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PROSPECTUS SUPPLEMENT NO. 27 Filed Pursuant to Rule 424(b)(3)
To the Prospectus dated January 24, 1997 Registration No.: 333-1926
As Supplemented to date
9,874 Shares
of
Class B Common Stock of
Doctors Health, Inc.
This Prospectus Supplement relates to the proposed acquisition (the
"Acquisition") of certain assets and liabilities (the "Acquired Business") of
Gary J. Sprouse, M.D., P.A., a Maryland corporation ("Medical Practice") by
Doctors Health, Inc., a Maryland corporation ("Doctors Health" or the
"Company"), and Anne Arundel Medical Group, LLC, a Maryland limited liability
company ("Medical Group"). At the closing of the Acquisition, Doctors Health
will issue 9,874 shares (the "Share Consideration") of its Class B Common
Stock, par value $.01 per share (the "Class B Common Stock") and will pay
$63,475.00 ("Cash Consideration") to the Medical Practice in accordance with
the Agreement and Plan of Merger described in this Prospectus Supplement.
Doctors Health's principal executive office is located at 10451 Mill Run
Circle, Tenth Floor, Owings Mills, Maryland 21117, telephone number (410)
654-5800. Medical Group's principal executive office is located at 10451
Mill Run Circle, 10th Floor, Owings Mills, Maryland, telephone number (410)
654-5800. Medical Practice's principal executive office is located at 2108 Di
Donato Drive, Chester, Maryland 21619. The information presented in this
Prospectus Supplement concerning Doctors Health and Medical Group has been
provided by Doctors Health, and the information concerning Medical Practice
has been provided by Medical Practice.
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, 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" on page S-3 for certain information that should be
considered in connection with an investment in securities of Doctors Health.
The date of this Prospectus Supplement is August 15, 1997.
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SUMMARY OF TRANSACTION
The following summary is qualified in its entirety by, and subject to the
more detailed information and financial statements contained in this Prospectus
Supplement and the Prospectus dated January 24, 1997, as supplemented to date by
Prospectus Supplements No. 1 (10-Q), 14 (10-Q), 25 (8-K) and 26 (Shareholders
Letter Agreement). Unless otherwise defined herein, capitalized terms have the
meanings assigned to them in the Prospectus. See the definitions set forth in
the Glossary to the "Prospectus."
Parties to the Acquisition
Doctors Health. Doctors Health is a Maryland corporation organized in 1994
to develop and consolidate individual and groups of internists, pediatricians
and family practitioners, specialist physicians, hospitals and other health care
providers into primary care-driven, comprehensive managed care health care
delivery networks.
Anne Arundel Medical Group, LLC. Anne Arundel Medical Group, LLC ("Medical
Group") is a Maryland Limited Liability Company organized in 1996 to conduct
medical practices in Anne Arundel County, Maryland, and counties near Anne
Arundel County.
Medical Practice. The Medical Practice is a Maryland corporation which
conducts business in Chester, Maryland.
The Acquisition; Closing
Pursuant to the Agreement and Plan of Merger (the "Acquisition Agreement")
between Medical Practice and Doctors Health, (i) Medical Practice shall merge
with and into Anne Arundel Newco, Inc., a wholly-owned subsidiary of Doctors
Health, and the separate existence of the Medical Practice shall cease; (ii)
Anne Arundel Newco shall transfer to Medical Group all right, title and interest
in and to any assets used to provide laboratory services and other services
ancillary to the Medical Practice, (iii) Doctors Health shall issue 9,874 shares
of its Class B Common Stock (the "Share Consideration") to Dr. Gary J. Sprouse
and (iv) Doctors Health shall pay $63,475.00 ("Cash Consideration") to Dr. Gary
J. Sprouse, on the terms and subject to the conditions set forth in the
Acquisition Agreement. A copy of the Acquisition Agreement is attached to this
Prospectus Supplement as Annex A and is incorporated herein by reference.
The Acquisition is to be consummated as soon as practicable after all
approval and events required for the Acquisition have occurred and all
conditions precedent to the Acquisition have been fulfilled or waived or on such
other date on which Medical Practice and Doctors Health may agree (the "Closing
Date"). It is expected that the Closing Date will occur on or about August 15,
1997.
Resale of Class B Common Stock
The shares of Class B Common Stock offered to the Medical Practice by this
Prospectus Supplement have been registered under the Securities Act. The shares
will be subject to the Shareholders Letter Agreement attached hereto as Annex B
and therefore, will not be freely transferable. In addition, under the
Securities Act certain additional restrictions on transfer apply to resale of
shares of the Class B Common Stock received by "affiliates" of Doctors Health.
There is no public market for the Class B Common Stock. See "Resale of Class B
Common Stock."
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RISK FACTORS
Financial Performance of Medical Practice and Doctors Health
Doctors Health negotiated the Share Consideration and Cash Consideration on
the basis of the presence of Medical Practice in a desirable geographic market
into which Doctors Health intends to expand. After the Closing Date, Doctors
Health will recruit additional primary care physicians as members of Medical
Group. There can be no assurance that after the Closing Date of the
Acquisition, such recruitment will be successful, that Medical Practice's
pre-Acquisition relationships with its patients will be beneficial to Doctors
Health and Medical Group, that Doctors Health will be able to successfully
develop an integrated health care delivery network in areas in which Medical
Group's members practice, or that Doctors Health can successfully integrate
Medical Practice into Global Capitated Contracts. See the sections in the
Prospectus "Risk Factors -- Uncertainty of Strategy; Acquisition Risks," "--
Integration of Operations," and "-- Dependence of the Company on Core Medical
Groups and IPAs."
Doctors Health has a limited operating history and for the fiscal year
ended June 30, 1996 and the nine months ended March 31, 1997, recorded a net
loss of approximately $6.6 million and $10.3 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 Closing Date 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.
PROPOSED ACQUISITION OF MEDICAL PRACTICE BY DOCTORS HEALTH
The following description of the Acquisition does not purport to be
complete and is qualified in its entirety by reference to the Acquisition
Agreement, a copy of which is attached to this Prospectus Supplement as Annex A
and is incorporated herein. Representatives of Medical Practice are urged to
read the Acquisition Agreement in its entirety.
General
On the Closing Date of the Acquisition, (i) Medical Practice shall merge
with and into Anne Arundel Newco, Inc., a wholly-owned subsidiary of Doctors
Health, and the separate existence of Medical Practice shall cease; (ii) Anne
Arundel Newco shall transfer to Anne Arundel Medical Group, LLC all right, title
and interest in and to any assets used to provide laboratory services and other
services ancillary to the Medical Practice, (iii) Doctors Health shall issue
9,874 shares (the "Share Consideration") of its Class B Common Stock to Dr. Gary
J. Sprouse, and (iv) Doctors Health shall pay $63,475.00 ("Cash Consideration")
to Dr. Gary J. Sprouse, on the terms and subject to the conditions set forth in
the Acquisition Agreement.
Background of the Acquisition
The health care industry is undergoing rapid evolution, including the
consolidation of individual medical practices into larger medical groups and
independent practice associations as well as radical changes in the way
physicians are compensated for the delivery of medical services.
In Baltimore, Maryland, Washington, D.C., Northern Virginia and surrounding
regions, physicians have increasingly become affiliated with managed care and
medical management companies such as
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Doctors Health which provide physicians with certain administrative, billing,
bookkeeping and budgeting services. Companies such as Doctors Health also
provide the physicians with access to Managed Care contracts and necessary
tools to perform such contracts, including state of the art disease
management protocols, care management, referral management and utilization
review services. In this environment, Doctors Health has been entering into
contractual and equity ownership relationships with primary care physicians,
specialists and other health care providers in order to develop an Integrated
Health Care Delivery System that focuses on managed care.
Against this backdrop, Doctors Health and the Medical Practice
independently reached the conclusion that developing alliances with additional
provider groups and companies focusing on the efficient delivery of health care
would enhance their abilities to respond to changing conditions in the health
care industry.
Reasons for the Acquisition
As part of its business strategy, Doctors Health seeks to negotiate Global
Capitated Contracts by, among other things, providing Payors with established
health care delivery networks capable of providing for the delivery of medical
care to Enrollees of the HMO or other Payor. In order to accomplish this
strategy, Doctors Health seeks to establish networks throughout the Baltimore
and Washington metropolitan area, Northern Virginia and surrounding regions.
For Doctors Health, Medical Practice represents an opportunity to implement its
business plan in a market where it does not currently operate, and to earn
revenues through inclusion of Medical Practice in Doctors Health's Managed Care
contracts.
Approval by the Doctors Health Board
For the reasons described below, the Doctors Health Board has approved the
Acquisition.
Doctors Health continuously analyzes potential acquisition candidates in
Maryland, the District of Columbia and Virginia. The Doctors Health Board of
Directors believes that the Acquisition is fair to and in the best interests of
Doctors Health for the reasons described below. Accordingly, the Doctors Health
Board of Directors has approved the Acquisition Agreement and the Acquisition.
The Doctors Health Board of Directors consulted with Doctors Health
management and legal counsel. It considered the following factors to be
material to and in support of its final determination:
(i) The Acquisition is expected to enable Doctors Health to take
advantage of Medical Practice's existing goodwill, infrastructure and
leadership in areas in which Medical Group's members practice in order to
establish an Integrated Health Care Delivery System in those areas. Such
expansion of Doctors Health's existing network is expected to enhance
Doctors Health's ability to win new Payor contracts and to attract
additional Enrollees.
(ii) The Acquisition and the efforts of Doctors Health to establish an
Integrated Health Care Delivery System are expected to substantially
increase Doctors Health's size in terms of revenues, profits, physicians
and locations which is expected to enhance Doctors Health's reputation in
the Mid-Atlantic region, making it easier to attract and retain new
physicians and win new Payor contracts.
In addition to the foregoing, the Doctors Health Board of Directors
generally considered those matters discussed under "RISK FACTORS". The Board of
Doctors Health concluded that the risks did not outweigh the advantages of the
Acquisition and that the Acquisition was in the best interests of Doctors Health
and its stockholders.
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Accounting Treatment
The Acquisition will be accounted for as a purchase transaction for
financial reporting purposes under APB 16.
THE ACQUISITION AGREEMENT
Set forth below is a summary of the material terms of the Acquisition
Agreement. The following description does not purport to be complete and is
qualified in its entirety by reference to the Acquisition Agreement, a copy of
which is attached as Annex A to this Prospectus Supplement and is incorporated
by reference herein.
General
On the Closing Date of the Acquisition, (i) Medical Practice shall merge
with and into Anne Arundel Newco, Inc., a wholly-owned subsidiary of Doctors
Health, and the separate existence of Medical Practice shall cease; (ii) Anne
Arundel Newco shall transfer to Medical Group its right, title, and interest in
and to any assets used to provide laboratory services and other services
ancillary to the Medical Practice, (iii) Doctors Health shall issue 9,874 shares
(the "Share Consideration") of its Class B Common Stock to the Physician, and
(iv) Doctors Health shall pay $63,475.00 ("Cash Consideration") to the
Physician, on the terms and subject to the conditions set forth in the
Acquisition Agreement.
Representations and Warranties
The Acquisition Agreement contains various representations and warranties
by Doctors Health relating to, among other things (i) organization and corporate
power and authority, (ii) authority to enter into and perform the Acquisition
Agreement, and (iii) that the shares of the Class B Common Stock to be issued
will be fully paid and nonassessable. The Acquisition Agreement contains
various representations and warranties by Physician and the Medical Practice
relating to, among other things, (i) ownership of the practice and title and
condition to assets, (ii) compliance with agreements, (iii) compliance with
laws, (iv) absence of litigation, (v) information as to contracts, (vi)
information as to taxes, and (vii) information as to financial statements and
accounts receivable.
Additional Covenants and Agreements
Pursuant to the Acquisition Agreement, Medical Practice and Physician have
agreed among other things (i) to provide to Medical Group or Doctors Health all
information necessary to allow such parties to comply with applicable law, and
(ii) to provide on the Closing Date an ASCII formatted file with patient
demographics and accounts receivable. If Medical Practice does not have the
capability to provide this information, Doctors Health will assist Medical
Practice in converting such information to a format acceptable to Doctors
Health. Pursuant to the Acquisition Agreement, each of the physicians
practicing with the Medical Practice have agreed that if the employment
agreement between such Physician and Medical Group (each, an "Employment
Agreement") is terminated under certain circumstances provided for in the
Employment Agreement, such physician agrees (a) to cooperate with Doctors
Health, Medical Group and each stockholder of the Medical Group to organize a
new corporation or other entity to provide primary medical care and related
services, (b) to engage in the practice of medicine exclusively through such new
primary care entity, and (c) to enter into an employment agreement with such new
entity on terms substantially similar to the Employment Agreement and to use
best efforts to cause such new entity to enter into an agreement with Doctors
Health for the provision of assets, facilities and non-professional services,
substantially similar to the Physician Services Organization Agreement between
Doctors Health and Medical Group.
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Employment Agreement
At the Closing, the Physician shall enter into an Employment Agreement with
Medical Group. See "BUSINESS - Development of Integrated Health Care Delivery
System- Employment of Physicians by the Core Medical Group" in the Prospectus
dated January 24, 1997 for a description of the material terms of the Employment
Agreement.
Additions and Withdrawals of Physicians from Medical Group
Under the terms of the Acquisition Agreement, Doctors Health shall have the
exclusive authority (a) to negotiate the price and terms with respect to the
acquisition from time to time of the medical practices of such additional
physicians and such additional physician's employment by Medical Group or
additional medical groups organized by Doctors Health, and (b) to negotiate the
withdrawal of physicians from the Medical Group. In such connection, each
physician practicing with Medical Practice irrevocably appoints Doctors Health
and the Chairman of Medical Group (or their designee) as attorney-in-fact and
agent to execute any documents required to provide for the admission or
withdrawal of physicians as members of Medical Group and any other transaction
related to acquisition of medical practices, and releases and agrees to
indemnify and hold harmless Doctors Health and the Chairman of Medical Group and
their directors, officers, employees or shareholders from any claims arising in
connection with their performance of their duties in such connection.
Additional Agreements
Pursuant to the Acquisition Agreement, Medical Practice and Doctors Health
have made the following additional agreements:
Access to Information. Medical Practice shall provide to Doctors Health
and Medical Group and their respective accountants, counsel, financial advisors
and other representatives reasonable access during normal business hours
throughout the period prior to the earlier of the termination of the Acquisition
Agreement or the Closing Date to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, tax returns)
and, during such period, shall furnish promptly to one another (i) a copy of
each report, schedule and other document filed or received by any of them
pursuant to the requirements of federal or state securities laws or filed by any
of them with the Commission in connection with the transactions contemplated by
the Acquisition Agreement or which may have a material effect on their
respective businesses, properties or personnel and (ii) such other information
concerning their respective businesses, properties and personal as they shall
reasonably request. The parties shall hold and shall use their reasonable best
efforts to hold in strict confidence all confidential information obtained in
the course of their respective investigations.
In the event that the Acquisition Agreement is terminated in accordance
with its terms, each party shall promptly return to the other all non-public
written material provided pursuant to this section and shall not retain any
copies, extracts or other reproduction in whole or in part of such written
material.
BUSINESS OF DOCTORS HEALTH
The business of Doctors Health is described in the Prospectus.
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BUSINESS OF MEDICAL PRACTICE
The Medical Practice conducts an internal medicine practice at 2108 Di
Donato Drive, Chester, Maryland 21619.
RESALE OF CLASS B COMMON STOCK
The shares of Class B Common Stock of Doctors Health offered by this
Prospectus Supplement have been registered under the Securities Act, allowing
persons or entities who are not "affiliates of Doctors Health or Medical
Practice (as defined under the Securities Act, but generally including
directors, certain executive offices, and 10% or more stockholders of Doctors
Health or Medical Practice) to trade them freely and without restriction under
the Securities Act except as limited by certain contractual restrictions set
forth in the Stockholders Agreement or otherwise. Each person or entity who may
be deemed an "affiliate" of Doctors Health will be subject to certain
limitations imposed by the Securities Act, and the rules, regulations and
releases promulgated thereunder, with respect to the sale or other disposition
of the shares of Class B Common Stock to be received by the "affiliate" pursuant
to the Acquisition. This Prospectus does not cover any resales of Class B
Common Stock received by Affiliates of Medical Practice.
In addition to the restrictions on resale that may be imposed on
"affiliates" under the Securities Act, the share of Class B Common Stock of
Doctors Health received by persons or entities (whether or not they are deemed
to be "affiliates") pursuant to the Acquisition are and will be subject to the
terms of Doctors Health's Stockholders Agreement (a copy of which is attached
hereto as Annex B) which provides significant contractual restrictions on the
resale of such Class B Common Stock until an initial public offering for cash of
the Common Stock of Doctors Health or other event constituting a "change in
control" of Doctors Health. The Stockholders Agreement provides that the
signatories may sell and transfer the stock of the Company held by them only
pursuant to such agreement. The Stockholders Agreement contemplated that
Doctors Health may redeem shares of the Class B Common Stock upon an
"Involuntary Transfer" resulting generally from the insolvency of a stockholder
or upon divorce of an individual stockholder. "Voluntary Transfers" are
permitted only after a stockholders offers its stock , upon the same terms and
conditions contained in the offer it wishes to accept, to all other stockholders
on the terms set forth in the Stockholders Agreement. Individual stockholders
may in certain circumstances make estate planning transfers for the benefit of
themselves or family members on certain conditions.
Under the Stockholders Agreement, in the event of an "Involuntary Transfer"
or the death or disability of a management Stockholder, the purchase of the
stock and the transferring stockholder may agree on the purchase price of the
stock to be sold in such event. If the parties cannot agree on a price, the
price shall be the fair market value of the stock, as determined by a jointly
selected appraiser, as of the last day of the calendar month immediately
preceding the event giving rise to the purchase of the stock, in accordance with
the procedures set forth in the Stockholders Agreement. in the event of a
"Voluntary Transfer", the purchase price to be paid by the other stockholders or
Doctors Health, if they exercise their options to purchase the stock, will be
the price at which the stockholder proposes to transfer his stock to the
proposed third party transferee.
LEGAL MATTERS
The validity of the Class B Common Stock offered hereby has been passed
upon for the Company by Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
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ATTACHMENTS
Annex A - Agreement and Plan of Merger
Annex B - Shareholders Letter Agreement
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ANNEX A
DRAFT
8/4/97
______________________________________________________________
AGREEMENT AND PLAN OF MERGER
by and among
DOCTORS HEALTH, INC.,
ANNE ARUNDEL MEDICAL GROUP, LLC.
ANNE ARUNDEL NEWCO, INC.,
DR. GARY J. SPROUSE
and
GARY J. SPROUSE, M.D., P.A.
Dated as of August 15, 1997
_____________________________________________________________
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is
made as of this 15th day of August, 1997 by and among DOCTORS HEALTH, INC. a
Maryland corporation ("Doctors Health"), ANNE ARUNDEL NEWCO, INC., a Maryland
corporation and a wholly-owned subsidiary of Doctors Health ("Newco"), ANNE
ARUNDEL MEDICAL GROUP, LLC, a Maryland limited liability company (the "LLC"),
Gary J. Sprouse, M.D., P.A., Maryland professional service corporation (the
"PA"), and Dr. Gary J. Sprouse, the sole stockholder of the PA (the
"Physician" or the "PA Stockholder").
RECITALS
WHEREAS, the Physician has determined to terminate his
practice of medicine through the PA and has agreed to transfer his medical
practice as conducted through the PA to Doctors Health and to become a member
and an employee of the LLC pursuant to an Employment Agreement and an
Amendment to the Operating Agreement of the LLC of even date herewith;
WHEREAS, Doctors Health, Newco, the LLC, and the PA
desire that the PA and Newco merge on the terms and conditions contained
herein (the "Merger");
WHEREAS, in furtherance of the Merger, each of the Boards
of Directors of Doctors Health, the PA, and Newco, and the stockholder of the
PA and Newco, have deemed the Merger to be advisable and in the best
interests of such entities and their respective stockholders upon the terms
and conditions herein contained; and
WHEREAS, each of the Boards of Directors of Doctors
Health, the PA, and Newco, and the stockholders of the PA and Newco, have
approved the Merger.
NOW, THEREFORE, in consideration of the premises and of
the mutual agreements, representations, warranties, provisions and covenants
herein contained, the parties, intending to be legally bound, agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger.
(a) Subject to the terms and conditions hereof, at
the Effective Time (as herein defined), (i) the PA shall be merged with and
into Newco (the "Merger"), (ii) the separate existence of the PA shall cease,
(iii) Newco shall continue as the surviving corporation, and (iv) the issued
and outstanding shares of the PA Common Stock (the "PA Common Shares") shall
be converted into the right to receive the consideration set forth in Section
1.5 hereof (the "Merger Consideration") in accordance with the Articles of
Merger attached hereto as Exhibit A (the "Articles of Merger").
(b) Simultaneously upon execution of this
Agreement, the parties hereto shall cause the Merger to be consummated by the
filing of the Articles of Merger with the Maryland State Department of
Assessments and Taxation ("SDAT"), together with any other
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documents required by law to effectuate the Merger, all of which shall be
prepared, executed and delivered by the appropriate parties as promptly as
required. The Merger shall become effective as of the time and date the
Articles of Merger are filed and accepted for record (the "Effective Time").
(c) Except as specifically set forth herein, the
identity, existence, purposes, powers, objects, franchises, privileges,
rights, property and immunities of Newco and Doctors Health shall continue
unaffected and unimpaired by the Merger.
(d) At the Effective Time, the PA Common Shares
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into, and constitute a right to receive,
the Merger Shares.
(e) At the Effective Time, all of the shares of
Newco Common Stock issued and outstanding immediately prior to the Effective
Time (the "Newco Shares") shall remain issued and outstanding and unchanged.
1.2 Surrender of Certificates: Conversion of PA Common
Shares.
(a) Upon surrender of the certificates representing
the PA Common Shares to Doctors Health, together with an Assignment Separate
from Certificate duly executed by the PA Stockholder, the PA Stockholder
shall receive, as soon as practicable thereafter and in exchange therefor,
the Merger Consideration issued to the PA Stockholder.
(b) From and after the Effective Time, the PA
Stockholder shall cease to have any rights as a stockholder of the PA, except
the right to enforce the obligation of Doctors Health to issue to him the
Merger Consideration.
1.3 Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at or
immediately following the Effective Time at the offices of Doctors Health,
Inc., 10451 Mill Run Circle, 10th Floor, Owings Mills, Maryland. The date of
the Closing is referred to herein as the "Closing Date." The parties agree
that the Merger and all other transactions contemplated by this Agreement and
the other documents executed and delivered in connection with the Merger (the
"Merger Documents") shall be deemed to have occurred on, and shall be treated
for financial accounting purposes as being effective from and as of, the
Effective Time.
1.4 Deliveries by the PA and the PA Stockholder. At the
Closing, the PA and the PA Stockholder shall deliver the following to
Doctors Health and Newco:
(a) Merger Documents. A certified copy of the
executed Articles of Merger, a copy of the Shareholders Letter Agreement, the
Employment Agreement between the Physician and the LLC, amendments to the
Physician Services Organization Agreement and Operating Agreement of the LLC,
and such other documents as may be contemplated by this Agreement or any of
the foregoing agreements, each signed by the PA Stockholder and/or the PA, as
applicable;
(b) Governmental Consents. Evidence of such
federal, state or other government or governmental agency or authority
certificates, permits, licenses and other
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authorizations, authorities and approvals which are necessary to consummate
the Merger and all other transactions contemplated in this Agreement and in
the other Merger Documents;
(c) Charter Documents. Certified copies of the
Articles of Incorporation and Bylaws of the PA;
(d) Other Documents. Such other instruments and
documents as are contemplated hereby or by any of the other Merger Documents
or which counsel to Doctors Health or Newco reasonably requests as necessary
or appropriate to carry out the terms and provisions hereof or thereof.
1.5 Deliveries by Newco and Doctors Health.
(a) Prospectus. A Prospectus which is part of a
Registration Statement which has been declared effective by the Securities
and Exchange Commission and one or more Prospectus Supplements which contain
more recent and updated information regarding Doctors Health (collectively,
the "Prospectus").
(b) Merger Consideration. As consideration for the
Merger, the PA Stockholder shall in the aggregate receive the following
consideration:
(i) Cash. A check in the amount of $62,505.
(ii) Class B Common Stock. A certificate
representing 9,874 shares of the Class B Common Stock of Doctors Health (the
"Merger Shares").
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF DOCTORS HEALTH AND NEWCO
2.1 Doctors Health and Newco represent and warrant to
the Physician as of the Closing Date as follows:
(a) Organization and Power. Each of Doctors Health
and Newco is a corporation duly incorporated and organized, validly existing
and in good standing under the laws of the State of Maryland. Each of
Doctors Health and Newco has full power and authority (corporate and other)
to own and hold its properties and to conduct its business as currently
conducted.
(b) Authorization of Agreement. The execution,
delivery and performance of this Agreement and the other Closing Documents to
which Doctors Health or Newco is a party have been duly and validly
authorized by Doctors Health or Newco and executed on behalf of Doctors
Health or Newco, and no other proceedings are necessary to authorize this
Agreement.
(c) Class B Common Stock. The Board of Directors
of Doctors Health has authorized the issuance of the Merger Shares to the
Physician, and upon issuance to the Physician of the Merger Shares, the
Merger Shares shall constitute fully paid and nonassessable shares of the
Class B Common Stock of Doctors Health.
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(d) Registration Statement. The Merger Shares have
been registered pursuant to the Securities Act of 1933 pursuant to a
registration statement, which includes the Prospectus and any Prospectus
Supplements, covering the issuance of shares of Class B Common Stock of
Doctors Health (the "Registration Statement"). The Registration Statement is
in effect and there are no stop orders issued by federal or state authorities
with respect to the issuance of securities pursuant to the Registration
Statement. The Registration Statement (i) complies as to form in all
material respects with the rules and regulations of the U.S. Securities and
Exchange Commission and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statement contained therein, in light of the
circumstances under which they were or will be made, not misleading.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
OF THE PA AND THE PA STOCKHOLDER
3.1 The PA and the PA Stockholder hereby, jointly and
severally, represent, warrant and covenant to Doctors Health and Newco as
follows:
(a) Ownership of Practice; Title to and Condition
of Assets. Except as listed on Schedule 3.1, the PA owns and has good and
marketable title to all of the assets, rights, franchises and privileges used
or usable in the Physician's Medical Practice, free and clear of all liens or
encumbrances of any kind. The Assets are in good operating condition and
repair, ordinary wear and tear excepted. The PA or the Physician do not hold
fee title to any real property related to the Medical Practice.
(b) No Conflicts. The execution, delivery and
performance by the PA or the PA Stockholder of this Agreement and the other
Closing Documents to which he is a party do not conflict with or violate any
contract or agreement to which the PA or the PA Stockholder is subject.
(c) Compliance With Laws. The PA or the PA
Stockholder is not in violation of any order, writ, decree, or judgment of
any court, or governmental or regulatory body which violation would (i)
affect the legality, validity or enforceability of this Agreement or any
other Closing Documents or (ii) have a material adverse effect on the PA, its
assets, or the Physician's Medical Practice.
(d) Litigation. There are no lawsuits, proceedings
or investigations pending or threatened against the PA, the Physician or the
Physician's Medical Practice.
(e) Contracts. Schedule 3.1(e) is a true and
complete list of all material contracts or agreements of the PA or the
Physician related to the Medical Practice (the "Contracts"). All of the
Contracts are in full force and effect, and there exists no default under any
such Contract. There are no written or oral binding "side agreements" with
any Person whereby the PA or the Physician has agreed to do any material act
or thing beyond the requirements of the Contracts.
(f) Taxes. The PA or the Physician has duly filed
all Medical Practice and personal federal, state and local tax returns,
declarations or statements which are required to be filed for all periods up
to and through the Closing Date and paid all taxes due.
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(g) Financial Statements.. Attached as Schedule
3.1(g) is a true and complete copy of an internally prepared or audited
accrual basis financial statement of the Medical Practice dated as of
___________________. Such financial statements fairly and accurately present
the assets, liabilities and results of operations of the Medical Practice and
there are no undisclosed liabilities or obligations (contingent or accrued)
that are not reflected on such financial statements or set forth on Schedule
3.1(g).
(h) Receipt of Prospectus. The Physician
acknowledges that he has received the Prospectus.
ARTICLE IV
INDEMNIFICATION
4.1 Tax Indemnities and Related Matters.
(a) Tax Indemnities Provided by the PA Stockholder.
In addition to any other indemnities provided by the PA Stockholder and the
PA hereunder, the PA Stockholder will provide Doctors Health and Newco with
an indemnity for Taxes as follows. The PA Stockholder agree to pay,
indemnify defend and hold harmless Doctors Health and Newco and all of the
members of their affiliated group within the meaning of Section 1504 of the
Code from and against any and all Taxes of the PA with respect to any period
(or any portion thereof) up to and including the Effective Time, except for
Taxes of the PA which are reflected as current liabilities for Taxes on the
PA Financial Statements.
(b) Tax Indemnity Provided by Doctors Health and
Newco. Doctors Health and Newco agree to pay, indemnify, defend and hold
harmless the PA Stockholder from and against any and all Taxes of Newco with
respect to any period (or any portion thereof) beginning after the Effective
Time. In no event will Doctors Health or Newco indemnify the PA Stockholder
or the PA for Taxes that arise as a result of a failure of the Merger to
qualify as a reorganization within the meaning of Section 368(a) of the Code
unless such failure is due to a breach of any representation, warranty or
covenant of Doctors Health or Newco under the terms of this Agreement or the
other Merger Documents.
(c) Procedures Relating to Indemnification of Tax
Claims.
(i) If a claim for Taxes shall be made by any
taxing authority in writing (a "Tax Claim") which, if successful, might
result in an indemnity payment pursuant to Section 4.1(a) or (b) hereof, the
party seeking the indemnification (the "Tax Indemnified Party") shall notify
the other party (the "Tax Indemnifying Party") in writing of such Tax Claim
within fifteen (15) days of receipt of the Tax Claim from the taxing
authority. Upon notice to the Tax Indemnified Party, within fifteen days
(15) after receipt of the notice of such Tax Claim from the Tax Indemnified
Party, the Tax Indemnifying Party may assume (at its own cost and expense)
control of and contest such Tax Claim. If such control is assumed, the Tax
Indemnifying Party may, in its reasonable discretion, pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with
any taxing authority with respect thereto, and may, in its reasonable
discretion, either pay the Tax Claim and sue for a refund where applicable
law permits such refund suits or contest such Tax Claim in any permissible
manner. In no case shall the Tax Indemnified Party or its designated
affiliates settle or otherwise compromise any Tax
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Claim referred to in the preceding sentence without the Tax Indemnifying
Party's prior written consent, which consent may not be unreasonably withheld.
(ii) Alternatively, if the Tax Indemnifying
Party requests in writing within fifteen (15) days after receipt of notice of
such Tax Claim from the Tax Indemnified Party, the Tax Indemnified Party
shall contest such Tax Claim. The Tax Indemnifying Party shall be obligated
to pay all reasonable out-of-pocket costs and expenses (including legal fees
and expenses) which the Tax Indemnified Party or its designated affiliates
may incur in so contesting such Tax Claim as such costs and expenses are
incurred: Under the terms of this Section 4.1(c)(ii), the Tax Indemnified
Party shall have the full right to contest such Tax Claim except that the Tax
Indemnifying Party shall have the right, at its option and expense and with
counsel of its choice, to participate in such contest. The Tax Indemnifying
Party shall be entitled to settle or agree to pay in full such Tax Claim (in
its sole discretion) and thereafter pursue its right under this Agreement.
(iii) If the Tax Claim has not been
contested, the Tax Indemnifying Party shall pay the Tax Indemnified Party all
indemnity amounts with respect to such Tax Claim within ten (10) days after
receipt by the Tax Indemnifying Party of a written demand therefor. If the
Tax Indemnifying Party has assumed control of the contest of such Tax Claim
as provided above (or has requested the Tax Indemnified Party to contest such
proposed adjustment within the time provide above), the Tax Indemnifying
Party shall pay the Tax Indemnified Party all indemnity amounts with respect
to such Tax Claim within ten (10) days after such Tax Claim is paid by the
Indemnified Party or a Final Determination has been made with respect to such
Tax Claim.
(iv) For purposes of this Section 4.1(c), a
"Final Determination" shall mean (x) the entry of a decision of a court of
competent jurisdiction at such time as an appeal may no longer be taken from
such decision or (y) the execution of a closing agreement or its equivalent
between the particular taxpayer and the Internal Revenue Service, as provided
in Section 7121 and Section 7122, respectively, of the Code, or a
corresponding agreement between the particular taxpayer and the particular
state or local taxing authority.
(d) Tax Return Filings and Related Payments. The
accounting firm retained by the PA and the PA Stockholder shall prepare the
corporate federal and state income tax returns of the PA for the tax year
ending immediately prior to the Effective Time. Arthur Anderson, LLP or such
other accounting firm as Doctors Health shall determine shall prepare or
cause to be prepared, and shall file, or cause to be filed, on a timely basis
all other Tax Returns with respect to Newco due after the Effective Time. In
connection therewith, the PA Stockholder shall be responsible for and shall
pay any Taxes for which the PA Stockholder have agreed to indemnify Doctors
Health and Newco pursuant to Section 4.1(a) hereof. Doctors Health and Newco
will use reasonable efforts to provide the PA Stockholder with copies of such
Tax Returns (and related elections) covering the Taxes described in Section
4.1(a), at least 10 days prior to the date Doctors Health and Newco plan to
file such Tax Returns, accompanied by a statement calculating in detail the
PA Stockholder' obligation pursuant to Section 4.1(a) hereof. The PA
Stockholder may have these Tax Returns reviewed by accountants or attorneys
at their personal expense. The PA Stockholder shall pay to Newco the amount
of their indemnification obligations within ten (10) days of receiving copies
of such Tax Returns unless the parties are unable to agree on the amount of
the indemnification obligation hereunder, in which case the amount of the
indemnification obligation which is not in dispute shall be paid to Newco
within ten (10) days and the amount in dispute shall be resolved by a
nationally recognized accounting firm acceptable to both parties whose fees
and expenses shall be paid by Newco and the PA Stockholder in
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proportion to each party's respective liability for Taxes as determined by
the accounting firm. The PA Stockholder shall pay the amount of Taxes
determined by the accounting firm within five days of receipt of such written
determination, together with interest based on the prime rate on such due
date as such rate as published in The Wall Street Journal (Eastern edition).
Such interest shall accrue from the date the payment was due to the taxing
authority until the date Newco receives payment. The PA Stockholder shall
not file or cause to be filed an amended Tax Return or claim for refund for
the PA for any tax year or period ending on or before the Effective Time
without the consent of Newco and Doctors Health.
(e) Certain Tax Information. The PA Stockholder,
the PA, Newco and Doctors Health agree to cooperate and to file their federal
and state income tax returns in a manner consistent with the transactions
contemplated by this Agreement (including the preparation and filing of all
information, schedules or forms required pursuant to Income Tax Regulation
1.368-3, related to tax-free reorganizations, which shall be prepared by
Doctors Health and reviewed by the PA's and the PA Stockholder' accountants).
The PA Stockholder, the PA, Newco and Doctors Health agree to cooperate and
to furnish or cause to be furnished to each other (at reasonable times and at
no charge) upon request as promptly as practicable such information
(including access to books and records) pertinent to such tax filings or as
may be necessary in the preparation for any audit or the prosecution or
defense of any claim, suit or proceeding relating to any Tax Claim which may
result in a party being liable under the indemnification provisions of
Section 4.1(a) and/or (b) hereof.
(f) For purposes of this Agreement,
(i) the term "Tax Returns" shall mean any
return, report, information return or other documents (including any related
or supporting information) required to be supplied to any taxing authority
with respect to Taxes; and
(ii) the term "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to, income, gross receipts, ad valorem, excise, real property,
personal property, sales, use, transfer, franchise, employment, payroll
withholding, social security, Medicare or other taxes, including any
interest, penalties, or additions attributable thereto.
(g) Specific Indemnities. In addition to the other
indemnities provided by the PA Stockholder and the PA in this Section 4.1,
the PA Stockholder and the PA will indemnify (to the extent the claim is not
otherwise covered by insurance), defend and hold harmless Newco and Doctors
Health from and against any and all claims, demands or suits, losses,
liabilities, penalties, damages, obligations, payments, costs and expenses
(including the costs and expenses of any and all (i) actions, suits,
proceedings, investigations, assessments, judgments, settlements and
compromises relating thereto, and (ii) reasonable attorneys' fees) asserted
against or suffered by Newco or Doctors Health relating to, resulting from or
arising out of the operation of the PA, the Medical Practice and the medical
services provided by the PA Stockholder and the PA prior to the Effective
Time (collectively, the "Specific Indemnifiable Losses").
(h) Consequential Damages. The Specific
Indemnifiable Losses will include incidental, consequential, special and
punitive damages awarded against an Indemnitee in favor of a third party.
Specific Indemnifiable Losses will not include incidental or consequential
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damages suffered by an Indemnitee as a result of any matter for which
indemnification is made under this Agreement.
ARTICLE V
CONFIDENTIALITY
The parties hereto agree that the terms of this
Agreement, the price paid in connection with the Merger, the terms of the
Professional Services Employment Agreement between the PA Stockholder and the
LLC and any other oral or written agreement, financial information or data
executed, provided to, or gathered, developed, compiled or similarly obtained
in any manner whatsoever by any party in regard to the negotiation and
consummation of the transactions contemplated hereby is confidential and
shall not be disclosed, duplicated or distributed by any party to any third
party, except as may be required by law or government regulation, including
without limitation as may be required by the Securities Act of 1933 and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder. Doctors Health, the PA and the PA Stockholder shall not make any
public announcement or press release without the prior written consent of the
other party unless such disclosure is required by applicable law, or
governmental regulation. This obligation shall not apply to information (1)
which becomes publicly available through no action or inaction on the part of
any party, or (2) which is made available on a non-confidential basis by
third parties who, to any party's knowledge, are not bound by a
confidentiality obligation. This obligation of confidentiality shall survive
the termination or expiration of this Agreement, regardless of the reasons of
any such termination or expiration, for five years.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS OF PHYSICIAN
6.1. Information. The Physician agrees to provide to the
LLC or to Doctors Health promptly upon request all information necessary to
allow the LLC or Doctors Health to comply with applicable law, including,
without limitation, information relating to employees of the Physician and
employee benefits provided by the Physician to such employees. On the
Closing Date, the Physician has provided Doctors Health an ASCII-formatted
file with patient demographics and an ASCII-formatted file with demographics
and accounts receivable. If the Physician does not have the capability of
providing this information, Doctors Health will assist the Physician in
converting such information to a format acceptable to Doctor Health as soon
as practicable.
6.2. Reformation of Group Practice. If the Employment
Agreement between the Physician and the LLC is terminated on the basis of
Section 4.7 of the Employment Agreement or otherwise as a result of the
Insolvency (as that term is defined in Section 4.7 of the Employment
Agreement) of the LLC, the Physician agrees to (a) cooperate with Doctors
Health, the LLC and each other Member of the LLC to organize a new
corporation, partnership or limited liability company to provide primary
medical care and related services and (b) to engage in the practice of
medicine exclusively through such new primary care entity. The Physician
will enter into an employment agreement with such new entity on terms
substantially similar to the terms of the Employment Agreement and will use
his or her best efforts to cause such new entity to enter into an agreement
with Doctors Health for the provision of assets, facilities and
non-professional services, including management services, on terms, including
provisions for Management Fees,
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substantially similar to the terms of the Physician Services Organization
Agreement between Doctors Health and the LLC.
6.3. Addition and Withdrawal of Physicians. Doctors
Health shall have exclusive authority to (a) negotiate the price and terms
with respect to the acquisition from time to time of the medical practices of
additional physicians and such physicians' employment by the LLC or other
Medical Groups organized by Doctors Health, and (b) negotiate the withdrawal
of physicians from the LLC. Each party agrees to use its best efforts to
permit the addition and withdrawal of physicians as members of the LLC.
6.4 Appointment as Agent; Specific Performance; Release.
The Physician irrevocably appoints Doctors Health and the Chairman of the
LLC (or their designees) as his attorney in fact and agent to carry out the
provisions of this Section 6, to execute any document required to provide for
the admission or withdrawal of physicians as members of the LLC, and any
other transaction related to acquisition of medical practices. The parties
agree that such appointment is coupled with an interest. The Physician
releases and agrees to indemnify and hold harmless Doctors Health and the
Chairman of the LLC and their directors, officers, employees or shareholders
from any claims arising in connection with the performance of their duties
under this Section 6.4.
6.5 Acquisitions and Withdrawals Other Than Through The
LLC. If Doctors Health decides to acquire physician practices or services
through one or more additional medical groups or other entities and not
through the LLC, the foregoing provisions of this Section 6.5 shall apply
with appropriate modifications to reflect the substitution of such additional
medical groups or other entities.
6.6 Accounts Receivable. The accounts receivable and
trade payables of the Medical Practice incurred prior to the Closing shall
remain owned by or the liability, as the case may be, of the Physician. The
Physician shall collect such pre-closing accounts receivable and deposit them
weekly into a Doctors Health bank account. Such funds shall be used to pay
the operating expenses of the Medical Practice (including employee payroll
and benefits, rent and other operating expenses). After payment of expenses,
Newco and Doctors Health shall pay any net income to the Physician as
compensation. After the Closing, the Physician shall be responsible for the
billing and collection of all revenues from medical care
ARTICLE VII
MISCELLANEOUS
7.1 Survival. The representations and warranties
contained in this Agreement or in any instrument delivered hereunder shall
survive the effectiveness of the Merger contemplated hereby and shall not
terminate until the third anniversary of the Effective Time. The tax and
specific indemnities provided in Article IV and each of the other covenants
and agreements set forth herein shall survive until the expiration of the
applicable statutes of limitation for the matter(s) at issue or any specific
period of time set forth herein for such survival. Nothing contained herein,
however, shall affect the obligations of any party hereto to perform the
agreements and covenants on its part to be performed either before or after
such date.
7.2 Successors and Assigns. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of
the parties. Nothing in this Agreement, express or implied,
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is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
7.3 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of Maryland, without regard to its
conflict of laws provision.
7.4 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and
shall be deemed effectively given upon personal delivery to the party to be
notified or upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at
the address indicated for such party below, or at such other address as such
party may designate by ten (10) days' advance written notice to the other
parties.
If to the PA or the PA Stockholder: Gary J. Sprouse, M.D.
2108 Di Donato Drive
Chester, Maryland 21619
If to Doctors Health or Newco: Doctors Health, Inc.
10451 Mill Run Circle, 10th Floor
Owings Mills, Maryland 21117
Attention: President
Copy to: Doctors Health, Inc.
10451 Mill Run Circle, 10th Floor
Owings Mills, Maryland 21117
Attention: Corporate Counsel
7.7 Finder's Fee. Each party hereto will indemnify and
hold harmless the others against and in respect of any claim for any finder's
fee, brokerage or other commissions relative to this Agreement or to the
transactions contemplated hereby, based in any way on agreements,
arrangements or understandings made or claimed to have been made by such
party with any third party.
7.8 Expenses. Except as provided in Article IV hereof,
each party shall pay all costs and expenses that it incurs with respect to
the negotiation, execution, delivery and performance of this Agreement. If
any action at law or in equity is necessary to enforce or interpret the terms
of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
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7.9 Amendments and Waivers.
(a) This Agreement may, to the maximum extent
permitted by applicable law, be amended by the parties hereto only by an
instrument executed by each of the parties hereto.
(b) Any term, provision or condition of this
Agreement (other than as prohibited by applicable law) may be waived in
writing at any time by the party which is entitled to the benefits thereof.
7.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provisions were so excluded and shall be
enforceable in accordance with its terms.
7.11 Definitions. Any capitalized terms not otherwise
defined herein shall have the meaning set forth in the Definition Appendix
attached hereto as Appendix A.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement or caused it to be executed as an instrument under seal by their
authorized officers as of the date and year first above written.
WITNESS/ATTEST: DOCTORS HEALTH, INC.
________________________ By: _____________________(SEAL)
Stewart B. Gold, President
ANNE ARUNDEL NEWCO, INC.
________________________ By: _____________________(SEAL)
Paul A. Serini, Vice President
ANNE ARUNDEL MEDICAL GROUP,
LLC
________________________ By: _____________________(SEAL)
Robert G. Graw, Jr., M.D.
By: Thomas F. Mapp, Attorney-
in-Fact for Robert G. Graw, Jr.,
M.D.
________________________ __________________________(SEAL)
Gary J. Sprouse, M.D.
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<PAGE>
GARY J. SPROUSE, M.D., PA
________________________ By: _____________________(SEAL)
Name:
Title:
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<PAGE>
ANNEX B
FORM
8/1/97
[Physician Shareholder]
[Address]
Dear Dr. ________________:
As you may be aware, The Beacon Group III - Focus Value
Fund, L.P. ("Beacon") has agreed to invest $30,000,000 in Doctors Health,
Inc. (the "Company") subject to the terms and conditions of a Preferred Stock
Purchase Agreement between Beacon and the Company (the "Purchase Agreement").
In connection with the closing of the transactions as contemplated by the
Purchase Agreement, the Company is requesting that you execute and deliver
this letter agreement (the "Agreement"). Please review this Agreement
carefully and, if you are in agreement with its terms, sign and return it as
soon as possible to the address indicated above.
1. Restrictions on Transfer. The undersigned
shareholder (the "Shareholder") shall not sell, or in any other way directly
or indirectly transfer, assign, distribute, pledge, encumber or otherwise
dispose of, either voluntarily or involuntarily (each, a "Transfer") any
shares of the Class B Common Stock of the Company (the "Shares") or any right
or interest therein, whether owned on the date hereof or acquired hereafter,
whether voluntarily or by operation of law, or by gift or otherwise, except
that (i) a Shareholder may transfer any or all Shares held either during such
Shareholder's lifetime or on death by will or intestacy to such Shareholder's
spouse, lineal descendant, father, mother, brother or sister (such
Shareholder's "Immediate Family") or to any custodian or trustee for the
account of such Shareholder or such Shareholder's Immediate Family; (ii) a
corporate Shareholder may transfer any or all of its Shares to any or all of
its stockholders; and (iii) a Shareholder which is a limited or general
partnership may transfer any or all of its Shares to any or all of its
partners or former partners.
2. Cooperation with Certain Transfers. If Beacon, as
long as it holds at least (i) 51% or more of the number of shares of Series D
Preferred Stock purchased by Beacon pursuant to the Purchase Agreement or
(ii) 5% or more of the shares of Common Stock of the Company (the "Transfer
Initiator"), determines to Transfer or exchange (in a business combination or
otherwise) in one or a series of bona fide arms-length transactions
(collectively, the "Transfer Transaction") to an unrelated and unaffiliated
third party all of the shares of Common Stock of the Company and any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock, including, without limitation, shares of the Preferred Stock of
the Company and the Common Stock issuable upon conversion thereof (the
"Stock"), in each case, whether owned on the date hereof or acquired
hereafter by the Transfer Initiator, then, upon 30 days written notice from
the Transfer Initiator to the Shareholder that shall include reasonable
details of the proposed transaction, including the proposed time and place of
closing and the consideration to
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be received by the Shareholder, the Shareholder shall be obligated to, and
shall, sell, Transfer and deliver, or cause to be sold, Transferred and
delivered, to such third party, all of his Shares in the same transaction at
the closing thereof (and will deliver certificates for all of his Shares at
the closing, free and clear of all liens, claims, or encumbrances), and the
Shareholder shall receive the same consideration per Share on an as-converted
basis upon consummation of such transaction as is received by the Transfer
Initiator per share of Stock on an as-converted basis. The provisions of
this Paragraph 2 shall not apply to (i) any Transfer prior to the date two
years after the date hereof, (ii) any Transfer pursuant to a bona fide
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, or (iii) any Transfer by
the Drag-Along Initiator to an affiliate of the Transfer Initiator.
3. Legend. The Shareholder agrees that the Company
may, at its sole discretion, cause any legend it deems appropriate to be
placed upon certificates evidencing the Shares held by such Shareholder,
including, without limitation, a legend stating that such Shares are subject
to the terms of this Agreement.
4. Duration of Agreement. The rights and obligations
of a Shareholder under this Agreement shall terminate at such time as such
Shareholder no longer is the beneficial owner of any Shares. This Agreement
shall terminate upon the consummation of an initial public offering of the
Company, except that the provisions of sections 5 through 10 shall survive
until, by their respective terms, they are no longer operative.
5. Amendment and Waiver. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this
Agreement shall be effective unless such modification, amendment or waiver is
approved in writing by the Company and the Shareholder. The failure of any
party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of
such party thereafter to enforce each and every provision of this Agreement
in accordance with its terms.
6. Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held to
be invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this
Agreement shall be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision had never been contained
herein.
7. Entire Agreement. Except as otherwise expressly set
forth herein, this document embodies the complete agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, that may have
related to the subject matter hereof in any way.
8. Successors and Assigns. Except as otherwise
provided herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the Shareholder
and his successors, assigns, heirs and personal representatives, so long as
they hold Shares. The personal representative of a deceased Shareholder
shall automatically be subject to the terms and conditions of this Agreement.
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<PAGE>
9. Counterparts. This Agreement may be executed in
separate counterparts each of which shall be an original and all of which
taken together shall constitute one and the same agreement.
10. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Maryland without
giving effect to the principles of conflicts of law.
If you agree with the foregoing, please so indicate by
signing two original counterparts of this letter which will then become an
agreement between us.
Sincerely,
DOCTORS HEALTH, INC.
By: __________________________
Name:
Title:
Accepted and agreed as of
the date hereof:
__________________________
Name:
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<PAGE>
FORM
8/1/97
[Physician Shareholder]
[Address]
Dear Dr. ________________:
As you may be aware, The Beacon Group III - Focus Value
Fund, L.P. ("Beacon") has agreed to invest $30,000,000 in Doctors Health,
Inc. (the "Company") subject to the terms and conditions of a Preferred Stock
Purchase Agreement between Beacon and the Company (the "Purchase Agreement").
In connection with the closing of the transactions as contemplated by the
Purchase Agreement, the Company is requesting that you execute and deliver
this letter agreement (the "Agreement"). Please review this Agreement
carefully and, if you are in agreement with its terms, sign and return it as
soon as possible to the address indicated above.
1. Restrictions on Transfer. The undersigned
shareholder (the "Shareholder") shall not sell, or in any other way directly
or indirectly transfer, assign, distribute, pledge, encumber or otherwise
dispose of, either voluntarily or involuntarily (each, a "Transfer") any
shares of the Class B Common Stock of the Company (the "Shares") or any right
or interest therein, whether owned on the date hereof or acquired hereafter,
whether voluntarily or by operation of law, or by gift or otherwise, except
that (i) a Shareholder may transfer any or all Shares held either during such
Shareholder's lifetime or on death by will or intestacy to such Shareholder's
spouse, lineal descendant, father, mother, brother or sister (such
Shareholder's "Immediate Family") or to any custodian or trustee for the
account of such Shareholder or such Shareholder's Immediate Family; (ii) a
corporate Shareholder may transfer any or all of its Shares to any or all of
its stockholders; and (iii) a Shareholder which is a limited or general
<PAGE>
partnership may transfer any or all of its Shares to any or all of its
partners or former partners.
2. Cooperation with Certain Transfers. If Beacon, as
long as it holds at least (i) 51% or more of the number of shares of Series D
Preferred Stock purchased by Beacon pursuant to the Purchase Agreement or
(ii) 5% or more of the shares of Common Stock of the Company (the "Transfer
Initiator"), determines to Transfer or exchange (in a business combination or
otherwise) in one or a series of bona fide arms-length transactions
(collectively, the "Transfer Transaction") to an unrelated and unaffiliated
third party all of the shares of Common Stock of the Company and any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock, including, without limitation, shares of the Preferred Stock of
the Company and the Common Stock issuable upon conversion thereof (the
"Stock"), in each case, whether owned on the date hereof or acquired
hereafter by the Transfer Initiator, then, upon 30 days written notice from
the Transfer Initiator to the Shareholder that shall include reasonable
details of the proposed transaction, including the proposed time and place of
closing and the consideration to be received by the Shareholder, the
Shareholder shall be obligated to, and shall, sell, Transfer and deliver, or
cause to be sold, Transferred and delivered, to such third party, all of his
Shares in the same transaction at the closing thereof (and will deliver
certificates for all of his Shares at the closing, free and clear of all
liens, claims, or encumbrances), and the Shareholder shall receive the same
consideration per Share on an as-converted basis upon consummation of such
transaction as is received by the Transfer Initiator per share of Stock on an
as-converted basis. The provisions of this Paragraph 2 shall not apply to
(i) any Transfer prior to the date two years after the date hereof, (ii) any
Transfer pursuant to a bona fide underwritten public offering pursuant to an
effective registration statement filed under the Securities Act of 1933, as
amended, or (iii) any Transfer by the Drag-Along Initiator to an affiliate of
the Transfer Initiator.
3. Legend. The Shareholder agrees that the Company
may, at its sole discretion, cause any legend it deems appropriate to be
placed upon certificates evidencing the Shares held by such Shareholder,
including, without limitation, a legend stating that such Shares are subject
to the terms of this Agreement.
4. Duration of Agreement. The rights and obligations
of a Shareholder under this Agreement shall terminate at such time as such
Shareholder no longer is the beneficial owner of any Shares. This Agreement
shall terminate upon the consummation of an initial public offering of the
Company, except that the provisions of sections 5 through 10 shall survive
until, by their respective terms, they are no longer operative.
<PAGE>
5. Amendment and Waiver. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this
Agreement shall be effective unless such modification, amendment or waiver is
approved in writing by the Company and the Shareholder. The failure of any
party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of
such party thereafter to enforce each and every provision of this Agreement
in accordance with its terms.
6. Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held to
be invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision or any other jurisdiction, but this
Agreement shall be reformed, construed and enforced in such jurisdiction as
if such invalid, illegal or unenforceable provision had never been contained
herein.
7. Entire Agreement. Except as otherwise expressly set
forth herein, this document embodies the complete agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, that may have
related to the subject matter hereof in any way.
8. Successors and Assigns. Except as otherwise
provided herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the Shareholder
and his successors, assigns, heirs and personal representatives, so long as
they hold Shares. The personal representative of a deceased Shareholder
shall automatically be subject to the terms and conditions of this Agreement.
9. Counterparts. This Agreement may be executed in
separate counterparts each of which shall be an original and all of which
taken together shall constitute one and the same agreement.
10. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Maryland without
giving effect to the principles of conflicts of law.
<PAGE>
If you agree with the foregoing, please so indicate by
signing two original counterparts of this letter which will then become an
agreement between us.
Sincerely,
DOCTORS HEALTH, INC.
By: __________________________
Name:
Title:
Accepted and agreed as of
the date hereof:
__________________________
Name:
