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PROSPECTUS SUPPLEMENT NO. 24 Filed Pursuant to Rule 424(b)(3)
To the Prospectus dated January 24, 1997 Registration No.: 333-1926
As Supplemented to date
789 Shares
of
Class B Common Stock of
Doctors Health System, Inc.
This Prospectus Supplement relates to the proposed acquisition (the
"Acquisition") of certain assets and liabilities (the "Acquired Business") of
Joseph Solinas, M.D., who conducts his business as a Maryland sole
proprietorship ("Medical Practice") by Doctors Health System, Inc., a Maryland
corporation ("Doctors Health" or the "Company"), and Doctors Health Montgomery,
LLC, a Maryland limited liability company ("Medical Group"). At the closing of
the Acquisition, Doctors Health will issue 789 shares (the "Share
Consideration") of its Class B Common Stock, par value $.01 per share (the
"Class B Common Stock") and will pay $17,747.00 ("Cash Consideration") to the
Medical Practice in accordance with the Practice Transfer Agreement 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 9601 Georgia Avenue,
Suite 340, Silver Spring, Maryland 20902. 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 July 2, 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, 2 and 14. 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.
Doctors Health Montgomery, LLC. Doctors Health Montgomery, LLC ("Medical
Group") is a Maryland Limited Liability Company organized in 1996 to conduct
medical practices in Montgomery County Maryland.
Medical Practice. The Medical Practice is a Maryland corporation which
conducts business through a Physician, office manager and nurse in Silver
Spring, Maryland.
The Acquisition; Closing
Pursuant to the Practice Transfer Agreement (the "Acquisition Agreement")
between Medical Practice and Doctors Health, (i) Medical Practice shall transfer
to Doctors Health all of its right, title and interest in and to certain assets
of the Medical Practice pursuant to the Acquisition Agreement, subject to
certain exclusions stated therein, (ii) Medical Practice 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 789 shares of its Class B Common Stock (the "Share
Consideration") to Dr. Joseph Solinas and (iv) Doctors Health shall pay
$17,747.00 ("Cash Consideration") to Dr. Joseph Solinas, 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 July 3,
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 Stockholders 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 in Montgomery County,
Maryland. 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 Montgomery County,
Maryland, 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 transfer
to Doctors Health certain of its assets; (ii) Medical Practice shall transfer
to Doctors Health Montgomery, 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 789 shares (the "Share
Consideration") of its Class B Common Stock to Dr. Joseph Solinas, and (iv)
Doctors Health shall pay $17,747.00 ("Cash Consideration") to Dr. Joseph
Solinas, 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 Doctors Health which provide physicians
with certain administrative, billing, bookkeeping and budgeting
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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 the Montgomery County, Maryland market in order to establish
an Integrated Health Care Delivery System in Montgomery County, Maryland.
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 transfer
to Doctors Health certain of its assets; (ii) Medical Practice 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 789 shares (the "Share Consideration") of its Class B
Common Stock to the Physician, and (iv) Doctors Health shall pay $17,747.00
("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 9601 Georgia
Avenue, Suite 340, Silver Spring, Maryland 20902. The Medical Practice
conducts its business through one physician, Dr. Joseph Solinas, and an office
staff.
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 cop 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 - Practice Transfer Agreement
Annex B - Stockholders Agreement (delivered to Medical Practice as
Prospectus Supplement No. 2)
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APPENDIX A
PRACTICE TRANSFER AGREEMENT
By and Among
Doctors Health Montgomery, LLC
Doctors Health System, Inc.
Joseph Solinas, M.D.
Mark H. Eig, M.D.
R. K. Sarin, M.D.
and
Jeffrey Indrisano, M.D.
July 2, 1997
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Practice Transfer Agreement
Table of Contents
Page
Section 1 INTRODUCTION 3
Section 2 TRANSFER OF MEDICAL PRACTICE;
PURCHASE PRICE/OTHER PAYMENTS 3
Section 3 REPRESENTATIONS AND WARRANTIES
OF DOCTORS HEALTH 5
Section 4 REPRESENTATIONS AND WARRANTIES
OF THE PHYSICIAN 5
Section 5 ADDITIONAL COVENANTS AND
AGREEMENTS OF THE PHYSICIAN 7
Section 6 LITIGATION 8
Section 7 MISCELLANEOUS 8
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PRACTICE TRANSFER AGREEMENT
This Practice Transfer Agreement, dated as of the 2nd day of July,
1997 (the "Closing Date") by and among Doctors Health Montgomery, LLC, a
Maryland limited liability company (the "Medical Group"); Doctors Health
System, Inc., a Maryland corporation ("Doctors Health"); Joseph Solinas, M.D.
(the "Physician"); Mark H. EIG, M.D. ("Eig"), R. J. Sarin, M.D. ("Sarin") and
Jeffrey M. Indrisano, M.D. ("Indrisano")(Eig, Sarin and Indrisano sometimes
collectively called the "Eig Group").
The parties to this Agreement, intending to be legally bound, agree as
follows:
1. Purpose. The Physician has decided to transfer certain assets and
liabilities of his medical practice (the "Medical Practice") to Doctors Health
and the Medical Group and to retire from the practice of medicine. Doctors
Health and the Medical Group desire to acquire certain assets and liabilities of
the Medical Practice. Doctors Health and the Medical Group are not willing to
purchase certain assets and liabilities of the Medical Practice unless the Eig
Group, a separate profit center of the Medical Group, employs a professional
employee, Paul A. Silver, M.D. ("Silver"), and agrees to manage the care of the
patients of the Medical Practice. The Eig Group is unwilling to employ Silver
or manage the Medical Practice unless it receives certain considerations from
Doctors Health and certain covenants from the Physician as hereinafter
described.
2. Transfer of the Medical Practice.
2.1. Transfer of Assets. The Physician transfers to Doctors Health
all of his right, title and interest in and to the Medical Practice, including
all assets relating thereto (excluding assets used by the Physician to provide
laboratory services and other services ancillary to his Medical Practice and
excluding the accounts receivable of the Medical Practice outstanding on the
Closing Date) as listed on Schedule 2.1(a). The Physician transfers to the
Medical Group all of his right, title and interest in and to any assets used by
the Physician to provide laboratory services and other services ancillary to his
Medical Practice as set forth on Schedule 2.1(b). The assets listed on
Schedules 2.1(a) and 2.1(b) are referred to in this Agreement as the "Assets."
2.2. Assumption of Liabilities.
(a) Doctors Health assumes the liabilities and obligations of
the Physician listed on Schedule 2.2(a) to the extent that such liabilities and
obligations relate to the conduct of the Medical Practice after the Closing
Date. The Medical Group assumes the liabilities and obligations of the
Physician listed on Schedule 2.2(b). Neither Doctors Health, the Medical Group
nor the Eig Group assume any other liabilities or obligations of the Physician
except as listed on Schedules 2.2(a) and 2.2(b), respectively. The liabilities
listed on Schedules 2.2(a) and 2.2(b) are referred to in this Agreement as the
"Liabilities."
(b) On the Closing Date, the Physician shall have paid all trade
payables and other obligations or liabilities of the Medical Practice which have
been incurred on or before the Closing Date and, in any event, the Physician
shall be liable for all such trade payables without regard to when the Physician
receives an invoice or claim with respect to such Medical
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Practice obligations. Neither Doctors Health, the Medical Group nor the Eig
Group assumes any responsibility for payment of such Medical Practice
obligations.
2.3. Purchase Price/Other Payments.
A. As payment for the transfer of the Assets to Doctors Health and
the Medical Group, Doctors Health has delivered to the Physician the following
(which shall constitute the "Purchase Price"):
(i) A check in the amount of $17,747.00; and
(ii) 789 shares of Class B Common Stock of Doctors Health (the
"Physician's Shares").
B. As payment for the agreement of the Eig Group to manage the
Medical Practice and employ Silver, Doctors Health has delivered to the Eig
Group the following:
(i) A check in the amount of $17,747.00; and
(ii) a letter agreement which establishes the terms and
conditions for the issuance of 4,732 shares of Class B Common Stock of Doctors
Health to the Eig Group (the "Eig Group's Shares").
C. As payment for the opportunity to provide medical care to the
patients of the Medical Practice, the Eig Group shall pay Physician on the
second anniversary of the Closing Date an amount determined by the formula
(I-R/I)($118,310) - $29,582, where "R" is the number of patients of the
Medical Practice on the Closing Date who do not remain patients of the Eig
Group at the end of the two year period beginning on the Closing Date for
whatever reason and "I" is the number of all of the patients of the Medical
Practice as of the Closing Date; a listing of all of the patients of the
Medical Practice as of the Closing Date is attached to this Agreement as
Schedule 2.1(c). For purposes of this reduction, any patient of the Medical
Practice as of the Closing Date who has not been provided with medical
treatment by the Eig Group during the two year period beginning on the
Closing Date shall be considered a patient who did not remain a patient of
the Eig Group.
2.4. Closing Documents. The parties shall execute and deliver the
following closing documents which shall be effective as of the Closing Date:
(i) Employment Agreement between Silver and the Medical Group (the "Employment
Agreement"); (ii) Stockholders Agreement between Doctors Health and Physician
only; (iii) any other documents executed in connection with this Agreement (the
"Closing Documents"). Doctors Health has delivered to the Physician a
Prospectus dated January 24, 1997 and any Prospectus Supplement(s) prepared
pursuant to Doctors Health's Registration Statement as defined below
(collectively, the "Prospectus").
2.5. Employees. Effective on the date hereof, the Physician's
non-physician employees listed on Schedule 2.5 shall become employees of Doctors
Health or the Medical Group, as specified in such Schedule.
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3. Representations and Warranties of Doctors Health. Doctors Health
represents and warrants to the Physician as of the Closing Date as follows:
3.1. Organization and Power. Doctors Health is a corporation duly
incorporated and organized, validly existing and in good standing under the
laws of the State of Maryland. Doctors Health has full power and authority
(corporate and other) to own and hold its properties and to conduct its
business as currently conducted.
3.2. Authorization of Agreement. The execution, delivery and
performance of this Agreement and the other Closing Documents to which it is a
party have been duly and validly authorized by Doctors Health and executed on
behalf of Doctors Health, and no other proceedings are necessary to authorize
this Agreement.
3.3. Class B Common Stock. The Board of Directors of Doctors Health
has authorized the issuance of the Shares to the Physician, and upon issuance to
the Physician of the Shares, the Shares shall constitute fully paid and
nonassessable shares of the Class B Common Stock of Doctors Health.
3.4. Registration Statement. The Shares have been registered
pursuant to the Securities Act of 1933 pursuant to a registration statement,
which includes a 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.
4. Representations and Warranties of the Physician. The Physician hereby
represents and warrants to the other parties hereto as of the Closing Date as
follows:
4.1. Ownership of Practice; Title to and Condition of Assets. Except
as listed on Schedule 4.1, the Physician owns and has good and marketable title
to all of the assets, rights, franchises and privileges used or usable in his
Medical Practice, free and clear of all liens, encumbrances, restrictions,
charges, or claims of any third party of any kind whatsoever. The tangible
Assets are in good operating condition and repair, ordinary wear and tear
excepted. The Physician does not hold fee title to any real property related to
the Medical Practice. The Assets constitute all of the items of property,
whether tangible or intangible, real, personal or mixed, which are used, usable
and/or necessary for the conduct of the Medical Practice as conducted in the
ordinary course of business.
4.2. No Conflicts. The execution, delivery and performance by the
Physician 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
Physician is subject.
4.3. Compliance With Laws. The Physician 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 Assets or the Medical Practice.
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4.4. Litigation. There are no lawsuits, proceedings or investigations
pending or threatened against the Physician or the Medical Practice nor is the
Physician aware of any grounds or facts upon which a future lawsuit, proceeding
or investigation can be based against him or the Medical Practice may be
instituted.
4.5. Contracts. Schedule 4.5 is a true and complete list of all
material contracts or agreements of 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 Physician has agreed
to do any material act or thing beyond the requirements of the Contracts.
4.6. Taxes. The Physician has duly filed all 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.
4.7. Financial Statements. Attached as Schedule 4.7 is a true and
complete copy of an internally prepared or audited accrual basis financial
statement of the Medical Practice dated as of [a date not more than thirty days
prior to the Closing Date]. 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 (whether
absolute, contingent, accrued or otherwise) that are not reflected on such
financial statements or set forth on Schedule 4.7.
4.8 Receipt of Prospectus. The Physician acknowledges that he has
received the Prospectus.
4.9 No Adverse Changes. Since _______________, 1997, there has
been not been any material adverse change in the Medical Practice or the
Assets nor are there any facts or circumstances to Physician's knowledge that
might reasonably be expected to cause such a change.
4.10 Employment Matters. Physician is in compliance with all federal
and state employment or labor laws with respect to the persons employed or
engaged by his Medical Practice. The Physician does not maintain any employee
fringe benefit and/or retirement plans other than as reflected on Schedule 4.10
hereto.
5. Additional Covenants and Agreements of the Physician.
5.1 Information. The Physician agrees to provide to the Medical
Group or to Doctors Health promptly upon request all information necessary to
allow the Medical Group 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 Doctors Health as soon as practicable.
5.2 Cooperation During Transition. The Physician agrees to use his
best efforts to both assist in the transition of the Medical Practice and to
ensure that the existing patients of the Medical Practice continue as patients
of the Eig Group.
5.3 Consulting Services. The Physician agrees to use his best
efforts to both provide consulting services to the Eig Group and treat patients
of the Medical Practice for the months
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of July, August and September, 1997. During such term, Physician shall perform
such services on a half-day basis at least three days each week during the term.
In return for such services, Physician shall be paid for such services at the
rate of $39.0625 per hour by the Medical Group which shall be charged as an
expense to the Eig Group profit center. Such consulting fees shall be payable
upon submission by Physician of a reasonably detailed timesheet or similar
record showing the hours worked. The relationship of Physician shall be that of
an independent contractor and he shall be solely responsible for any and all
income, self-employment or other taxes on such payments.
5.4 Restrictive Covenants. For a period of five (5) years after the
Closing Date, the Physician shall not, directly or indirectly, whether as a
consultant, independent contractor, proprietor, owner, stockholder, partner,
officer, director, member, trustee, employee (whether full or part-time) or
otherwise, do any of the following:
(a) Within a geographic area comprising within twenty (20) miles of
Holy Cross Hospital, Silver Spring, Maryland, engage, assist in, or participate
in the practice of medicine or any of its subspecialties; or
(b) Contact, solicit, entice, divert, take away or attempt to divert
or take away any patient of the Medical Practice for the purpose of providing to
such patient any services heretofore provided by the Physician and/or
Corporation.
The restrictions against competition and solicitation set forth above are
considered by the parties to be reasonable for the purposes intended. If any
restriction is found by a court of competent jurisdiction to be unenforceable
because it extends for too long a period of time, over too broad a range of
activities or in too large a geographic area, that restriction shall be
interpreted to extend only over the maximum period of time, range of activities
or geographic area as to which it may be enforceable.
5.5 Remedies for Violation of Covenants. Physician acknowledges that
the other parties will not have an adequate remedy at law for money damages
if the covenants contained in this Section 5 are not complied with in
accordance with their terms since the result of noncompliance will cause
immediate and irreparable injury to one or more of such parties. Therefore,
Physician agrees that in the event of an anticipated breach or actual breach
by him of the provisions of this Section 5, he agrees that the party(ies)
aggrieved thereby shall be entitled to an injunction restraining the
Physician from violating such covenants to the fullest extent allowed by law
without requirement of bond or showing of actual damages. Physician further
covenants and agrees that if he violates any of the covenants and agreements
in this Section 5, the aggrieved party(ies) shall be entitled to an
accounting and repayment of all revenues, compensation, commissions,
remuneration or benefits which the Physician, directly or indirectly,
realizes or may realize as a result of or in connection with a violation.
Nothing in this Agreement shall prohibit an aggrieved party from pursuing all
other legal or equitable remedies that may be available to it for a breach or
threatened breach, including the recovery of damages by an aggrieved party
which may be offset against any sums due Physician by the aggrieved party
under this Agreement, all of which remedies shall be deemed cumulative in
nature.
6. Litigation. The parties hereby submit to the jurisdiction and venue
of the courts of the State of Maryland. NO PARTY SHALL ELECT A TRIAL BY JURY IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
7. Miscellaneous.
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8.1. Notices. Any notices or other communications required to be
given with respect to this Agreement shall be deemed given on the date of
delivery if in writing and delivered or mailed by registered or certified mail,
postage prepaid, return receipt requested, reliable overnight courier service,
hand delivery or other delivery service providing written evidence of delivery.
When giving any notices hereunder, the addresses shall be as follows:
If to DOCTORS HEALTH:
Doctors Health System, Inc.
10451 Mill Run Circle
10th Floor
Owings Mills, Maryland 21117
Attention: Corporate Counsel
If to the Medical Group:
Doctors Health Montgomery, LLC
9601 Georgia Avenue, Suite 340
Silver Spring, Maryland 20902
Attention: Chairman, Management Committee
If to the Physician:
Joseph Solinas, M.D.
If to Eig Group or any of its members:
c/o Mark H. Eig, M.D.
9601 Georgia Avenue, Suite 340
Silver Spring, Maryland 20902
8.2 Entire Agreement. This Agreement and the other Closing Documents
contain the entire understanding among the parties with respect to the subject
matters contained in this Agreement and supersede any prior understanding and
agreements between or among them respecting such subject matters.
8.3 Severability. If any provision of this Agreement, or the
application thereof to any person or circumstances shall, for any reason and to
any extent, be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected thereby, but rather shall be enforced to the greatest extent permitted
by law.
8.4 Assignment. No party to this Agreement shall have any right to
transfer, convey or assign its rights or obligations under this Agreement to any
person or entity, except that Doctors Health may make such transfer conveyances
or assignments to any of its affiliates. Each party to this Agreement reserves
the right to change its name to any other name that it believes desirable or
appropriate to the operation of its business or otherwise.
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8.5 Additional Documents And Acts. Each party agrees to execute and
deliver such additional documents and instruments (including a stockholders
agreement with each other Doctors Health stockholder) and to perform such
additional acts as may be reasonably necessary or appropriate to effectuate,
carry out and perform all of the terms, provisions and conditions of this
Agreement, and the transactions contemplated by this Agreement.
8.6 Interpretation. This Agreement shall be governed by the laws of
the State of Maryland, without regard to principles of conflicts of laws.
8.7 Amendment. This Agreement, including the Exhibits, Appendices
and Schedules hereto, may not be amended, altered or modified except by
instrument in writing executed by each party hereto, including through its duly
authorized attorney-in-fact.
8.8 Survival. All warranties, representations, covenants,
undertakings and indemnifications of each party contained herein shall survive
closing and the execution and delivery of this Agreement.
8.8 Purchase Price Allocation. The parties agree that the first
$______ of the sums due Physician under Section 2.3 (A) and (C) shall be
considered as payment for the tangible equipment, supplies, furniture and
other tangible assets of the Medical Practice and the remainder shall be
allocated to goodwill and other intangibles. The parties agree to file their
respective tax returns consistent with this Section 8.8.
IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under seal as of the day and year first above written.
ATTEST/WITNESS: DOCTORS HEALTH MONTGOMERY,
LLC
_________________________ _______________________________(SEAL)
ATTEST: DOCTORS HEALTH SYSTEM, INC.
_________________________ By:___________________________(SEAL)
Stewart B. Gold, President
WITNESS:
_________________________ ___________________________(SEAL)
JOSEPH SOLINAS, M.D.
WITNESS:
_________________________ ___________________________(SEAL)
MARK H. EIG, M.D.
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WITNESS:
__________________________ __________________________(SEAL)
R. K. SARIN, M.D.
WITNESS:
__________________________ __________________________(SEAL)
JEFFREY INDRISANO, M.D.
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