 (the "OLD STOCKHOLDERS AGREEMENT") in its entirety. The Old
Stockholders Agreement is hereby cancelled, rescinded and abrogated.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as an instrument under seal as of the date first above written.
WITNESS/ATTEST: DOCTORS HEALTH SYSTEM, INC.
By: /s/ Stewart B. Gold
- ---------------------------- -----------------------
Stewart B. Gold, President
MANAGEMENT STOCKHOLDERS:
/s/ Stewart B. Gold
- ---------------------------- --------------------------
Stewart B. Gold, individually
/s/ Scott M. Rifkin
- ---------------------------- --------------------------
Scott M. Rifkin, individually
/s/ Alan Kimmel
- ---------------------------- --------------------------
Alan Kimmel, individually
MEDICAL HOLDINGS LIMITED
PARTNERSHIP
By: BMGP, Inc., its General Partner
By: /s/ Scott M. Rifkin
--------------------------
Scott M. Rifkin, President
ST. JOSEPH MEDICAL CENTER, INC.
By:
- ---------------------------- -----------------------
Name: John S. Prout
Title: President & CEO
MED-LANTIC MANAGEMENT
SERVICES, INC.
By:
- ---------------------------- -----------------------
Name:
Title:
GENESIS HEALTH VENTURES, INC.
By:
- ---------------------------- -----------------------
Name:
Title:
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<PAGE>
EXHIBIT 1
MANAGEMENT STOCKHOLDERS
Shares Percent
------ -------
Stewart B. Gold 600,000 75%
Scott Rifkin 100,000 12.5%
Alan Kimmel 100,000 12.5%
